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De-risking climate investments in energy transition
Investments in cleaner energy systems must be looked holistically throughout the chain that enables them.
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One of the efforts to develop new renewable energy is through the use of solar panels in Pertamina’s operational areas, here seen at a refinery in Cilacap, Central Java. (Courtesy of Pertamina)
The world has sufficient capital and liquidity to be invested in climate change mitigation, but the money is simply not flowing where it is needed at scale and at pace. This was one of the key messages from the most recent report by the Intergovernmental Panel on Climate Change (IPCC), released on April 04 – along with mounting scientific evidence on the urgency to act.
The IPCC also emphasized that “limiting global warming will require major transitions in the energy sector”.
The problem of attracting sufficient investment for energy transition, however, is enormously complex. The global energy system comprises the largest and most expensive infrastructure built over centuries of investments across the chain, and we now only have a very short window to transform it. For this endeavor to succeed, investments in energy transition need to be significantly de-risked.
Climate change and energy transition bear all the hallmarks of a “wicked problem” where there is no silver bullet. Instead, wicked problems require a systemic change. With limited resources (and time), an important step toward such change is by establishing clear priorities. A way of prioritization in the efforts toward galvanizing investments for climate change mitigation is to identify which are the “carbon-critical countries” where climate-related investments need to be stepped up fast.
There are four important categories that could constitute a country to be critical to the global climate change mitigation efforts.
First, countries that are currently the top greenhouse gas (GHG) emitters. A percentage reduction in GHG emissions in these countries will bring far greater absolute reduction globally.
Second, countries that will account for the majority of the global population in 2030. Large emerging countries such as Nigeria, Pakistan, Brazil, Bangladesh and Ethiopia are projected to be home to more or less 50-250 million people each by 2030. A combination of population and the aspired economic growth in these countries means investment decisions made today will define their economies’ carbon intensity of the future, and thus define the trajectory of global energy transition.
