The European Union has set itself the goal of becoming carbon neutral by 2050 and reducing its greenhouse gas emissions to net zero. However, to achieve this climate protection goal, the previous investments in green infrastructure are not sufficient, as a meta-study shows. According to this, the European countries would have to invest around 302 billion euros a year in climate-related infrastructure - that's around 87 billion euros more than planned in the previous budget. The financing for power generation from renewable energies, for power grids and rail transport must increase particularly sharply. But electricity storage technologies, low-emission vehicles and hydrogen infrastructure also require more money.
In order to slow down climate change and thus keep the climate impact as tolerable as possible, drastic decarbonization is necessary in many economic sectors. According to forecasts, however, Europe can only achieve its climate protection goals if this transformation picks up significantly more speed than before. The EU has therefore set itself the goal of generating around 55 percent fewer climate-relevant emissions by 2030 than in 1990. But this requires a corresponding amount of money: for electricity generation, the electricity grids, storage capacities and other climate-related infrastructures require significant investments. How high these investments will have to be in the next 15 years and which areas are most important has only been partially clarified so far.
87 billion euros more needed per year
For this reason, Bjarne Steffen and Lena Klaassen from ETH Zurich have now carried out a meta-study to investigate the sums of money required for the technological change and the transformation of the European infrastructure. "To achieve net-zero emissions by 2050 requires massive investment in low-carbon infrastructure, especially in the energy and transport sectors," they explain. "Decision-makers are therefore faced with an urgent need to redirect financial flows accordingly." In order to find out where the most urgent need is and how much money is required, Steffen and Klaaßen evaluated 628 time series from 56 studies published in recent years, including 18 specialist publications, 15 studies by governments or international organizations and 23 from industry. In these, it was examined for different areas which annual investments are necessary up to the year 2035 and which changes have to be financed.
The evaluations showed that the current investments in green infrastructure in Europe are not sufficient to achieve the targeted climate protection goal. Instead, investments in green infrastructure must increase significantly - and that immediately: "The biggest leap in investments must take place between 2021 and 2025," the researchers report. Accordingly, an immediate increase in previous investments to 302 billion euros per year would be necessary. This represents an increase of 41 percent over previous figures. In other words: To date, European countries have underinvested a total of 87 billion euros per year in a climate-friendly transformation of their infrastructures, as the team explains. From 2030, a second leap in investment will also be necessary, with around 14 percent more money flowing into green infrastructure.
An immediate increase in investments to EUR 302 billion annually sounds like a lot in absolute terms. However, if you look at them in relation to Europe's economic performance, this is put into perspective: "The necessary total investments remain well below two percent of the gross domestic product in all time periods," emphasize Steffen and Klaassen. This means: Compared to the previous values, the share of the gross domestic product put into the infrastructure would only have to increase by a maximum of 0.5 percent.
Power system and rail transport most urgently
The study also reveals the areas in which the most money is needed: "The most drastic and necessary changes are in investments in power plants, power grids and rail infrastructure," report the researchers. In concrete terms, they estimate that electricity production from renewable energies and the electricity grids will each cost an additional 24 billion euros a year compared to the previous budgets. New electricity storage systems for temporarily storing electricity from the sun and wind would require an additional around four billion euros per year. "This dynamic reflects a new phase of the energy transition, in which the transition to renewable energies is accelerating and developing qualitatively," explain Steffen and Klaassen. There is therefore an urgent need to redirect established financial flows in such a way that more money flows into the transformation of these systems.
In the transport sector, the increased investments are mainly due to the fact that previous efforts made insufficient progress during the 2010s. For example, just for the modernization and expansion of the rail network, 25 billion euros more investment is needed every year. They are needed above all to expand the digitization and electrification of rail traffic and the shift of traffic from road to rail. "A rapid ramp-up of low-emission vehicles is also a key priority for decarbonizing road transport," the team said.
What can politicians do to ensure that more capital is quickly available for the expansion of green infrastructure? "Policies should be tailored to finance those sectors where there is the greatest need for investment," explains Klaassen.
In view of the size of the European equity and bond markets, the money is certainly available. The main challenge, however, is to set the necessary political course quickly enough so that the capital flows into the right projects. In doing so, the team believes it is also important to consider private investors such as pension funds and banks, which are heavily involved in the expansion of renewable energies. The public sector should minimize their risk through revenue guarantees and through the quickest and most predictable possible approval procedures. In addition, public investments in new technologies such as CO2 storage can also help private investors to venture into these areas.
Source: Lena Klaassen and Bjarne Steffen (ETH Zurich), Nature Climate Change, doi: 10.1038/s41558-022-01549-5