The global economy must triple its annual investment in low-emissions technology, from $750 billion per year between 2010 and 2015 to $2.3 trillion per year going forward until 2040, to keep the planet under 2 degrees Celsius warmer compared to pre-industrial levels according to analysis from the Precourt Institute for Energy at Stanford University. The report, Derisking Decarbonization: Making Green Energy Investments Blue Chip, served as the framing paper for the Clean Energy Finance Forum that the Precourt Institute hosted on November 1st.
The day-long forum convened leaders in business, academia, and government to discuss solutions for increasing investment in clean energy. Joining keynote speakers John Kerry, Anne Finucane, Kelly Ayotte, and George Shultz were officials representing institutions influential in finance, technology, and policy such as the World Bank, Google, and the State of California. Generating the necessary capital to significantly reduce carbon emissions will be a monumental task. At this point, most clean energy projects are small and still risky, while major institutional investors are more likely to invest in large projects with a better chance of positive returns. The forum emphasized the advances in both technology and policy that are needed to make clean energy investment more profitable, which will in turn draw the necessary capital.
Accompanying the forum were a series of eight solution papers addressing specific aspects of risk in clean energy investment authored by Stanford researchers. These topics ranged from enabling more efficient clean energy finance in China to the investor and political implications of implementing carbon dividends.
The highlight of the forum, however, was the framing paper, which sought to present an investor’s view of the risks that could deter significant increases in clean energy investment. From 2010-2015, private institutional financiers invested a total of $3.4 trillion in the world economy. At those current levels, halting catastrophic global warming would require two-thirds of investment dollars to go to clean energy technology. However, not only is encouraging low-risk pension and mutual funds to invest in clean energy especially daunting, but private investors are not exactly excited at the prospect of financing less high-profile projects such as making the electric grid and buildings more efficient. Plus, while investment in developing countries is fundamental to cutting emissions, encouraging investors in the U.S. and Europe to pour capital into foreign developing markets is often a challenge due to uncertainties about return on investment.
The key takeaway may be that sources of capital for clean energy technologies are not going to lower their investment standards for the sake of the climate and emissions reduction. Ultimately, the quality of clean energy opportunities must improve so that they become, as the report urges, “blue chip” investments. Turning clean energy investment into a wide-scale profitable activity may be the first step in halting catastrophic global warming.