When companies make capital investments, they create or maintain the physical fixed assets (plants, properties and equipment) that drive emissions. This is the physical capital stock that produces emissions directly, demands energy or other resource and greenhouse gas (GHG)-intensive inputs, or creates products that emit, making capital investment — by the public and private sectors — the pivotal financial decision that drives the growth of GHG emissions or decarbonization of the energy system.
To decarbonize the energy system, companies will need to replace capital investments that create and maintain high-carbon assets — or produce emitting products — with low-carbon, clean energy alternatives. The good news is that capital investment in clean energy has begun to take off. The International Energy Agency (IEA) expects $1.74 trillion of capital investment in 2023 in the low-carbon energy system, comprising clean power and fuels, batteries, electric vehicles, carbon capture and storage, and greening buildings. According to the IEA’s Net Zero by 2050 scenario, however, clean energy capital investment will need to grow three times faster to reach about $4.6 trillion by 2030 in order to replace the high-carbon economy and meet society’s growing demands.