LONDON – October 31, 2017 – Climate Policy Initiative’s Global Landscape of Climate Finance 2017 (Landscape 2017) shows that global investment toward low-carbon and climate-resilient actions reached a record high of USD $437 billion in 2015, before falling to $383 billion in 2016.
The study, which for the first time provides a five-year trend analysis, found that the record in 2015 was driven by increased private investment in renewable energy, particularly in China, and in rooftop solar power in the U.S. and Japan. The decrease in 2016 can be explained by a combination of both falling renewable energy technology costs and lower capacity additions in some countries. Taking into account annual fluctuations, the annual average flows across 2015/2016, $410 billion, were 12% higher than during 2013/2014.
The two record breaking years for renewable energy, and in particular rooftop solar and onshore wind, indicate that capacity additions and investment for these technologies are on track to meet their share of momentum required to prevent dangerous climate change according to IEA scenarios.
Still, the authors of the study point out that scaling renewable energy is only one piece of the overall need. Investments in other important areas such as energy efficiency, low-carbon transport, agriculture, water, curbing deforestation, and climate adaptation activities more generally remain severely underfunded with unmet needs of at least $1 trillion/year (IEA).
Further, fossil fuel investment, estimated by IEA at $825 billion in 2016, continues to dwarf overall investment in climate change, with potential repercussions for the overall effectiveness of investments in a low-carbon, climate-resilient economy.
“Two years since the negotiations of the Paris Agreement, there are still significant challenges in mobilizing the investment required to meet its goal of limiting global warming to, at most, 2 degrees Celsius,” said Barbara Buchner, Executive Director of Climate Policy Initiative. “While our numbers show that a wide range of public and private finance actors are taking advantage of the strong political signal following Paris, a broader scale-up of investments across all sectors is critically needed to avoid dangerous climate change.”
There are, however, signals from Landscape 2017 that both public and private investments are becoming more effective and targeted as time goes on.
For example, overall, Landscape 2017 shows that the private sector is contributing more than ever before, while the overall share of public investment remains steady. Private climate finance averaged $270 billion a year during 2015 and 2016, which was 23% higher than the annual average in 2013/2014. In addition, even as private investment in renewables surged, average annual public spending on renewable energy actually decreased by $11 billion from 2013/2014 to 2015/2016. This suggests that renewable energy is becoming a commercial investment choice in more markets with less support needed from public entities.
Further, for the first time, public funding for energy efficiency outpaced renewable energy, reaching a $39 billion annual average for 2015/2016. This trend suggests that the public sector is shifting to a critical role to provide increased support to energy efficiency. Sustainable transport also saw an increase in average annual investment from $19 billion in 2013/2014 to $22 billion in 2015/2016.
Similar to our findings from previous Landscapes, 79%, or $324 billion, of climate finance stayed within the country of origin. This trend of strong domestic investment is a continuation from 2014 where 74% of investments were domestic, revealing a preference to invest in countries where the risks are well understood. It also highlights how effective domestic policy targeting investor risks may unlock investment at scale.
“While it’s clear that an overall scale-up of investment is needed, there are several positive trends from the last few years that may help the outlook for climate investments going forward,” said Padraig Oliver, Senior Analyst at Climate Policy Initiative. “Falling technology costs, the Paris Agreement, initiatives that engage capital markets and large corporations, efforts to green public financial systems, and the rise of new sustainable investment vehicles are all new developments that bode well for the future.”
Climate Policy Initiative works to improve the most important energy and land use policies around the world, with a particular focus on finance. An independent analytical and advisory organization, CPI has offices and programs in Brazil, China, Europe, India, Indonesia, and the United States.
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