On Tuesday, November 12, the Center on Global Energy Policy (CGEP) at Columbia University SIPA’s Women in Energy Initiative and the Columbia Energy Association hosted “Financing the Energy Transition,” featuring energy finance professionals who shared their insights about where we are now and the challenges that lie ahead. The panel kicked off with questions around scaling the finance gap. According to Dr. Luisa Palacios, Senior Research Scholar at CGEP, in developed markets, the energy transition will cost an estimated 4.5 trillion dollars per year to meet the net zero by 2050 scenario, and we are currently spending roughly half that. The challenge is even greater in developing economies, where most of today’s emissions and energy demand are concentrated. These countries are pouring billions into decarbonization, but require investment in the magnitude of 2-3 trillion dollars per year. This transformation will require a massive reallocation of capital, amounting to 3-5% of GDP.
When asked about the foreseeable challenges looming on the horizon, Maksim Rakhman, Executive Director and ESG Product Lead in Global Capital Markets at Morgan Stanley, brought up AI, which he attributed as the reason major corporate players, such as Microsoft, are missing targets and scaling back their climate and net zero pledges. However, he warned against investors’ impulse to divest: rather, the investment community must increase engagement with these companies and other hard-to-abate sectors through financial instruments like provisional loans, which are conditional on corporations demonstrating a commitment to decarbonization. This tied into a broader conversation around the conflict at the center of the clean energy transition: digitalization, cooling and other electrification strategies require an enormous amount of energy. Dr. Palacios took the opportunity to stress that we can’t have an energy transition without an energy addition first. She added that this transition will necessitate a deglobalization of energy markets, as 60% of the world’s energy is imported.
The discussion moved towards politics, and the panelists were asked how they anticipated the energy finance space to change under the new administration. One of the biggest concerns voiced was that the US, which has historically been the most important shareholder of international financial institutions (including the World Bank and Development Finance Corporation), might reduce both its support in these multilateral organizations and its funding of global climate efforts and infrastructure projects, particularly in the developing world. One silver lining that was noted was that project timelines may be shortened under the deregulation of government agencies and bureaucratic processes, potentially accelerating clean energy deployment.