Achieving net-zero targets ‘will need $100trn in green investments’
Global carbon tax ‘not going to happen’ says BNY Mellon Investment Management chief economist, so other incentives required.
Around $100trn in “green investments” will be required if the world is to keep global warming to 1.5°C and reach net zero by 2050 according to research from BNY Mellon Investment Management and Fathom Consulting.
The research suggests that the world is “significantly behind schedule” in reaching the 2050 net-zero goals and there needs to be a “ramping up” of investments that specifically contribute to reducing greenhouse gas emissions.
Shamik Dhar, BNY Mellon Investment Management chief economist, said that achieving the goals set out in the Paris Agreement would require the “greatest economic transformational change seen in decades” and would be on a par with the Marshall Plan or the entry of China into the world economic system.
“[$100trn is equivalent to] one year’s worth of global GDP. However, this is $100trn to be spent over the next 30 years – so it works out to be 15% of total investment or around 3% of global GDP over that period,” Dhar said at a roundtable debate to launch the report.
“Yes, it is a big number, but it is doable and with the right incentives and the right action plans we can get there.”
Global carbon tax
Dhar said that the most obvious incentive would be a global carbon tax set at a uniform rate, but he suggested that this was “not going to happen” due to political opposition.
“The geopolitical reality is that it is going to be very, very difficult to get unanimity on a global carbon tax at the correct level. We therefore have to explore other ways of incentivising capital to move in the direction that we need it to move.
Asked by Net Zero Investor if the 2050 net-zero target was achievable without a global carbon tax, Dhar replied: “Yes, but it will be much more difficult, and the incentives are going to have to be aligned more carefully through international borders.”
The energy and utilities sectors face the largest climate transition challenges and are most in need of capital to decarbonise. The research suggests that allocating more than half of the green corporate investment to these sectors will be crucial in meeting the 2050 targets.
Corporations in these industries face a high probability of incurring stranded assets polluting assets that may have to be scrapped before reaching the end of their economically useful life. According to the analysis, around $20trn of polluting assets will need to be scrapped or retrofitted between now and 2050.
Opportunities for investors
The $100trn of green investments is expected to create “considerable opportunities” for investors across sectors and geographies.
Suppliers providing decarbonising technologies to the energy and utilities industries could reap the greatest reward, the research suggests. Some of the largest beneficiaries are expected to be companies producing battery storage, grid infrastructure and piping for carbon capture, hydrogen and natural gas.
Geographically, more than half of the $100trn of green investments are expected to be required in emerging markets, and nearly a quarter in China alone.