emission reduction targets. This high-end estimate does not include other aspects such as resource efficiency across sectors. The IEA BLUE Map scenario aims to halve worldwide energy-related CO2
2.1 The scale of the challenge Estimated investment needs up to 2050 There is no complete estimate yet of resources needed to make the transition to a green economy. One indication of green investment gaps for low-carbon energy supply and energy efficiency at the global level is provided by the IEA Energy Technology Perspectives 2010, based on CO2
emissions by 2050.
Investments required from 2010 to 2050 in this scenario are US$ 46 trillion higher – an increase of 17 per cent – than what is required in the Baseline scenario. This corresponds to approximately US$ 750 billion per year up to 2030 and US$ 1.6 trillion per year from 2030 to 2050 (IEA 2010).
Additional investment needs under the BLUE Map scenario – which increases projected global investment needs to US$ 316 trillion by 2050 – are dominated by the transport sector, which take up 50 per cent of total additional investments, particularly in the area of alternative vehicle technologies. The buildings sector absorbs 26 per cent of the additional investment, energy supply 20 per cent and industry 4 per cent. These indicative amounts correspond, on average, to the scenarios modelled for the Green Economy Report, which analysed investments averaging US$ 1.35 trillion per year over 2010 to 2050, across a range of sectors – not just those related to greenhouse gas (GHG) emissions.
Alternatively, an earlier IEA study estimated (IEA 2009) that over the next 30 thirty years, US$ 1 trillion annually is required to enable the world’s energy infrastructure to maintain and extend the supply of power to more people (US$ 500 billion) and to finance the transition to a low carbon, cleaner energy infrastructure (a further US$ 500 billion). The projected annual shortfall to drive this low- carbon transition in developing economies alone is US$ 350 billion. While relying heavily on an industrial approach to reducing carbon emissions, the IEA estimates can be considered as a high-end estimate of annual investment needs and correspond to a range of 1 to 2 per cent of global GDP.
Estimates by the private financial sector also underline the scale of the challenge. The World Economic Forum (WEF 2010a) and Bloomberg New Energy Finance calculate that clean energy investment must rise to US$ 500 billion
per year by 2020 to restrict global warming to 2oC. HSBC estimates the transition to a low carbon economy will see a total growth in cumulative capital investments of US$ 10 trillion between 2010 to 2020 (HSBC 2010).
Furthermore,the concept of “additionality” is
fundamentally important. In the context of the UN Framework Convention on Climate Change (UNFCCC); additionality refers to an effort that is supplemental to the business-as-usual (BAU) scenario in at least two areas: the additionality of financial contributions of developed countries beyond BAU official development assistance (ODA) to assist climate change adaptation in developing countries; and the additionality of investment to reduce GHG beyond BAU. Additionality of financial resources to the widely agreed target for ODA of 0.7 per cent of developed country gross domestic product (GDP) is the contribution that developing countries seek from developed nations as a key element of a global resolution of climate change problems in the context of the UNFCCC and the Kyoto Protocol (KP) (UNFCCC 1998). Despite a decade of attempts to define additionality, the concept continues to be poorly understood and its application contested. However, additionality is likely to continue to be an important criterion for climate finance beyond 2012.
Breakdown by sector Given the pioneering and cross-cutting nature of research on greening the economy, the quantification of the demand for finance and investment to support a global green economy for each major economic sector is a work in progress. However, the data in Table 1, drawn from information in the sectoral chapters of this Green Economy Report (GER), give a broad range of estimated annual investments required to make this transition. The spread of targets illustrates the need for common metrics for finance and investment in this arena, to allow proper comparisons. (See disclosure requirements discussed in Section 5 of this chapter, Greening Global Finance & Investment: Enabling Conditions.)
Based on a range of specific sectoral policy targets, the Green Economy Report modelling allocates investments totalling 2 per cent of global GDP across the range of given sectors, with the heaviest emphasis in transforming key sectors such as buildings, transport, and energy. These investment allocations are largely consistent with assessments taken from other sources, such as IEA and estimates associated with achieving the MDGs. The estimated annual investment for all sectors