Energy investment needs for fulfilling
the Paris Agreement
Low-carbon investments are necessary for driving the energy system transformation called for by both the Paris Agreement and Sustainable Development Goals, as investments are the ‘lifeblood’ of the global energy system. What are the scale and nature of these investments? This page summarises insights from a systematic evaluation of future
Investments are the ‘lifeblood’ of the global energy syste.
energy-related investment needs in multiple climate change mitigation scenarios, from a continuation of today’s trends to those achieving the 2° C and 1.5° C targets. Uncertainty ranges represent differences among the six global integrated assessment models employed in the work. In the year 2015, total investments in the global energy system were approximately 1800 billion US$2015/yr (just over 2% of global gross domestic product (GDP) and about 10% of global gross capital formation in that year).
Total Global Energy-related Investments
Global annual average energy-related investments (Billions USD 2015)
$ 650 B2000$ 1808 B2015$ 2145 B2016 - 2030+178%+18%Investment by Category in 2015$ 706 B$ 294 B$ 283 B$ 221 B$ 173 B$ 74 B$ 59 Bmulti-model rangesmulti-model average
A transformation of the global energy system toward 2° C and 1.5° C does not necessarily require an increase in total investments. Yet, while the magnitude may not change, the composition of those investments definitely will. In other words, A pronounced reallocation of the investment portfolio is inevitable. Countries’ Nationally Determined Contributions
While the magnitude may not change, the composition of those investments definitely will.
(NDCs) will not provide the impetus for this structural shift.

There exist substantial low-carbon energy and energy efficiency investment ‘gaps’ if the targets of 2° C and 1.5° C are to be successfully achieved. These gaps represent upwards of one-quarter of total global energy investments otherwise foreseen in a baseline scenario. For some major economies (e.g., China and India) up to one-half. For USA, Europe, and Latin America the level of low-carbon energy and energy efficiency investment needed to fulfill the Nationally Determined Contributions would already put them on track for achieving the 2° C target in the longer term. The 1.5° C pathway, in contrast, demands a considerably stepped-up investment effort in all regions and countries.
Future Policies and Investments
Average annual energy investment 2016-2050 (Billions USD 2015)
NDC2° C1.5° CWorldscenariomulti-model rangesmulti-model averageNDC2° C1.5° CMacro Areas | Major EconomiesGrid | MapNDC2° C1.5° COECDNDC2° C1.5° CFormer Soviet UnionNDC2° C1.5° CAsiaNDC2° C1.5° CLatin AmericaNDC2° C1.5° CAfrica/Middle-east
Coal would be the fossil fuel market most impacted by increasingly stringent energy and climate policies. The NDCs could lead to a 20% decrease in coal-related investment dollars by 2030, while the Paris Agreement targets (2° C and 1.5° C) could necessitate that those investments are cut far more deeply.
Coal would be the fossil fuel market most impacted by increasingly stringent energy and climate policies
This is true to a lesser extent for natural gas, which of all the fossil fuels sees the smallest reductions in investment intensity as a result of the NDCs and Paris Agreement targets, given its standing as the least carbon-intensive fossil option. Oil investments are also projected to remain significant across scenarios, given challenges to phasing out oil in transport and petrochemicals applications in the near term.
Rise and Fall of Fossils
Global average annual fossil fuel supply investments 2016-2030 (multi-model average, billions USD 2015)

Compare Current Policy with

Total Values
CoalGasOil-0%-10%-20%-30%-40%-50%NeededreductionBaselinescenario$ 161 B$ 199 B$ 579 B
Full implementation of the NDCs by countries throughout the world would require that low-carbon supply-side investment shares grow over the next decades to levels somewhat higher than today, yet remaining below 50% up to mid-century. In other words, total low-carbon investments would continue to remain smaller than fossil investments for the foreseeable future.
Low-carbon investments would need to reach or surpass 80%.
The 2° C and 1.5° C pathways offer a marked departure from these trends, with low-carbon supply-side investments overtaking fossil investments already by around 2025. Then, some years later low-carbon supply-side investments would need to reach and/or surpass the 80% threshold, a mark that is projected to occur close to mid-century in the 2° C pathway and already in the near term (~2035) in the 1.5° C case. Unabated fossil investments (without CCS) never drop fully to 0% during the first half of the century, even in the 1.5° C pathway
Green Investments
Global average annual low-carbon energy supply investments (% of total energy supply invest.)
Scenario:
Current Policies
NDC
2°C scenario
1.5°C scenario
0255075100% of total supply20152020202520302035204020452050multi-model ranges
G20 countries have ‘reemphasized’ the previously agreed commitment of wealthy countries to jointly mobilize 100 billion $/yr (during the period 2020-2025) for mitigation actions in developing countries. According to the analysis summarized here, this level of support would go a long way toward closing – if not fully covering – the low-carbon energy and energy efficiency investment gap faced by developing countries as they work to fulfil their NDC commitments.
Considerably more capital would have to be mobilized in order to close the investment gap for a 2° C- or 1.5° C-consistent future.
Considerably more capital would have to be mobilized in order to close the investment gap for a 2° C- or 1.5° C-consistent future.

From where exactly these finances are summoned is outside the scope of this work, and for the most part beyond the capability of the models employed. To be sure, funding for individual projects could come from all manner of sources: businesses, governments, households, banks (private, state-owned, development), multilateral climate finance institutions, or via other means. And this funding could be sourced domestically or be provided by foreign entities. The ultimate funding portfolio, from the macro- to micro-scale, will be determined by some mixture of the world’s financial system, countries’ fiscal and monetary policies, and foreign development aid institutions, among others.
Authors
This work is based on McCollum D, Zhou W, Bertram C, de Boer HS, Bosetti V, Busch S, Despres J, Drouet L, Emmerling J, Fay M, Fricko O, Fujimori S, Gidden M, Harmsen M, Huppmann D, Iyer G, Krey V, Kriegler E, Nicolas C, Pachauri S, Parkinson S, Poblete-Cazenave M, Rafaj P, Rao N, Rozenberg J, Schmitz A, Schoepp W, van Vuuren D, Riahi K, Energy investment needs for fulfilling the Paris Agreement and achieving the Sustainable Development Goals, Nature Energy. doi: 10.1038/s41560-018-0179-z. Source data are available in the supplementary material.

This page has been prepared by Valentina Bosetti, Laurent Drouet, David McCollum and Wenji Zhou, and designed by Accurat.
Notes and methodologies
Values are expressed in Billions USD 2015. The charts show multi-model means and ranges. In the first chart, total investments in the global energy system are shown excluding fuel and operations and maintenance costs. In 2000, the total is our own estimates based on the number reported in the World Energy Outlook plus the investments in energy efficiency. The value ‘2016>2030’ is the future average annual energy investment between 2016 and 2030 estimated from the models.

Chart 2 presents the minimum, the mean, the maximum of the average annual energy investment per regions, per categories (see details hereafter) and per climate mitigation scenarios, estimated by the models over the period 2016-2050. Supply and Demand side investments are accounted in the total. The region definition follows the regional aggregation used in the SSP database (more details in this page). Europe is the EU-28.

Chart 3 presents the projected global average annual fossil fuel supply investments and the relative changes to ‘current policies’ by category from 2016 to 2030. Values are calculated by cumulating the models’ undiscounted investment estimates and averaging them over the full 2016-2030 period. Values represent multi-model means. The empty square provides a visual reference for the NDC scenario.

Chart 4 shows the projected global average annual low-carbon energy supply-side investments as a share of total supply-side investments. Solid lines represent multi-model means. Estimates shown here include supply-side investments in renewable electricity and hydrogen production, bioenergy extraction and conversion, uranium mining and nuclear power, fossil energy equipped with CCS, and the portion of electricity T&D and storage investments that can be attributed to low-carbon electricity generation.

The investment categories have been harmonized across charts. Electricity represents the investment in the power sector. Subcategory Electricity/Fossil Fuels does include CCS technologies. Subcategory Electricity/Grid accounts for investments in the power grid and storage. Subcategory Electricity/Renewables does not account for biomass powered plants.The categories Fuels account for the extraction and the conversion of the fuel. Subcategory Fuel/Hydrogen accounts for the production of hydrogen from fossil fuel or non-fossil fuels.

The six global energy-economy models, or integrated assessment (IAM) frameworks, drawn upon in this study include AIM/CGE, IMAGE, MESSAGEix-GLOBIOM, POLES, REMIND-MAgPIE, and WITCH-GLOBIOM. These models span a range from least-cost optimization to computable general equilibrium models and from game-theoretic to recursive-dynamic simulation models. Such diversity is beneficial for shedding light on those model findings which are robust to diverging assumptions and on potential outliers deserving of further investigation. Of particular importance for the current study, the six models have broad coverage of different types of energy technologies across the entirety of the global energy system, including resource extraction, power generation, fuel conversion, pipelines/transmission, energy storage, and end-use/demand devices, and are therefore well-positioned to assess the evolving nature of the energy and climate mitigation investment portfolio over time.

Four scenarios are explored in the work. ‘Current Policies’ serves as each model’s reference case (or baseline). The scenario takes into account those energy- and climate-related policies that were already “on the books” of countries as of 2015; in other words, it reflects the early bridges to the low-carbon economy that policy makers have already implemented in various parts of the world. In addition to the reference case, the modelling teams each ran three scenarios where policies for low-carbon energy, energy efficiency, and climate change mitigation are tightened: ‘Nationally Determined Contributions’ (‘NDC’), ‘Well Below 2 Degrees’ (‘2C’), and ‘Toward 1.5 Degrees’ (‘1.5C’). Population and socio-economic development assumptions across all scenarios are in line with the ‘middle-of-the-road’ storyline of the Shared Socioeconomic Pathways (SSP2).
Additional References
Riahi, K. et al. The Shared Socioeconomic Pathways and their energy, land use, and greenhouse gas emissions implications: An overview. Global Environmental Change 42, 153-168, doi:10.1016/j.gloenvcha.2016.05.009 (2017).

OECD/IEA. World Energy Investment 2017. (Organisation for Economic Co-operation and Development (OECD), International Energy Agency (IEA), 2017).
This research has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 642147 (CD-LINKS).