BONN, Germany, August 29, 2007.
Green power should receive a share of the US$148 billion that will be needed by 2030 to reduce GHG emissions, according to the United Nations Framework Convention on Climate Change.
The UNFCCC estimates that $200 billion a year is needed by 2030 to return to current levels of GHG emissions, and $148 billion of the $432 billion of projected annual investment in power generation should be channelled to renewables, nuclear, hydropower and carbon capture and storage, explains the report, ‘Analysis of existing & potential investment & financial flows relevant to the development of effective & appropriate international response to climate change.’ Industry must invest $36 billion a year in energy efficiency and $45 billion for research into new technologies, while $51 billion a year is needed to make buildings more efficient and $88 billion to improve transport.
Addressing climate change in the next 25 years will require significant changes in the patterns of investment and financial flows, the study concludes. The additional investment and financial flows in 2030 will amount to between 1.1 and 1.7% of global investment, and the additional investment and financial flows of $200 to $210 billion will be necessary in 2030 to return GHG emissions to current levels.
The study will be presented to UNFCCC delegates meeting in Austria for the final session prior to the COP13 summit in Indonesia this December.
“The study shows us that a conscious effort to shift from traditional investment to more climate-friendly alternatives will require governments to adopt new policies and change the way they use their funds,” says UNFCCC executive secretary Yvo de Boer. “The required shift in future investment and financial flows needs a combination of actions by the intergovernmental process under the UNFCCC and national governments.”
Of 140 mitigation projects proposed in the energy sector, 103 involve switching to renewables, 25 deal with the efficient conversion of fossil fuels to electricity and 11 suggest a switch to lower-carbon fossil fuels. “Solar photovoltaic (grid and off-grid), windfarms, biomass, and micro and mini hydro plants were the most frequently mentioned renewable energy technology needs.”
Increased energy efficiency also limits the rate of growth of global electricity demand under the mitigation scenario to 27,983 TWh in 2030, and the mitigation scenario also assumes a substantial shift in the global electricity generation mix in 2030. Coal remains the largest source of electricity but its share shrinks from 40% in 2004 to 26% in 2030, while gas-fired generation grows to become the second largest source at 21% while renewables, nuclear and hydropower each represent 17%.
Of the sources of funding for investment in renewables and energy efficiency in 2005, private investment “is by far the largest source” at $28.2 billion. “Since most of the investment occurs in OECD countries, it is not surprising that ODA funding for renewable energy is less than 4% of the total.”
Of the $26.8 billion invested in renewables in 2005, $2.9 billion was provided by venture capital and private equity investors, $3.8 billion via the public markets and $20.1 billion was supplied through asset financing. The range of investment activity reflects the different stages of development of renewable technologies, with wind power called the most mature technology and receiving the highest proportion of asset finance ($18 billion) while solar power received a high proportion of public market investment ($2.2 billion) because solar companies were raising capital to expand their manufacturing capacity.
In developing countries, financing for renewables and energy efficiency comes from domestic sources (public and private) and from joint ventures between local and foreign companies, reflecting the higher investment risk of these countries. Multilateral and bilateral funding is also a significant source of investment in developing countries.
“Private investment is - and is likely to remain - the main source of financing for renewable energy and energy efficiency; consequently, renewable energy has flourished in countries with supportive policies such as feed-in tariffs, developed financial markets and active private investors,” it explains. “This situation is changing, particularly in the fast growing emerging markets of China, India and Brazil, which are attracting increasing flows from foreign investors.”
Globally, energy subsidies total $250 to $300 billion per year excluding taxes, with non-OECD countries receiving the bulk of subsidies and using them to lower prices for consumers. In OECD countries, most subsidies are used for production, usually in the form of direct payments to producers or support for research.
“Worldwide, fossil fuels are the most heavily subsidised energy sources; these subsidies total an estimated $180 to $200 billion per year,” the report notes. “Support to the deployment of low-carbon energy sources currently amounts to an estimated $33 billion each year: $10 billion for renewables, $16 billion for existing nuclear power plants and $6 billion for biofuels.”
The UNFCCC is the parent treaty of the 1997 Kyoto Protocol.
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