According to the International Energy Agency (IEA), the global economy will need to invest over $30 trillion in energy infrastructure over the next 25 years, $6 trillion of which will need to be dedicated to the renewable electricity and biofuels sectors alone just to meet current commitments. More ambitious greenhouse gas mitigation targets are likely to increase the investment required.
Financing this level of investment will challenge local, national, and global economies and governments, both to make this money available and to ensure that it is invested efficiently in support of appropriate policy objectives. This challenge is not unprecedented, as major investment in energy infrastructure has been a feature of economic development for many years. As it has in the past, policy will help share the energy industries and markets in which these investments are made, influencing in particular:
- which technologies receive investment and where;
- how the investment is sourced and from whom;
- the cost of financing various projects; and
- the risk associated with different types of investment and, crucially, who bears that risk.
CPI’s assessment of the impact of policy on the financing of clean energy aims to investigate the effectiveness of policy in promoting efficient investment. In June 2011, we plan to complete the first stage of this project, publishing a short paper describing the important role of finance in explaining and diagnosing policy effectiveness outcomes. We will then move on to a series of case studies that develop a more detailed understanding and draw relevant conclusions for policymakers and other interested parties.