Reality check for 2023: A year of more action towards reaching the net zero goal
Author: Michel Brutti, CEO and Founder of Clear Skies Investment Management
Global investment for decarbonizing the world’s energy system totaled $1.1 trillion in 2022 – it was a huge acceleration from 2021 as the energy crisis and various policy actions such as the Inflation Reduction Act in the US allowed for faster deployment of clean energy technologies and infrastructures. For the first time, investments in low-carbon energy transition appears to equal capital investment in fossil fuels. It was a major milestone for renewable energy.
But looking at the other side of the equation, there is no reason to cheer! Oil demand in 2022 continued to grow and is now over 100 million barrels per day. Most of the world has embraced the commitment to net zero by 2050, but more action is needed to reach that goal and be aligned with the Paris-agreement.
Why I am optimistic about the future?
Climate and sustainability risks are progressively more understood by most participants in the financial and corporate worlds. Policy makers are getting more serious about climate change. There is also the recognition that climate change cannot be tackled alone, collaboration is needed among different stakeholders. More and more, people recognize that climate action intersects with circular economy, biodiversity, and other sustainable development goals.
In 2022, the US inflation Reduction Act (IRA) was, among other things, a major piece of legislation to accelerate domestic investments in green solutions mostly in the form of tax credits, and subsidies. Despite the protectionist elements of the IRA through its local-content rules, it is instilling a major momentum in clean technology investments in the US and elsewhere as other economies try to emulate investments within their own trading bloc.
2023 should be a year where major investments in renewables and other clean technologies will get us closer to reaching our goal of net zero by 2050.
Source: BloombergNEF (BNEF).