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VoxTalks Economics

S7 Ep52: Financing the green transition

Nov 5, 2024
Gilles Moec, AXA's Chief Economist, and Kathleen Schubert, a Professor at the Sorbonne, delve into the urgent need for financing the green transition. They discuss Europe's significant investment gap and emphasize the crucial role of the private sector in achieving net-zero targets. The conversation highlights the necessity for reliable carbon pricing and clear profitability metrics to attract investments. They also touch on navigating political volatility and the essential differences in sustainability reporting standards between Europe and the U.S.
22:57

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Quick takeaways

  • The green transition necessitates an annual investment increase in Europe to around 800 billion euros, highlighting a significant 400 billion euro gap as of 2022.
  • Mobilizing private sector capital is essential for closing the investment gap, with clear carbon pricing and risk mitigation strategies fostering greater investor confidence in green projects.

Deep dives

Understanding the Investment Gap for the Green Transition

The green transition requires significant investment, with current estimates for Europe showing an investment gap of approximately 400 billion euros as of 2022. To meet climate goals, annual green investments must rise to at least 800 billion euros, translating to a necessity of around 5.1% of Europe’s GDP, which essentially means doubling investment levels each year going forward to 2050. This gap reflects the difference between the required financial efforts to decarbonize sectors such as electricity generation, transport, and buildings and the current investment levels. The calculations for this investment gap involve uncertainties, mainly due to volatile technology costs and future market conditions, indicating a pressing need for strategic investment policies to close the gap.

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