Who will shell out the trillions needed for the energy transition?
1.4 trillion is needed, at least until 2030. The in-depth analysis by Maurizio Sgroi, editor of the blog The walking debt
If we leave aside for a moment the enormous complexities hidden within the dossier on climate change – from the technical-scientific issues, to the immensely practical ones originating from the growing hunger for energy – it remains to contemplate what is one of the greatest obstacles on the table of the various conferences and negotiations: money. Because this is clear to everyone: the energy transition is not only extremely complicated, weighed down as it is by customs and the urgencies of the economic situation, but above all it costs a fortune.
To get an idea, it is worth browsing through the latest edition of the World energy outlook prepared by the IEA on the occasion of Cop2026 , which contains several useful elements to dimension the problem. But before observing them, let's remember the latest news. In his report in Glasgow, our Prime Minister mentioned some things that are worth repeating. The first is that "money is not a problem" because, he said in the words of Boris Johnson, "private individuals are ready to invest tens of trillions", as long as the public sector does its part by offering guarantees on projects at risk of failure. market. Hence the idea of activating a task force that acts at the World Bank and other international financial institutions to "channel" these resources.
The scheme therefore should be this: the public sector covers some risks and the private sector gives us the "tens of trillions" they need. Knowing well, because this too has emerged in the various summits, that renewable sources alone will not be enough and that we need to invest in new technologies such as those for CO2 capture to bring emissions to the desired level over a certain period of time.
If we go to the numbers from the declarations of intent, however, the picture is very different. The calculations of the IEA show that to drive emissions from the level incorporated in the scenario that takes into account the already announced commitments (Announced Pledges Scenario, APS) to the expected zero emissions (Net Zero Emissions, NZE) of mid-century, it takes about 1.4 trillion, which is added to the 2.3 already foreseen by the ODA between now and 2030. Therefore “tens of trillions” are not needed. "Just" 1.4 is enough.
If you read the graph above well, it says that 70% of these extra investments are required by emerging countries and in developing economies, that is, by the countries that more than others are giving the impression of rowing against. True or false, if we put ourselves in their shoes – China has again increased its coal production to escape its current energy crisis – perhaps we would do the same.
Faced with this need, at the moment, waiting for private individuals to put "tens of trillions" with the blessing of the World Bank, the fund for energy transformation, which animates the newly formed Global Energy Alliance , dedicated to emerging countries provides for the allocation of a hundred billion in ten years. Draghi always remembered this, underlining that "at the moment we are about 82 billion", and that there is no need to worry about finding the differential, because "you can always have another allocation of special drawing rights of the Monetary Fund that is to fill the lack of today ".
Activating the special drawing rights, as is well known, means authorizing the IMF for a new issue. And therefore, indirectly, to find an agreement within the international community. And above all, a new issue of SDRs concerns all countries and not just the emerging ones, each in part. To understand the quotas, it is enough to recall how the issuance of the 650 billion SDR decided by the IMF to fight the pandemic a year ago was distributed.
If we use the IEA calculations as the basis of our reasoning, it would mean that BRICS and other developing countries should receive 70% of 1.4 trillion, so about 980 billion, from the IMF, possibly in the strength of SDR. But if we report the proportions we have seen in the example above – of the 650 billion issued to BRICS and other emerging markets, 253 billion has arrived, equal to just under 39% of the total – this means that the IMF should issue about 2.5 trillion. to get 980 billion to the poorest group. It is feasible?
This example, which is purely indicative, allows us to test firsthand the limits of functioning of our international system. Faced with an urgent need for resources, we can only try to involve the private sector, behind the promise of public guarantees, or get lost in the labyrinth of the IMF, of which in the last seventy years we have learned to appreciate its strengths and weaknesses. No wonder that after the hangover of international events, the climate issue falls into oblivion.
The question, however, is clear: 1.4 trillion is needed, at least until 2030, and then even if private individuals do their part, "public sources of capital play a particularly important role in catalyzing investments in markets where 'access to capital is limited, in sectors without “bankable” projects and in the financing of energy infrastructures ”.
In a nutshell, without a clear political commitment, the private sector will stand by and watch. Also because "about two thirds of the additional public investment in emerging markets and developing economies required in NZE comes from national state-owned enterprises, which play a particularly important role in the development of electricity grids". The remaining third comes from financial institutions, “including international development banks and national green banks”.
Looking at the glass half full, we could recall that investments in clean energy by national and international public institutions in this country should reach 200 billion dollars, in the NZE scenario of 2030, more than double compared to the 65 billion of the APS scenario. . Levels, however, still far from necessity.
Let's recap: we need resources, especially to be made available to emerging countries that struggle to meet the targets having to measure against the needs and (environmental) costs of an expanding economy. For their part, the advanced countries are pressing to accelerate the energy transition, with the risk of creating a climate of conflict, as effectively emphasized by our premier. So what to do?
The first move should probably be made by the advanced countries, which most of all have contributed to the current configuration of our economy over time. It is not enough to give lessons: it is necessary to put one's hand in the wallet, perhaps by exploiting the recent innovations that have taken place – think of the global minimum tax on the coordinates of which the G20 has found an agreement – and to create a fund signed by the governments of advanced economies to issue debt in favor of the countries emerging. The Global energy alliance is certainly a good idea, but largely insufficient.
The energy transition is everyone's problem, just like the pandemic, which has made us understand how we will not save ourselves by vaccinating only rich countries. Funding is an essential component in the recipe for the climate vaccine. And the advanced countries have sufficient credibility to raise the trillions they need on the market, without having to ask private individuals, who obviously remain welcome, above all for the quality of the contributions they can make, as well as the quantity of resources. By doing so, these governments would also learn to coordinate better and focus their goals.
Perhaps if we presented ourselves to the Chinese and Indians with a couple of trillion to offer for concrete projects they would not be so reluctant to listen to us. Without money, no masses are sung, says an old proverb. Let alone a decade-long energy transition.
Article published on thewalkingdebt.org
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/chi-sborsera-i-trilioni-necessari-per-la-transizione-energetica/ on Sat, 06 Nov 2021 07:29:37 +0000.