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Energy Investments Under Climate Policy: A Comparison Of Global Models

Author

Listed:
  • DAVID McCOLLUM

    (International Institute for Applied Systems Analysis, Laxenburg 2361, Austria)

  • YU NAGAI

    (International Institute for Applied Systems Analysis, Laxenburg 2361, Austria)

  • KEYWAN RIAHI

    (International Institute for Applied Systems Analysis, Laxenburg 2361, Austria)

  • GIACOMO MARANGONI

    (Fondazione Eni Enrico Mattei, Milan 20123, Italy)

  • KATHERINE CALVIN

    (Pacific Northwest National Laboratory, Joint Global Change Research Institute, College Park, MD 20740, USA)

  • ROBERT PIETZCKER

    (Potsdam Institute for Climate Impact Research, Potsdam 14412, Germany)

  • JASPER VAN VLIET

    (Netherlands Environmental Assessment Agency, Bilthoven 3720, The Netherlands)

  • BOB VAN DER ZWAAN

    (Energy Research Centre of the Netherlands, Amsterdam 1043, The Netherlands)

Abstract

The levels of investment needed to mobilize an energy system transformation and mitigate climate change are not known with certainty. This paper aims to inform the ongoing dialogue and in so doing to guide public policy and strategic corporate decision making. Within the framework of the LIMITS integrated assessment model comparison exercise, we analyze a multi-IAM ensemble of long-term energy and greenhouse gas emissions scenarios. Our study provides insight into several critical but uncertain areas related to the future investment environment, for example in terms of where capital expenditures may need to flow regionally, into which sectors they might be concentrated, and what policies could be helpful in spurring these financial resources. We find that stringent climate policies consistent with a 2°C climate change target would require a considerable upscaling of investments into low-carbon energy and energy efficiency, reaching approximately $45 trillion (range: $30–$75 trillion) cumulative between 2010 and 2050, or about $1.1 trillion annually. This represents an increase of some $30 trillion ($10–$55 trillion), or $0.8 trillion per year, beyond what investments might otherwise be in a reference scenario that assumes the continuation of present and planned emissions-reducing policies throughout the world. In other words, a substantial "clean-energy investment gap" of some $800 billion/yr exists — notably on the same order of magnitude as present-day subsidies for fossil energy and electricity worldwide ($523 billion). Unless the gap is filled rather quickly, the 2°C target could potentially become out of reach.

Suggested Citation

  • DAVID McCOLLUM & YU NAGAI & KEYWAN RIAHI & GIACOMO MARANGONI & KATHERINE CALVIN & ROBERT PIETZCKER & JASPER VAN VLIET & BOB VAN DER ZWAAN, 2013. "Energy Investments Under Climate Policy: A Comparison Of Global Models," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 4(04), pages 1-37.
    • Handle: RePEc:wsi:ccexxx:v:04:y:2013:i:04:n:s2010007813400101
    DOI: 10.1142/S2010007813400101
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    References listed on IDEAS

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    2. Vogt-Schilb, Adrien & Meunier, Guy & Hallegatte, Stéphane, 2018. "When starting with the most expensive option makes sense: Optimal timing, cost and sectoral allocation of abatement investment," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 210-233.
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    5. Bhatnagar, S. & Sharma, D., 2022. "Evolution of green finance and its enablers: A bibliometric analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 162(C).
    6. Shahbaz, Muhammad & Raghutla, Chandrashekar & Song, Malin & Zameer, Hashim & Jiao, Zhilun, 2020. "Public-private partnerships investment in energy as new determinant of CO2 emissions: The role of technological innovations in China," Energy Economics, Elsevier, vol. 86(C).
    7. Polzin, Friedemann & Sanders, Mark & Serebriakova, Alexandra, 2021. "Finance in global transition scenarios: Mapping investments by technology into finance needs by source," Energy Economics, Elsevier, vol. 99(C).
    8. Su, Chi-Wei & Yuan, Xi & Tao, Ran & Shao, Xuefeng, 2022. "Time and frequency domain connectedness analysis of the energy transformation under climate policy," Technological Forecasting and Social Change, Elsevier, vol. 184(C).
    9. Polzin, Friedemann & Sanders, Mark, 2020. "How to finance the transition to low-carbon energy in Europe?," Energy Policy, Elsevier, vol. 147(C).
    10. Anwar, Ahsan & Sharif, Arshian & Fatima, Saba & Ahmad, Paiman & Sinha, Avik & Khan, Syed Abdul Rehman & Jermsittiparsert, Kittisak, 2021. "The asymmetric effect of public private partnership investment on transport CO2 emission in China: Evidence from quantile ARDL approach," MPRA Paper 108160, University Library of Munich, Germany, revised 2021.

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