CCS is one of the major technologies that can help to decarbonise the fossil fuel sector – but the challenge with this and other technologies is scaling them up and the investment needed now to move fast enough", he adds4.
Renewable electricity is likely to remain the heaviest weighting in a future clean energy portfolio, but not enough is being produced.
According to the ETC, clean energy currently accounts for just 10% of electricity generation. By 2050, Hemsley predicts between 75% and 90% of electricity will come from wind and solar.
“Clean electricity feeding into the grid could be 70% of the world's energy needs by 2050,” he said. “Then, because electricity is so cheap, we could also use that to make low-carbon fuels such as hydrogen or synthetic aviation fuel, or even ammonia to put into ships. That could be another 15%. And then for the last 15%, you're looking at things like bioenergy, and fossil fuels.”
Bringing everyone along
Technological and financial solutions for the transition will also need to fit a variety of different economies, including emerging markets.
"While a lot of changes will happen if governments are forceful enough about the policies they create, there are some differences with emerging markets," says Hemsley. "Differences in political risk will impact the cost of capital in some regions", for example.
Some emerging economies may also lack the level of demand to support investable projects, requiring development finance and philanthropic funds to catalyse private capital flows – known as blended finance. The Business and Sustainable Development Commission’s Blended Finance Taskforce5 comprises representatives of business, finance, development, policy and civil society with a mission to overcome investment barriers in high impact sectors and regions.
A rapid switch to clean electricity will also require investors and energy companies to shut down fossil fuel infrastructure before it has reached the end of its planned economic life. In many emerging markets, which still rely heavily on coal-fired generation, this represents a significant financial cost that will need to be carefully managed.
“We need to think about how we phase out high emitting assets that aren’t compatible with net zero before the end of their useful life,” says Hodge. “The International Energy Agency and others include this in their projections – if there is a plan that involves early retirement or decommissioning at a date consistent with the broader transition, that's still a financial proposition.”
While finance will be crucial to decarbonisation, capital alone cannot solve the climate crisis. Banks and investors will need to work with governments, regulators and industry experts to design a financial system that is fit for a sustainable world.
Knight believes this will require a fundamental shift in the way the financial sector factors carbon emissions into investment decisions.
“In the end, the crux of the matter is the price that you put on carbon,” she says.
“We need two things: the policy that establishes trading and a stable carbon market that gives a guarantee for long-term investment into these technologies.”
Hodge at GFANZ agrees that carbon pricing would be helpful. But he points out that governments representing 90% of the world’s GDP are now committed to net zero, and public policy incentives are moving in the right direction.
“Finance is only a catalyst of government policy,” he says. “Governments’ commitments are really important, and then what we need is more flesh on the bones of those commitments.”
Our climate strategy
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