When companies and governments 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 the pivotal financial decision that drives the growth of GHG emissions or decarbonization of the energy system. Capital investments in fixed assets that produce or demand fossil fuel effectively lock in higher future carbon emissions.
According to the International Energy Agency’s (IEA) Net Zero by 2050 scenario, global energy demand and net-zero carbon emissions can both be met by mid-century.
This will require funding for the development of new fossil fuel supply to be eliminated and major sources of demand for fossil fuels — such as fossil fuel-based power generation and transportation — to be phased out. Corporations need to take the critical step of aligning their capital plans with net-zero pathways by eliminating capital investments in new fossil fuel production and coal power generation and phasing out capital investments in assets that emit GHGs or produce goods that emit. Instead, they must scale up sustainable, clean alternatives.
Capital investment in fossil fuel production and fossil fuel-based power generation is expected to total about $1 trillion in 2023, up 5% from the previous year. Capital investments for oil and gas supply (up-, mid- and downstream) are expected to reach $805 billion in 2023 (up 6% from 2022), and investments in coal supply are projected at $148 billion (9% higher than 2022). Investments are expected to rise in 2023 as tight supply and high prices attract new projects, although at a slower pace than the previous year.
Capital investment in fossil fuel power generation is expected to reach $98 billion in 2023, an 8% decrease from the previous year. Not all capital investments are intended for expansion of new supply; a portion is allocated toward maintenance. According to IEA estimates, capital investments in fossil fuel production and power generation need to reverse course and fall by an average of $80 billion each year to meet the 2030 target.
Capital investment in emissions-intensive transportation and industrial assets is not yet tracked alongside low-emissions substitutes but it should be.