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CLIMATE ROUNDTABLE - TOWARDS A GREENER FUTURE
Christian Rynning-Tonnesen, CEO of Statkraft, has been
known to say, “Green is good.” We agree, but offer an addition
to the statement, pronouncing that green is, in fact, good for
the economy.
Our analysis indicates that a transition to a low-carbon energy
system is a compelling opportunity for nations around the
world. A shift to low-carbon power along with reducing oil in
transport could save the global economy trillions over the
next 15 years, if this transition is managed appropriately with
proper attention paid to finance, policy and industry structure.
In work we undertook for the New Climate Economy project,
we analysed the two energy transitions that would require the
biggest reallocation of financial resources – the transition away
from coal to renewable sources in the power sector, and the
transition away from oil in the transport sector.
A low-carbon power system could create trillions in value
for financial markets.
For the transition from coal power to renewable energy, operating
expenses associated with extracting and transporting coal and
gas would fall significantly in a low carbon economy with lower
gas and oil consumption. These lower costs outweigh the higher
investment, which leads to higher depreciation and financing
costs in a renewable energy system. Benefits outweigh costs
even when considering “stranded assets” – that is, the loss
of value that fossil fuel resource owners would face when oil,
gas and coal prices fall as a result of lower demand in a low
carbon economy, or when those assets are no longer needed.
All together the net financial impact of a global transition from coal
to renewable power could be a benefit of $1.8 trillion by 2035.
To maximise these benefits, it is critically important to reduce
the cost of capital for low-carbon energy. Technology costs for
low-carbon energy have come down dramatically in recent years,
but financing costs remain inefficiently high. Low-carbon energy
infrastructure like wind and solar power represents a low-risk,
long-term investment that is well-suited to the needs of large
institutional investors with long time horizons. Our analysis
shows that well-structured investments driven by institutional
investors could reduce the cost of electricity from renewable
sources by close to 20 per cent – a potentially game-changing
savings that could make it easier for low-carbon energy to
compete with fossil fuels in Europe and the United States.
Creating value
by cutting carbon
By David Nelson
Senior Director of Climate Policy Initiative