WEMO24-Compiled Report-Interactive compressed (002) 4154-7882-8116 v.1 - Flipbook - Page 30
Global
Outlook
122 https://www.ft.com/content/afb729b9-9641-42b2-97ca-93974c461c4c
123 https://www.unpri.org/policy/implementing-a-2040-climate-target-for-a-competitive-andjust-european-greendeal/12242.article#:~:text=The%20EU%20faces%20an%20investment,for%20
the%20net%20zero%20transition.
124 https://www.i4ce.org/wp-content/uploads/2024/02/
European-Climate-Investment-Deficit-report-An-investment-pathway-for-Europe-future_V1.pdf
• Two forms of financial flow are required for the energy
transition: capital investment, and subsidies.
These flows will come from public (20 to 40%) and private
(60 to 80%) funds.
Public financing comes mainly from taxes or from obligations
as emission certificates (providing $104bn in 2023). Whatever
tax types (directly to citizens or consumers or to companies
that pass them to their own customers), it is the citizen/
customer who will pay. This burden added to often tight
personal income is negatively impacting citizen energy
transition acceptance (see below). Hence, most financing will
have to come from private financial institution or companies.
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In contrast, very volatile electricity (and gas in a lesser way)
spot markets don’t give a clear signal for investments. In early
2024 the combination of low electricity prices in Europe with
a decrease of the emission certificates prices has lowered the
appetite for energy and carbon savings projects.
The 2023 EU electricity market reform has finally recognized
the need for long term investments in the electricity sector.
It aims at giving long term electricity prices signals by
encouraging PPAs and accepting “guaranteed sale prices”
with systems as CfD or RAB .125 Even so, it is extremely
difficult to attract private funds to finance large projects as
nuclear plants.
Public subsidies enhance the energy transition projects
Return on Investments as has been seen for at least a decade,
on solar and wind generation projects.
Also, firm date bans, for example on the sales of internal
combustion engines (e.g., by 2035 in Europe), create a demand
and attracts investments.
WEMO 2024
• In 2023, the EU climate investments grew by 9% in 2022,
reaching €407 billion.123 However, to meet the Green Deal
objectives, the Region faces an additional €620 billion clean
investment gap each year until 2030.124 It is to be seen if the
net zero Industrial Act adopted early 2024, will be as effective
as IRA to attract private financing.
However, the present tense geopolitical situation has pushed
many Western countries to increase their military budgets.
There are fears that these increases will come at the expense
of budgets dedicated to the fight against climate change.
125 PPA: Power Purchase agreement, CfD: contract for Difference, RAB:
30
In developed economies there is still a gap in financing the energy
transition.
In the USA and EU new laws have been passed to reduce this gap.
• In the USA, the Inflation Reduction Act (IRA) aiming at
combatting climate change through a series of tax incentives,
grants, and loans for clean energy was passed in August 2022,
channelling nearly $400 billion in federal funding into clean
energy. Since then, around 300 major clean energy projects
have been announced creating around 103,900 new jobs.
They amount to nearly $121 billion in capital investment.
However, according to an August 2024 report,122 nearly
40% of major manufacturing projects are delayed. The
uncertainty of policies during the election year coupled with
deteriorating market conditions and slowing demand have
led the manufacturing companies to alter their plans.
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