Thread by @AdairTurnerUK

Today we publish our latest @ETC_Energy report on how to #FinanceTheTransition.

You can download the report here: bit.ly/4262zoy

Here's a 🧵 on a few of my highlights from the analysis carried out – and challenges we face.

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It’s crucial to distinguish between two different flows of finance:

- Investment, which generates economic returns. We need $3.5trn/yr on avg to 2050.
- Payments for activities that won’t occur fast enough w/out funding (e.g. early coal phaseout). Here we require $300bn/yr

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To put this in perspective, low-carbon investment globally is currently around $1 trillion/year – this must triple by 2030 in order to reach the required $3.5 trillion/year.

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Of this total, 70% - or $2.4 trillion/year - is needed to scale global electricity supply between 3.5-5 times current levels by 2050 and grow wind & solar to over 75% of generation.

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Here it’s important to note that the scale-up in investment will be a one-off.

Peaking around 2040 and falling afterwards as the assets we install pre-2050 will continue to last well beyond that date.

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$3.5trn/year seems a big number, but in reality it is a manageable macroeconomic challenge for a few reasons:

- Firstly, it will be offset by an investment decline in fossil fuels – which gives us a net-figure of $3 trillion a year. Equal to ~1.3% of annual global GDP.

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- The $3.5 trillion/year will also be offset by avoided spending on fossil fuels.

- Significant investment in power systems is needed anyway in mid & low income nations.

- We are seeing these investments are increasingly a significant opportunity.

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Finally to add to all the reasons above, this necessary scale up in capital investment will also lead to cost savings.

Renewables now provide us with cheaper electricity than fossil fuels in most of the world. Look at EVs, which are cheaper to drive than ICEs.

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However, the required investment will only occur if govts move from targets to action and implement well-designed policies to create incentives for investors.

With the right policies in place, private finance can absolutely deliver most of the required $3.5 trillion p.a.

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But even with the right policies, some sectors will need additional public finance actions:
- Targeted fiscal support for new tech (H2 & CCUS)
- Scale up key infrastructure (power grids, EV charging, etc.)
- Crucially, subsidies/low-cost finance for households to retrofits

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Financial institutions & regulators can - and must - also accelerate capital reallocation.

Financial institutions should develop net-zero transition plans, to play a role in capital mobilisation & reallocation into low-carbon assets and technologies.

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In its own right, financial regulation should support & encourage these actions by private institutions by ensuring the transparent disclosure and management of climate-related risks and strategies.

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What’s clear is that scale-up and opportunities in investment are greatest in middle- and low-income countries.

But they do face significant challenges to investment, including higher cost of capital and weak domestic savings & capital markets.

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Achieving required investment flows in middle- and low-income countries requires a significant increase in int’l financial flows driven by MDBs.

This means changing both MDB strategy and the approach to de-risk investments & mobilise significantly more private investment.

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So, with the right policies in place, capital investment will deliver positive returns. But some emissions reductions will impose an economic cost, such as:

- Phasing out coal early where it remains competitive with renewables.
- Halting deforestation.
- Scaling up #CDR.

15/18

We calculated that ‘concessional/grant’ payments to support these critical reductions could amount to around $300bn a year by 2030 in middle- and low-income countries (that is excluding China).

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So where will this $300 billion come from?

These payments could, in theory, be financed by corporates through voluntary carbon markets, philanthropists, and governments.

Of course achieving this financing strategy will not come without challenges.

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It is no surprise that finance is key for a net-zero future.

All those holding the purse strings - private investment, governments and philanthropy - are needed to deliver the large-scale funding and int’l financial flows necessary to ensure we move from targets to action

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