Having recently attended a talk on what a sustainable economy would look like by Dr Dieter Helm, Professor of Energy Policy and Economics fellow at New College, Oxford, I was struck by his lack of surprise on the inefficacy of COP 26.
Indeed, Dr Helm pointed out that a momentous policy shift would have been needed to adapt our energy system and slow the trend of rising carbon concentration in our atmosphere, which has been climbing by two parts per million every year since 1990. One conference would have never been enough.
So, I started to consider what I viewed to be the clearest solution to setting companies and countries on suitable decarbonisation trajectories: investment into renewables sources of energy. This idea raised the million (or should I say trillion) dollar question of how much investment is needed.
I turned to the flagship annual study produced by the International Renewable Energy Agency (IREA). The organisation suggested that planned investment into non-polluting sources of energy must rise by 30% to $131 trillion by the year 2050.
Let’s break down IREA’s findings. Starting with the $131 trillion, this is approximately forty times the size of the UK economy in 2021. Of course, this figure is striking but it is important to consider that this is the total investment itnto renewables needed over the next 28 years.
Still, spread out over the next three decades, investment in clean energy sources must amount to about 5% of global GDP every year on average. Otherwise, IREA predicts, the goal set out by the 2015 Paris climate accord to cap the rise in mean global temperatures to 1.5 degrees Celsius is not likely to be met.
What should this investment consist of, according to IREA? Over 80% should be investment in a plethora of energy-transition technologies. These range from renewables, to efficiency, power grids, and hydrogen (though not including nuclear).
Something important to note as well is that a cumulative $24 trn should be redirected from the fossil-fuel industry into these renewable technologies before 2050 as well.
Let’s breakup the composition of annual required investment further. The largest proportion of yearly investment (34%) must be devoted to energy efficiency, in the industrial, buildings and transport sectors in particular. These funds should take the form of support for building retrofits to raise energy conservation in heating and cooling. The conservation of energy in transport will also be crucial through investments facilitating the transition from energy-intensive to low-carbon modes of transportation.
Next, 26% must flow to renewables. These funds would aim to raise the power-generation capacity of technologies such as biomass, solar, wind offshore, wind onshore, geothermal and marine power but also to raise the supply of biofuels to promote direct end use by customers.
Then, 22% should be directed to the electrification of the transport, heat, and infrastructure sectors. Through raising expenditure on heat pumps for homes, and expanding charging infrastructure for electric vehicles, annual average investments devoted to electridication should rise by a gargantuan 60 fold per annum compared to the 2017-19 figures.
One final aspect of the report to note should be the role of hydrogen as a lever for transitioning to net zero. Indeed, despite the fact that investments into such ‘innovations’ amount to merely 2.5% of annual expenditure, it is particularly striking that hydrogen and its derivative products are set to contribute approximately 10% of total abatements of carbon emissions by 2050 under the 1.5 degrees Celsius scenario.
This all said, raising total planned investment into renewable technologies by 30% will be an arduous task. Although policymakers’ agendas are seemingly turning greener, they still need cheap hydrocarbon-based fuel to keep voters on side. For instance, although the US’ release of emergency stockpiles of crude oil last November does not necessarily scupper investment initiatives, it does raise the question of how committed society’s leaders are to a holistic energy transition.