The international policy community achieved a major milestone in 2015 with the passage of the Paris Agreement. Since that time, nearly 200 countries have signed or ratified the treaty, which aims to significantly reduce emissions of heat-trapping greenhouse gases over the next several decades. At the heart of the Agreement is Article 2.1. A number of model-based studies have been carried out in recent years to better understand the pathways by which society could transform its energy systems in line with the aspirational targets espoused by Article 2.1(a), namely 2 °C and 1.5 °C temperature rise over the course of the 21st century²⁻⁵. A dramatic upscaling of renewables and energy efficiency combined with a rapid phasing out of fossil fuels are common elements of these narratives. On the other hand, Article 2.1(c)-related issues (finance flows consistent with low-temperature targets, i.e., the mechanism for driving the energy system transformation forward) have received comparatively limited treatment by the global scenarios community⁶⁻⁸.
In this policy brief, we summarize key findings and insights from a recent paper by McCollum et al. (2018)⁹, which utilized a multi-model approach for calculating energy investment needs across a range of alternative climate policy futures worldwide. The analysis indicates that while a transformation of the global energy system may not necessarily require a major increase in investments in total, a reallocation of the investment portfolio is certainly inevitable. Charting a course toward 2 °C and 1.5 °C would see annual investments in low-carbon energy (across the entire supply side) overtaking fossil investments globally by around 2025. Achieving countries’ Nationally Determined Contributions (NDCs) or the more stringent 2 °C or 1.5 °C targets globally would demand filling a low-carbon energy and energy efficiency investment ‘gap’ of approximately 130, 30, or 460 billion US$/yr (model means), respectively, on average to 2030 representing upwards of one-quarter of total energy investments otherwise foreseen in a baseline scenario; and for some major economies (e.g., China and India) up to one-half. Beyond 2030 the investment gap would then continue to grow, unless global climate mitigation efforts would be tightened considerably.