Citi: Renewables and energy efficiency will reduce planet’s energy bill by $1.8trn

The bank this week released a report, Energy Darwinism II: Why a Low Carbon Future Doesn’t Have to Cost the Earth, comparing a business-as-usual scenario to one where the planet invests heavily in renewables and energy efficiency in the short-term.

The total spend on energy over the next 25 years is found to be “remarkably similar” in both scenarios with the ‘Action’ scenario implying a total spend of $190.2trn compared to $192trn for inaction.

In the greener scenario, the initial spend on renewables and efficiency is gradually paid for over time. Citi suggests that the cost of this initial action will only be an extra 0.1% of global GDP.

Climate chaos

As well as the potential savings, the report describes the liabilities of not acting as “equally vast”.

The cumulative ‘lost’ GDP from the impacts of climate change could be around $44trn by 2060, the report claims.

“We are not climate scientists, nor are we trying to take sides in the global warming debate,” said the report introduction.

“Rather we are trying to take an objective look at the economics of the discussion, to assess the incremental costs and impacts of mitigating the effects of emissions, to see if there is a ‘solution’ which offers global opportunities without penalizing global growth, whether we can afford it (or indeed we can afford not to), and how we could make it happen.

“We believe that that solution does exist. The incremental costs of following a low carbon path are in context limited and seem affordable, the ‘return’ on that investment is acceptable and moreover the likely avoided liabilities are enormous. Given that all things being equal cleaner air has to be preferable to pollution, a very strong “Why would you not?” argument begins to develop.”

Revolution

These changes envisioned by Citi would also have a profound impact on the global energy mix, with more than 80% of coal reserves having to remain unused, as well as half of gas reserves and a third of oil reserves.

“At current prices, around $100trn of assets could be ‘carbon stranded’”, said the bank.

Having outlined this vision of transformative change in the global energy market, the report questions how it is possible to mobilise the investment needed in the short term.

“There is a clear need for the investment, balanced by enormous investor appetite for these types of investments; the missing link has been the lack of, and quality of, the investment vehicles available”

The report suggests: “Financial markets must innovate to facilitate investment via the creation of new instruments, vehicles and markets……We see the greatest opportunity in the credit markets”.

Earlier this year, Citi itself announced a landmark 10-year $100bn commitment to finance activities that reduce carbon emissions, help communities adapt to climate change and directly finance sustainable infrastructure such as green housing.

Brad Allen