Vast financial resources are essential for the global transition to a low-carbon economy, enhancing resilience, and adapting to the impacts of climate change, according to a report released by Moody’s.
Investment trends since Paris Agreement
The report noted that investment has surged significantly since the Paris Agreement in 2015, yet achieving the target of global net zero emissions by 2050 will require considerably more effort.
Identifying investment gaps
The paper pointed out that there are substantial investment gaps in both climate mitigation (reducing greenhouse gas emissions) and adaptation (adjusting to the impacts of climate change). While countries are projected to invest nearly $2 trillion in clean energy in 2024, encompassing low-carbon power, infrastructure, energy efficiency, and electrification, an analysis by Moody’s Ratings indicated an annual climate mitigation investment shortfall of approximately $2.4 trillion by 2030. Investment in adaptation has received much less funding, primarily due to its limited commercial viability, which falls well short of the estimated annual requirement of around $400 billion, with only about $72 billion allocated in 2022.
Overall investment gap and vulnerability
This situation results in an overall annual climate investment gap of $2.7 trillion by 2030, representing about 1.8 percent of global GDP, thereby increasing the vulnerability of communities to the escalating risks posed by climate change, especially in emerging markets where investment needs are most pronounced.
Credit implications of climate change
The agency highlighted that climate change carries extensive credit implications for economies and businesses, influenced by both the physical impacts on livelihoods and infrastructure and the necessary changes involved in reducing carbon emissions across nearly all activities.
Positive aspects of early investment
On a positive note, the agency emphasized that early investments in clean energy could avert significant economic losses associated with climate change, leading to improved outcomes for populations compared to existing policies. In addition to saving lives, prompt climate-related spending could foster higher economic growth and generate increased revenue for governments worldwide over time.
The agency also warned that the benefits of such investments may take years to materialize, necessitating substantial government expenditure over the coming decade to mitigate the severe consequences of climate change, which could lead to significantly higher debt levels.
Communication challenges for policymakers
The agency noted that these delayed benefits can prove challenging for policymakers to communicate effectively to their constituents. Furthermore, it mentioned that the distribution of costs and benefits will not be uniform across economies and sectors, amplifying social and political risks. Even if financing gaps are bridged, there is no assurance that the funds will be utilized efficiently, potentially leading to a new array of challenges.
Bilateral climate investment platform
In February 2024, the UAE and France signed a memorandum of understanding (MoU) to create a bilateral climate investment platform. This initiative aims to promote and facilitate investment opportunities in clean and renewable energy, as well as the transition of the energy sector. The MoU encourages investors from both nations to explore and capitalize on shared interests in these areas, fostering collaboration and sustainable development.
The platform features key partners from both countries, including ADNOC and Masdar from the UAE, along with TotalEnergies, Bpifrance, and CMA-CGM from France. The platform is designed to attract further investment partners over time.
Pathway to net-zero emissions
Francesco La Camera, director-general of the International Renewable Energy Agency (IRENA), recently remarked that the upcoming 29th UN Climate Change Conference (COP29) will be crucial in shaping future contributions, elevating international ambitions, and building on the substantial progress achieved during the UAE’s presidency of COP28.
In comments to WAM during IRENA’s 28th council meeting in Abu Dhabi, La Camera indicated that as they approach COP29, this represents the final opportunity for member states to convene and secure positive outcomes from the conference.
He underscored that the ‘UAE Consensus’ from COP28 outlines a clear and attainable roadmap for achieving net-zero emissions by the middle of the century. He also expressed pride in IRENA’s appointment by the COP28 presidency as a co-custodian responsible for monitoring the progress of the ‘UAE Consensus,’ which includes commitments to triple renewable energy capacity and double energy efficiency by 2030.
La Camera further emphasized the urgent requirement for $31.5 trillion in investments in renewable energy, grid enhancements, resilience measures, and energy efficiency by 2030. He stressed that average annual investments in renewable energy capacity must triple compared to 2023 levels. La Camera also called for collective action to leverage COP29 as a platform for boosting climate finance, raising ambitions collaboratively, and propelling the global energy transition under definitive targets.
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