The green transition of the EU economy will require a ‘substantial investment to 2030 and beyond’, a new report by the European Central Bank (ECB) has noted.
The report, Investing in Europe’s green future – Green investment needs, outlook and obstacles to funding the gap, noted that the EU will have to invest up to €1.2 trillion per year to support the green transition in line with its 55% greenhouse gas reduction target.
In the decade leading up to 2020, some €764 billion was invested by the EU each year in GHG reduction measures, or around 5.5% of EU GDP.
This will need to increase to 8.9% GDP if targets are to be met, the report states – or an additional €477 billion per year – with much of the investment required to make the transport sector more sustainable, as well as boost energy efficiency in the residential building sector.
‘Critical for Europe’
‘The green transition is critical for Europe, necessitating substantial investments across various sectors to effectively combat climate change and achieve decarbonisation goals,’ the report noted. ‘Although progress has been made in recent years, much greater efforts are needed to get on track for the 2030 decarbonisation target. In this context, understanding the range of estimates is important, as the large amount of green investment required is expected to affect the economy and the financial sector.
‘At the same time, the window for action is closing fast, as climate related disasters increase in frequency and severity, including in Europe. Postponing the required investment would only result in further increases in transition and adaptation costs.’
Estimates from other institutions suggest a lower total for green investment. In terms of the additional investment needed by 2030, the International Energy Agency estimates €403 billion, and the Institute for Climate Economics (I4CE) estimates €406 billion, figures that align closely with those outlined by the European Commission.
Bloomberg NEF, however, projects a higher investment need, of €558 billion, if the 2030 targets are to be met.
Private sector
As the ECB report notes, achieving the funding for the green transition will necessitate sourcing from the private sector, with support from the public sector.
‘While banks will continue to play a key role in funding the transition, capital markets have to develop further in order to also support green and sustainable finance, particularly for innovative small and medium-sized enterprises and green start-ups,’ it said. ‘Reaping the full benefits of more integrated capital markets in Europe is a promising avenue, in view of the extensive green investment needs.’ Read more here.
