An urgent change of mindset and a massive redirection of spending from carbon-heavy investment into clean energy is needed if an affordable transition that meets the Paris Agreement is to be achieved, according to DNV.
DNV said in its special report ‘Financing the Energy Transition’ that emissions need to fall by around half by 2030 for a 1.5 degrees Celsius future, but currently they will fall by just 9%, and the world will already exhaust the 1.5 degree budget in 2029.
The report said that, while financiers, bankers, and governments have an essential role in ensuring a just and accelerated transition, they also face significant challenges, particularly around how to price the risk of often multi-decade energy projects.
“This includes the potential for stranded assets, climate risk in infrastructure, and pressure on profitability and rates of return if too much capital chases a limited number of projects,” DNV said.
“Together with policymakers and energy companies, financiers also face the challenge of de-risking and improving the profitability of clean-energy opportunities that are currently high-risk, low-return, long-term investments, which are often not considered bankable, but which are needed for an accelerated transition,” it added.
The report notes that there is a consensus that new, short-term actions, alongside long-term commitments, need to be agreed by global leaders at COP26 in November.
It combines DNV’s fifth Energy Transition Outlook with views from leaders in the energy and finance sectors.
These opinions will be discussed in more detail at a complimentary one-hour DNV event on 30 September.
DNV Energy Systems chief executive Ditlev Engel said: “The world is consuming the remaining carbon budget way too fast, and the chances for reaching the goals and objectives in the Paris agreement are now in real danger.
“Governments and businesses need to recognise that the remaining global carbon budget needs to be used very wisely and we must place this approach at the centre of all decision-making.
“As confirmed in our ETO, we remain very technology optimistic, but the real potential of technology can only be achieved if the required policies and actions are in place on a national and international level.
“We can mobilise and redirect the required capital and achieve a deeply decarbonized energy system.”
“It’s clear that we have the financial capacity to accelerate the transition, hence the question we have to put forward to COP26 is that as world leaders, we have to prioritize upfront investment and ensure governments don’t just deal in long-term climate commitments, but also in short-term climate action.
“Targets must be grounded with a credible baseline for emissions, translated into action every year for at least the next 30 years.”