Can we Finance the Energy Transition?
The energy sector is pivotal to our aspirations for a sustainable planet and yet two major challenges face policymakers worldwide. The first is to decide what set of technical choices provide the best solution to meet social, economic and environmental agendas; and the second is to decide how these...
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| Format: | Article |
| Language: | English |
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Risk Institute, Trieste- Geneva
2015-05-01
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| Series: | Cadmus |
| Online Access: | http://cadmusjournal.org/article/volume-2/issue-4-part-3/can-we-finance-energy-transition |
| _version_ | 1819183101876633600 |
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| author | Ian Johnson |
| author_facet | Ian Johnson |
| author_sort | Ian Johnson |
| collection | DOAJ |
| description | The energy sector is pivotal to our aspirations for a sustainable planet and yet two major challenges face policymakers worldwide. The first is to decide what set of technical choices provide the best solution to meet social, economic and environmental agendas; and the second is to decide how these choices can be financed. The bulk of new energy demand will come from the emerging economies where energy demand is expected to increase by 40% over the coming three decades and to have doubled by the middle of the century. However for a number of reasons the investment needs of the energy sector are likely to rise even faster than overall energy demand. This is due to a number of factors over and above the increase in demand and described in the paper, including, inter alia, subsidized prices; the substitution of traditional energy for modern energy; the growth in peak demand in the electricity sector; the rising costs of securing primary energy resources; and the urgent need to replace vintage capital stock (including the decommissioning of nuclear power plants), especially in the developed countries. Clean energy investment will also incur high upfront investment costs in order to reduce long-term recurrent costs (fuel and maintenance). High priority must be given to energy demand management (both to reduce energy use and to reduce energy capital) and investment in upgrading of existing capital stock can provide strong and quick returns. However, the net result of the long-term demand on the energy sector is that investment needs will grow dramatically, from around US $1.6 trillion per annum to over US $2 trillion per annum. The financial challenge is considerable. A level playing field is required that encourages greater competition of technology choice on the basis of correct pricing signals. It will require changes in subsidy policies in order to release finance and to encourage efficient investment; adherence to least-cost planning and investment decisions; changes in decision-tools especially the use of high discount rates and inadequate accounting rules; a stable and appropriate price for carbon, the largest economic externality in the sector; and a major uplift in efforts to conserve both energy and capital. Innovative schemes between public and private finance should be deepened. Long term institutional capital (such as pension funds and sovereign wealth funds) are an important growth area for energy funding. “Green bonds” have shown promise and are growing fast. Public finance, bilateral and multi-lateral, must be increased to address the major public good issue of climate change. However, at heart, lies a financial sector not equipped to provide finance to the real economy and to the kind of investment streams outlined in this report: an overhaul of the global financial sector must underwrite any of the specific financing efforts proposed in this paper. |
| first_indexed | 2024-12-22T22:56:41Z |
| format | Article |
| id | doaj.art-21e77db78513483ea4a26cb9dd13f437 |
| institution | Directory Open Access Journal |
| issn | 2038-5242 2038-5250 |
| language | English |
| last_indexed | 2024-12-22T22:56:41Z |
| publishDate | 2015-05-01 |
| publisher | Risk Institute, Trieste- Geneva |
| record_format | Article |
| series | Cadmus |
| spelling | doaj.art-21e77db78513483ea4a26cb9dd13f4372022-12-21T18:09:48ZengRisk Institute, Trieste- GenevaCadmus2038-52422038-52502015-05-0124162183Can we Finance the Energy Transition?Ian Johnson0Former Secretary General, Club of RomeThe energy sector is pivotal to our aspirations for a sustainable planet and yet two major challenges face policymakers worldwide. The first is to decide what set of technical choices provide the best solution to meet social, economic and environmental agendas; and the second is to decide how these choices can be financed. The bulk of new energy demand will come from the emerging economies where energy demand is expected to increase by 40% over the coming three decades and to have doubled by the middle of the century. However for a number of reasons the investment needs of the energy sector are likely to rise even faster than overall energy demand. This is due to a number of factors over and above the increase in demand and described in the paper, including, inter alia, subsidized prices; the substitution of traditional energy for modern energy; the growth in peak demand in the electricity sector; the rising costs of securing primary energy resources; and the urgent need to replace vintage capital stock (including the decommissioning of nuclear power plants), especially in the developed countries. Clean energy investment will also incur high upfront investment costs in order to reduce long-term recurrent costs (fuel and maintenance). High priority must be given to energy demand management (both to reduce energy use and to reduce energy capital) and investment in upgrading of existing capital stock can provide strong and quick returns. However, the net result of the long-term demand on the energy sector is that investment needs will grow dramatically, from around US $1.6 trillion per annum to over US $2 trillion per annum. The financial challenge is considerable. A level playing field is required that encourages greater competition of technology choice on the basis of correct pricing signals. It will require changes in subsidy policies in order to release finance and to encourage efficient investment; adherence to least-cost planning and investment decisions; changes in decision-tools especially the use of high discount rates and inadequate accounting rules; a stable and appropriate price for carbon, the largest economic externality in the sector; and a major uplift in efforts to conserve both energy and capital. Innovative schemes between public and private finance should be deepened. Long term institutional capital (such as pension funds and sovereign wealth funds) are an important growth area for energy funding. “Green bonds” have shown promise and are growing fast. Public finance, bilateral and multi-lateral, must be increased to address the major public good issue of climate change. However, at heart, lies a financial sector not equipped to provide finance to the real economy and to the kind of investment streams outlined in this report: an overhaul of the global financial sector must underwrite any of the specific financing efforts proposed in this paper.http://cadmusjournal.org/article/volume-2/issue-4-part-3/can-we-finance-energy-transition |
| spellingShingle | Ian Johnson Can we Finance the Energy Transition? Cadmus |
| title | Can we Finance the Energy Transition? |
| title_full | Can we Finance the Energy Transition? |
| title_fullStr | Can we Finance the Energy Transition? |
| title_full_unstemmed | Can we Finance the Energy Transition? |
| title_short | Can we Finance the Energy Transition? |
| title_sort | can we finance the energy transition |
| url | http://cadmusjournal.org/article/volume-2/issue-4-part-3/can-we-finance-energy-transition |
| work_keys_str_mv | AT ianjohnson canwefinancetheenergytransition |