Achieving Paris climate targets requires a substantial reallocation of global investments

A new analysis shows that investments in low carbon energy and energy efficiency will need to markedly increase if the world is to achieve the Paris Climate Agreement’s aim of keeping global warming well below 2 °C. A fundamental transformation of the global energy system can be achieved with a comparatively modest increase in overall investments. However, a radical shift in investments away from fossil fuel and toward renewable energy and energy efficiency is needed, including dedicated investments into measures to achieve the United Nations’ Sustainable Development Goals (SDGs).

These are the conclusions by an international team of scientists, led by the International Institute for Applied Systems Analysis (IIASA). The team includes researchers from Utrecht University and PBL Netherlands Environmental Assessment Agency. Their analysis was published today, in Nature Energy.

As part of the Paris Climate Agreement 2015, many countries defined Nationally Determined Contributions (NDCs), designed to reduce their greenhouse gas emissions. The study confirms that current incentives, such as the NDCs, will not provide sufficient impetus for the ‘pronounced change’ in investment portfolios that is needed to transform the energy system.

Additional 480 billion dollar per year

To keep global temperature rise to 1.5 °C to 2 °C, investments in low carbon energy and energy efficiency will likely need to exceed those in fossil fuel as early as 2025, and subsequently become far higher. The low carbon and energy efficiency ‘investment gaps’, as calculated by the researchers, are striking on top of the expected level of investments in the order of 2000 billion dollar per year. To achieve countries’ NDCs, an additional investment of USD 130 billion per year will be needed by 2030, while the gap to achieving the 2 °C climate target is USD 320 billion per year, and achieving 1.5 °C would require USD 480 billion per year. These investment figures represent over a quarter of the total energy investment as foreseen in the baseline scenario, and up to half of the total in certain economies, such as in China and India.

The researchers point out that the investments in the energy system transformation to reduce greenhouse gases are an order of magnitude greater than those required to meet other SDGs, such as for energy access, clean water, air pollution, food security, and education.

‘We know that limiting global temperatures to well below 2 °C demands that renewables and efficiency scale up rapidly, but few studies have actually calculated the energy investment needs for a fundamental system transformation, at least not with an eye toward 1.5 °C and using multiple scientific modelling frameworks running side by side’, says IIASA researcher and lead author of the study, David McCollum.

IMAGE model

The six scenario modelling tools used by the researchers —so-called integrated assessment models— are often employed to evaluate the costs, potential, and consequences of various energy, climate and human development futures, over the medium-to-long term. Detlef van Vuuren, Harmen-Sytze de Boer and Matthijs Harmsen from PBL and Utrecht University contributed to the study by analysing the scenarios, using the IMAGE mode The work has brought together leading international research organisations to explore national and global transformation strategies for climate change and their linkages to a range of sustainable development objectives.

‘The study clearly shows that, in order to achieve the Paris climate goals as well as broader sustainability objectives, it will be key to ensure that the investments are all aligned into the desired direction’, says the IMAGE model’s project leader at PBL and Utrecht University professor, Detlef van Vuuren. ‘Much more important than adding new investments is ensuring that investments are reallocated. Instead of investing in coal extraction and unabated fossil power generation without carbon capture and storage, investments would need to shift to efficiency, energy transmission and storage, and renewable energy. Doing this rapidly enough could help prevent further lock-in of the system into fossil-fuel infrastructure,” Van Vuuren adds.

The researchers are hopeful that their findings will be of use to national and global policy analysts and government policymakers, as well as those in the private sector, working in the fields of energy, climate change and sustainability, over the next several years.


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