How can the world save $50 trillion by 2050 in the green energy transition?

The road to net zero emissions by 2050 demands a monumental shift in economic structures, transitioning away from fossil fuels and embracing a clean energy future. But how the world unlocks the capital needed to facilitate this transition is not clear-cut – fundamentally because risks in this green transition are not homogenous (they are differentiated) and vary based on market and project type. This largely reflects macro and political risks in less familiar investment markets; technology risks because emerging technologies are relatively new; and the financial risks that come from this being a relatively new area of finance. A failure to address these market factors risks a slower, more costly and inequitable transition. 

Green technologies are often perceived as risky, hindering the crucial investments needed for a swift and equitable transition. According to Deloitte’s new report, Financing the Green Energy Transition: Innovative Financing for a Just Transition, the energy transition could cost up to $200 trillion by 2050 unless the financing conditions for clean energy investments are improved. But by mobilising de-risking instruments and fostering a new green finance ecosystem of investors, lenders, development finance institutions and policymakers, we can unlock capital, drive economic growth and achieve a cost-effective transition, potentially saving the world $50 trillion by 2050. 

Here are the top four insights to unlock much-needed capital and accelerate a sustainable future: 

1) Understanding green energy project risks: Key decarbonisation solutions – including large-scale renewable development, electrification of end-uses, green hydrogen uses in hard-to-abate sectors and energy efficiency improvements – are generally highly capital intensive and require significant investment. They also carry higher perceived risks, impacting financing costs. The key risks include: 

• macro risks – such as political and regulatory risks; 
• market risks – such as revenue, liquidity, missing market, commercial track record and economic competitiveness risks; 
• technical risks – including under performance, missing infrastructure, construction delays and cost overrun risks; and 
• financial risks – mainly stemming from the limitations of the current project finance environment and underdeveloped financial markets. 

2) Using efficient de-risking instruments: Efficient use of de-risking instruments – such as climate policies, guarantee mechanisms, off take reliability, the development of domestic capital markets and leveraging blended finance – can make these projects more attractive to investors and reduce financing costs, bringing as much as $40 trillion of savings by 2050. Each of these instruments can vary in effectiveness, cost efficiency and timeliness. For instance, de-risking is more effective in developing countries where policy, market and capacity barriers are greater. Regardless of country or technology, the relevance of instruments changes over time and no single instrument is the silver bullet. The objective is to combine the right instruments to help deliver the maximum effect. 

3) Applying financial learning and project refinancing: Through financial learning effects – where investors and lenders improve their risk perception of green projects over time and as markets and regulatory environments mature – the cost of capital can decrease even further. Enabling the refinancing of long term green projects can also help make the transition more affordable by allowing projects to lower their financing costs as capital markets mature. Refinancing debt and equity can unlock as much as $10 trillion of savings cumulatively through 2050. 

4) Working together to help reshape the current project finance environment: Reshaping the current project finance ecosystem to account for the environmental benefits and to facilitate collaboration among policymakers, investors and lenders, development financial institutions, and international organisations is crucial to achieve a cost-effective transition. The window to bring the world on course for net zero targets and for an affordable and just energy transition is closing fast, so public-private partnerships and international cooperation are essential.  

Mobilising green finance is expected to continue to be a central theme at COP29 in Baku in November 2024, as it was in COP28 last year. Time is of the essence. 

By strategically combining derisking instruments, promoting project refinancing and fostering collaboration among stakeholders, non-bankable clean energy projects can be transformed into attractive investments, slashing the cost of achieving net zero and accelerating the creation of a sustainable future. 

Strategic financing tools can fuel innovation and help power an equitable and efficient green energy transition while saving the world $50 trillion by 2050 on its journey to net zero.