Report by Barclays and Accenture pegs required investment to reach 2020 goal at €2.9trn, says Alastair Tyler, head of strategic asset finance, Barclays Corporate.
Climate change is a critical global, social and economic challenge and is set to affect us all for generations to come.
The transition to a low-carbon economy – which is essential if we are to meet this challenge – will require significant investment from both the public and private sector.
There is scientific agreement that the level of greenhouse gas emissions should be stabilised by 2015 and reduced thereafter. But the current rate of investment is markedly lower than that required, giving rise to a widening carbon capital chasm.
The Stern report valued the level of investment needed to address climate change at one% of global GDP. Other experts put the figure nearer double that and indeed Stern himself has indicated an upward revision.
An estimate in a new report by Barclays and Accenture puts the figure at around €2.9trn.
Whatever the final number, it will require an unprecedented inflow of capital, an order of magnitude higher than that of the internet and telecom revolutions of the 1990s.
Taking our best estimate, of the €2.3trn of procurement capital identified, 73% (€1.65trn) will need to be funded externally, creating unprecedented demand for private capital and associated bank products and services.
It goes without saying asset finance will play a significant part in financing a major share of the capital and we estimate the figure to be around €482bn.
Asset leasing will also be required to support consumer adoption of micro-generation and energy efficient equipment by spreading the upfront cost over its lifespan and using the energy savings to cover lease payments.
High public sector debt and maturing technology now mean that private sector capital, primarily intermediated by banks, must be provided to accelerate the investment we need to meet our 2020 European goals.
However, with banks under pressure to reduce risk and build their deposit base in order to ensure there is enough capital to satisfy new or anticipated regulations, European governments must also play a role in stimulating demand and stabilising carbon markets with transparent and long-term policy commitments.
Encouragingly, during the past year we have seen leasing included in the Carbon Trust loan scheme and deals are starting to be written on renewable energy equipment.
Low-carbon technologies are on the brink of the wide scale rollout Europe needs to reach its 2020 targets. But unless we bridge the carbon capital chasm, Europe will likely fall short in its task.