{"id":31508,"date":"2024-02-06T10:36:20","date_gmt":"2024-02-06T09:36:20","guid":{"rendered":"https:\/\/reclaimfinance.org\/site\/?p=31508"},"modified":"2024-02-06T15:25:59","modified_gmt":"2024-02-06T14:25:59","slug":"61-a-ratio-to-successfully-transform-our-energy-system","status":"publish","type":"post","link":"https:\/\/reclaimfinance.org\/site\/en\/2024\/02\/06\/61-a-ratio-to-successfully-transform-our-energy-system\/","title":{"rendered":"6:1, a ratio to successfully transform our energy system"},"content":{"rendered":"

The failure to transform our energy system in the face of the climate crisis means the need for action becomes more urgent every day. Limiting global warming to 1.5\u00b0C means simultaneously acting on two fronts to deliver the in-depth transformation required. On the one hand, fossil fuels must be gradually and rapidly phased out – with the immediate end of their expansion [1]. On the other hand, sustainable energy sources and technologies need to be expanded massively to replace fossil fuels – while at the same time reducing the impact on the climate, ecosystems and human rights [2]. To ensure this transformation, Reclaim Finance calls on banks to seize the 6:1 ratio<\/strong> to allocate six dollars to sustainable power supply for each dollar allocated to fossil fuels.<\/strong><\/span><\/b><\/p>\n<\/div>

To successfully transform our energy system, financial flows must drastically be modified. Investments currently oriented towards expanding fossil fuels must immediately stop and progressively be reoriented toward sustainable solutions. While this shift of the financial flows is necessary, a simple \u201c1-for-1\u201d substitution of fossil investments for sustainable investments is insufficient; new investments must be unlocked for the energy sector in addition to the reorientation of existing ones [3].<\/p>\n<\/div>

A massive need for financing materialized in financing ratios<\/h2><\/span>
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According to the International Energy Agency (IEA)\u2019s \u2018Net Zero Emissions by 2050\u2019 (NZE) scenario, which is widely used as a route map for achieving net zero [4], total annual investments in the energy sector must rise from US$2.8 trillion in 2023 to US$4.7 trillion by 2030. Within that, annual investments in the energy transition must more than double from US$1.8 trillion 2023 to exceed US$4.2 trillion by 2030 [5]. In parallel, the IEA sees a reduction of US$0.6 trillion in fossil fuel annual investment by 2030 [6], from US$1 trillion in 2023 to US$0.4 trillion.<\/p>\n<\/div>

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The IEA captures this within a financing ratio: \u201cGlobal investment in clean energy is set to outstrip investment in fossil energy by a factor of 1.8 to 1 in 2023. This ratio rises to 10 to 1 in 2030 in the NZE Scenario\u201d<\/em>.<\/p>\n

This ratio breaks down into two pillars: the \u201cenergy supply\u201d and the \u201cenergy efficiency and end-uses\u201d: in 2030, \u201caround USD 2.5 trillion is invested in clean electricity and low-emissions fuels and around USD 1.8 trillion in energy efficiency and end-uses, while investment in fossil fuel supply falls to around USD 0.4 trillion\u201d <\/em>[7].<\/p>\n<\/div>

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Source: IEA, Net Zero Roadmap, September 2023.<\/i><\/p>\n<\/div>

In real terms, the trajectory set by the NZE means that by 2030, for every dollar invested annually in fossil fuels, six dollars must be invested in the \u201cclean\u201d energy supply – mostly power supply [8] -, and four dollars must be invested in energy efficiency and end-uses [9]. This translates into an overall 10:1 ratio for the energy transition (that is energy supply, energy efficiency and end-uses transformation), including a specific 6:1 ratio for \u201cclean\u201d power supply . Those ratios are present in several publications of the IEA in 2023 [10].<\/p>\n

It is important to note that financing to fossil fuels in that context should only be dedicated to maintain existing fields and reduce associated emissions, as the IEA underlined that \u201cno new [oil and gas] fields developments are required\u201d<\/em>. [11].<\/p>\n<\/div>

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\u201cClean power supply\u201d covers grids, batteries, nuclear and renewable power. It represents the vast majority of investments in clean energy supply by 2030. Source: IEA, The Oil & Gas Industry in Net Zero Transitions, November 2023.<\/i><\/p>\n<\/div>

From \u201cclean\u201d to \u201csustainable\u201d, financing the new power supply system<\/h2><\/span>
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It is also crucial to well define what to finance and what to avoid to build a truly sustainable future. Despite clearly acknowledging that investments in the power sector must be mainly focused on solar PV, wind, grids and storage [12], the IEA’s projections are based on a broader \u201cclean\u201d perimeter.<\/p>\n

This notion also includes technologies, such as biomass or nuclear energy, whose development is uncertain or associated with damaging social, environmental and climate impacts or risks and pose too great a risk to our ability to meet the 1.5\u00b0C objective and global biodiversity protection targets. It also bets on the use of immature or non-existent technologies at a commercial scale, such as Carbon Capture Use and Storage (CCUS) [13]. Therefore, we believe that such technologies should not be included in banks\u2019 energy transition finance targets, which should be focused on sustainable power [14].<\/p>\n

Energy sources and technologies that are commercially mature, rapid to deploy and with limited impacts on ecosystems and human rights are already available. Aligning with NZE\u2019s investment projections and the 6:1 ratio while concentrating the scope of power targets on those solutions – solar PV, wind, grids and storage – remain highly relevant considering the IEA\u2019s NZE scenario gives only a 50% chance of limiting global warming to 1.5\u00b0C.<\/p>\n<\/div>

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In the NZE, sustainable power supply (wind, solar, battery storage and grids) represents the core of investments in the clean power supply by 2030. Source: IEA, World Energy Outlook, October 2023.<\/i><\/p>\n<\/div>

How financing sustainable energy translates for banks<\/h2><\/span>
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As the IEA explicitly underlines, \u201cthese economy-wide ratios provide an important guide for financial actors looking to assess their equity and lending portfolios against net zero targets<\/em>\u201d [15]. To achieve a 6:1 ratio by 2030 for annual energy financing, banks should immediately:<\/p>\n