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Investment in clean energy transition for our planet’s future

April 22, 2023
Shafiqul Alam and Shantanu Srivastava

Key Findings

The accelerated promotion of renewable energy and energy efficiency is the most viable approach to halve global greenhouse gas emissions and limit mean temperature rise to 1.5 °C.

The rapidly falling levelised cost of energy of utility-scale solar and onshore wind power, which stood at US$0.048/kilowatt-hour (kWh) and US$0.033/kWh in 2021, respectively, substantiates investment in a clean energy transition.

A 1.5 °C compatible energy transition requires a global investment of more than US$5 trillion per annum until 2050.

The avenues for energy transition funding are increasing. In 2022 alone, sustainable debt finance worth US$1.5 trillion was issued to upscale clean energy and decarbonise industries. 

“The stone age didn’t end because we ran out of stones; we transitioned to better solutions. The same opportunity lies before us with energy efficiency and clean energy,” Steven Chu, an American Physicist and a Nobel Laureate, said in 2013.

A decade later and Chu’s words hold even more weight. Promoting renewable energy will not only help in a better future for our planet’s climate but also help the global economy.

The Intergovernmental Panel on Climate Change (IPCC) finds that accelerated promotion of renewable energy and energy efficiency is the most viable approach to halve global greenhouse gas (GHG) emissions to limit mean temperature rise to 1.5° C.

Similarly, the International Renewable Energy Agency (IRENA) finds that a 1.5° C compatible energy transition will help boost global gross domestic product and generate 85 million additional energy sector jobs in 2030 compared to 2019.

The rapidly falling levelised cost of energy (LCOE) of utility-scale solar and onshore wind power, which stood at US$0.048/kilowatt-hour (kWh) and US$0.033/kWh in 2021, respectively, also substantiates a compelling economic case for investment in a clean energy transition.

While the opportunity is undoubtedly huge, energy transition requires massive resources. According to IRENA’s estimates, a 1.5° C compatible transition requires a global investment of more than US$5 trillion per annum until 2050.

The good news is that the avenues for energy transition funding are increasing. In 2022 alone, sustainable debt finance worth US$1.5 trillion was issued to upscale clean energy and decarbonise industries.

Several key decarbonisation technologies are today in a nascent stage of development. De-risking these investments through the use of public or developmental capital is necessary to crowd in private finance. Blended finance investments, which stood at US$180 billion in 2022, are critical mechanisms to attract private capital.  

The bad news is that governments and the private sector are still spending massive amounts on fossil fuels. Global fossil fuel subsidies reached a whopping US$1 trillion in 2022, according to the International Energy Agency.

Further, top global banks invested US$673 billion in fossil fuels in 2022. Redirecting these subsidies and investments channelled to fossil fuels towards clean energy will provide the impetus for clean energy advancement.

For emerging markets struggling with the dual concerns of managing climate ambitions and socio-economic development, a just transition is paramount. A transition plan that includes aspects of social equity and environmental justice is vital. The developed world must come together to help developing countries in their energy transition pathways.

In this context, the Just Energy Transition Partnership (JETP) has emerged as a solution. At the heart of it, JETP is a political and financial agreement between developing countries and the International Partners Group (IPG) that comprises the United States of America, the European Union, the United Kingdom, Japan, Germany, France, Canada, Denmark, Norway, Italy and Northern Ireland.

South Africa, Indonesia and Vietnam have already signed JETP deals with IPG countries for receiving financial support through multilateral development banks, other development finance or green finance institutions, and the private sector to fund this transition process. The financial support can take the form of grants, concessional loans, blended finance, thematic bond issues, commercial loans, and other market-led and risk-sharing instruments.

On the other hand, the political declaration of JETP deals is phasing down coal; increasing the share of renewable energy; addressing potential negative impacts, including impact on local jobs, economy and environmental remediation attributable to the energy transition; creating green jobs; and collaborating on R&D and capacity building.

While the challenges for a clean energy transition are immense, the solutions to overcome them are out there. The effects of global warming are increasing in intensity and frequency each year in the form of deadly floods, destructive storms and scorching heat waves. The clock is ticking, and the time is ripe for mobilising investments to secure our planet’s future.

Shafiqul Alam

Shafiqul Alam is IEEFA’s Lead Analyst, Energy, for Bangladesh . He has more than a decade of experience in the energy and climate change sectors. His interests primarily center on renewable energy, energy efficiency, climate finance, and policy instruments to spearhead the clean energy transition.

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Shantanu Srivastava

Shantanu Srivastava is responsible for leading the sustainable finance and climate risk initiatives at IEEFA South Asia. He specializes in the financing, policy, and technology aspects of the Indian electricity market.

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