Whether motivated by impact investing principles, accounting for ESG factors, or just plain dollars and cents, investors are putting money into renewable energy development more than ever.
(Source: UNEP/Bloomberg New Energy Finance)
According to the Global Trends in Renewable Energy Investment 2016 report from Bloomberg New Energy Finance and the UN Environment Program, 2015 saw a record $285.9 billion invested in renewable energy, including investments in new renewables capacity, venture capital investments, and mergers and acquisitions. This represents an overall increase of 5% over 2014, more than six times the amount invested in 2004, and a cumulative total of nearly $2.3 trillion over the past 12 years! For the first time ever, investments were greater in developing countries than developed countries, led by China’s investment of $102.9 billion – over a third of the global total – while investments in the U.S. also jumped nearly 20% to $44.1 billion.
(Source: UNEP/Bloomberg New Energy Finance)
A large majority of these investments, $265.8 billion, came from investments in new renewable power generating capacity around the world, more than double the amount invested in new coal and gas generation. Of this total, nearly $200 billion came from utility scale installations, and an impressive $67.4 billion was invested in distributed and rooftop solar capacity. Technology-wise, the biggest sectors by far were wind energy, at $110 billion, and solar energy, with a whopping $161 billion invested representing annual growth of 12% - more than any other technology!
Carbon Pricing and Carbon Disclosure
Despite this momentum for renewables, we’re still a long way from achieving the kind of large-scale clean energy transition we need to preserve our climate for future generations. So, while policies like renewable portfolio standards (RPS), net metering, and tax credits have played a major role in jump-starting investments in renewables, there is a growing movement to put in place more comprehensive policies to “put a price on carbon” – in other words, to force companies that burn and sell fossil fuels to pay for the carbon dioxide they emit. Carbon pricing would encourage even more investments in the zero-carbon renewables of today as well as research into next-generation technologies that we’ll need to achieve longer term climate goals.
This goal can be accomplished with two different types of policies: a carbon tax, which directly taxes the carbon content of fossil fuels, or a cap-and-trade system, which puts a cap on the amount of carbon emissions and allows companies to buy and sell permits to produce (and reduce) these emissions. In essence, a carbon tax sets a price on emissions and lets the market decide how much to pollute, whereas a cap-and-trade system sets the amount of pollution and lets the market determine the price of emissions. Either policy can be effective, and a growing chorus of environmental groups, businesses, political leaders, and international finance organizations have come out in support of carbon pricing as a way to accelerate the clean energy transition in a way that makes economic sense for investors.
Given this momentum – as well as the existential threat to the global economy posed by climate change – savvy investors and businesses aren’t waiting for policies to be enacted to start factoring in a carbon price in their decision-making. As part of the broader movement towards ESG (Environment, Social, and Governance) investing, a growing number of investors are demanding that companies disclose their carbon emissions and factor these into their financial reporting. The Climate Disclosure Project (CDP) has signed up 827 investors representing $100 trillion to demand corporate disclosure of carbon emissions, and over 1,000 companies around the world have pledged to use an internal price on their carbon emissions.
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