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Allianz Climate and Energy Monitor

The Allianz Climate and Energy Monitor ranks G20 member states on their attractiveness as potential destinations for investment in low-carbon electricity infrastructure. It takes into account their current and future investment needs in line with a 2° C global warming trajectory. Consistency with the Paris Agreement, negotiated by 195 countries at the end of 2015, would require a full decarbonization of the global economy before the end of the century.


SUMMARY

The Allianz Climate and Energy Monitor ranks G20 member states on their attractiveness as potential destinations for investment in low-carbon electricity infrastructure. It takes into account their current and future investment needs in line with a 2° C global warming trajectory.

Consistency with the Paris Agreement, negotiated by 195 countries at the end of 2015, would require a full decarbonization of the global economy before the end of the century. This transformation will be particularly challenging for the energy sector – the largest source of carbon emissions. Every existing and new power plant risks being shut down before the end of its anticipated lifetime, unless it can operate on renewable energy or find a feasible and yet unknown means for the capture and storage of carbon.

Should this global climate agreement be implemented, investment patterns will need to shift rapidly to low-carbon electricity. It is estimated that energy production and use will have to be entirely emissions-free by 2055 or 2080, in order to reach the agreement’s ambitious targets of 1.5°C or 2°C, respectively (Rogelj et al., 2015).

The G20 member states, representing the world’s major economies, have an important leadership and marketdevelopment role to play in this transition. The first conference of G20 energy ministers in October 2015 emphasized the need for good policy practice in attracting private investment. Nevertheless, it lacked clear leadership commitment to the decarbonization of the energy sector.

The International Energy Agency (IEA) estimates that the power sector will require additional investments of USD 790 billion per year by 2020, and thereafter approximately USD 2.3 trillion per year by 2035, to advance on a trajectory which may hold the global increase in average temperature to less than 2 degrees (IEA, 2014). This projection far exceeds the USD 286 billion invested into renewable energies globally in 2015 (FS-UNEP, 2016).

Investment on this level will require mobilizing substantial public and private sector investments. As renewable energy investments are fundamentally different from conventional power investments, private investors will require public guarantees and a stable investment environment before they can consider shifting funds.

The Allianz Climate and Energy Monitor indicates action areas for policy-making by ranking the G20 member states on their relative attractiveness as investment destinations for building the necessary infrastructure for low-carbon electricity. It shows how countries could improve their rating and offers insights into trends in investment needs and attractiveness, thereby identifying countries and regions that show promise for investors.


KEY RESULTS

G20 policies are insufficient for decarbonizing the power sector
• None of the G20 countries4 is currently taking sufficient action to combat the investment gap in the power sector, which would be necessary to be aligned to a 2ºC limit in global average temperature increase.

• The countries vary widely in terms of their investment needs and attractiveness. For instance, while China will need to attract annual investments of USD 208bn to address its investment gap, Argentina’s shortfall is estimated at USD 5bn. And while countries such as Brazil or India are just beginning to introduce policies to promote transition to renewables, the UK and Germany already have a significant policy and installation track record.

Emerging countries face a huge investment gap while the OECD countries are leaders in policy framework
• Together, the G20 countries will require roughly USD 710 billion annually in absolute investment until 20355.

• India, South Africa, Indonesia, China and Brazil will need to bridge 50% of this investment gap – having the highest investment needs – owing to their market size and development needs. This percentage increases when the overall vulnerability of their power infrastructures to the impact of climate change is taken into account.

• Most attractive in terms of investments are Germany, the United Kingdom and France due to good performance across all indicators. In the US, favorable general investment conditions and a large and ready market partially mask the generally low federal policy support.

• Notably, China has unsurprisingly high overall investment needs, but also the fourth-best investment attractiveness.

• Some of the countries with the highest investment needs – such as Brazil, India, Indonesia and South Africa – nevertheless have an insufficient investment framework and are therefore possibly unable to attract substantial private sector investment.

• In India, ambitious green policies are encumbered by generally unfavorable investment conditions. It will need a rapid translation of policy euphoria into hands-on, focused deployment in order to realize its full potential in this market.

• Being amongst the least attractive countries for investments, even countries with relatively low investment needs such as Mexico, Turkey and Argentina, still require substantial policy enhancement. These countries in particular need to level the playing field for investing in renewable energy as opposed to their massive fossil fuel sectors.

The G20 countries need to establish coherent strategies and policies to attract investments

• A coherent climate strategy is a vital element in giving investors confidence in the political commitment, but it also needs to translate into concrete and transparent policy measures that make investment in renewables attractive in comparison with fossil fuels. It also demands a favorable general macroeconomic investment climate.

• The G20 countries should further strengthen their leadership and market development role to attract investments, also by developing instruments to address specific investment risks. For example, they could allow development banks to mitigate political risks in order to increase the transparency and longevity of investments frameworks.




To download the full report, please click here.

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