To keep global warming below 2° C, Europe must boost its low-carbon investments by over one-third, and China by nearly two-thirds relative to pre-Paris Agreement levels.
And maintaining warming below the more ambitious target of 1.5° will require an even bigger investment boost – nearly 80% for Europe and nearly 150% for China, say researchers in Austria.
The team modelled the dependency of low-carbon energy capacity on investment. Their results suggest that meeting the goals outlined in the Paris Agreement will require strong policy incentives.
“A radical shift of investments away from fossil fuels and towards renewables and energy efficiency is needed,” says Wenji Zhou of the International Institute for Applied Systems Analysis. “China and Europe are actually doing well, given the fact that the current low-carbon shares of their total energy investments are significantly higher than the world’s average. Nevertheless, the investment gaps are still considerable.”
China and Europe are expected to lead the way in low-carbon investments, now that the US has stepped back from implementing the Paris Agreement. While there have been broad estimates of the necessary increases in low-carbon energy investment worldwide, a detailed comparison of the cases for China and Europe was absent.
“We wanted to better understand the possible pathways that China and Europe might take to decarbonize their respective energy systems in light of their ambitious targets for reducing greenhouse gas emissions, and then from that back out what investment flows would likely be needed to realize these futures,” says Zhou.
Zhou and colleagues first mapped out several future scenarios for their model, including a business-as-usual scenario based on 2015 policies, a goal to limit temperatures well below 2° and a goal to limit temperatures close to 1.5°. Using the MESSAGEix-GLOBIOM model, they then honed in on China and Europe and analysed energy investment pathways that were compatible with the scenarios.
Relative to the business-as-usual scenario, Europe and China had to increase investments by 38% and 65%, respectively, for the 2° scenario, and by 79% and 149% for the 1.5° scenario.
Zhou believes these figures should not come as a surprise, and that decarbonization is “the inexorable trend”. The researcher adds: “this is extremely important for the owners of fossil fuel assets. I think … our study could serve as a starting point for them to reconsider their investment strategies, and to take actions as soon as possible to hedge against the investment risk in the upcoming low-carbon future.”
But Zhou notes that incentives will still be needed, including corporate initiatives such as the Task Force on Climate-related Financial Disclosures, the Science-Based Targets Initiative and the Oil and Gas Climate Initiative, all of which aim to address climate concerns collaboratively. “We think these initiatives provide great examples for multilateral corporations at different levels,” he says.