Financing the Green Energy Transition A US$50 trillion catch November 2023 Financing the Green Energy Transition: A US$50 trillion catch | Foreword Foreword The global community has been on a journey from skepticism and fear of climate change to now one of ambition to seize the opportunities for growth and development. But the transition pathway is neither costless nor easy. The energy and climate transition represents one of the biggest modernization projects of the production system of economies, worldwide, since the Industrial Revolution; and the perils of climate change mandate that this takes place in just a fraction of the time. This report on Financing the Green Energy Transition, is the latest in Deloitte’s series of insights from the macro analysis around the global economic imperative to get to net zero in The Turning Point, to the criticality of skills in Work toward net zero: the rise of the Green Collar workforce in a just transition, and the potential of new energy in Green hydrogen: energizing the path to net zero. This report is a practical contribution to the global effort in recognizing, at its foundation, that finance is critical to economic growth and a key driver of this economic modernization effort. Critical to this report is not some simplistic articulation of rates of return, but a detailed study in the factors to help unlock finance in service of building new markets with new rules, and, consequently, new risks and strategic outlooks. Importantly, this report places focus on a less recognized understanding of this transition—that the optimal path to net zero requires us to collectively manage the debt and equity aspects of global investment flows in this transition upfront. Why? Because the energy transition requires developing economies as much as, if not more than, the developed economies, for global growth consistent with net zero by 2050. And as the finance community knows well, de-risking projects, or making them bankable, is key for both developed and developing economies. The essence of a just transition sits at the heart of this report. The report highlights the magnitude of the global task ahead of us to achieve net zero by 2050—an investment ask of above US$7 trillion per annum under current financing conditions. But enabling optimal, low-cost finance, by making projects bankable, could help optimize the global investment initiative and reduce the investment ask by around US$2 trillion per annum—a US$50 trillion benefit to the global economy over the period to 2050. This global transition proceeds having learned the lesson of the last 80 years—that growth and the equitable distribution of that growth are critical for a sustainable future. The geopolitical imperative for this cannot be ignored or not embedded into our collective thinking going forward. This is a report to help make the economic transition real—bankable—in the service of global economic growth and prosperity. Each day, the global community, and Deloitte’s clients, stakeholders, and people confront the risks and realities of the structural economic change ahead of us. Our objective is to generate greater conversation and debate on the best means of achieving our global imperative of building a net-zero economy by 2050. To this end, Deloitte welcomes you to engage with us and each other, as we help build an ecosystem for action, on the least-cost, optimal and equitable path to reach our common ambitions. Jennifer Steinmann Global Sustainability & Climate Practice Leader Deloitte Global 03 Financing the Green Energy Transition: A US$50 trillion catch | Table of Contents Foreword03 Glossary05 Executive summary 06 1. Climate neutrality is an unprecedented financial challenge 08 1.1. Limiting global warming to 1.5°C 09 1.2. The struggle to finance the energy transition 09 1.3. Objective 10 2. Toward a climate-neutral world 12 2.1. A dynamic but insufficient policy environment 13 2.2. Key technical characteristics of a net-zero world 15 3. What is holding back sustainable investments? 20 3.1. Political barriers 22 3.2. Market barriers 22 3.3. Transformation barriers 23 4. Fostering investments in the green transition 24 4.1. A toolkit to foster sustainable investments 25 4.2. Focus on developing economies 34 4.3. Investment implications 36 5. A call for action 38 Appendices 42 Appendix 1. Calculation of levelized cost of electricity and hydrogen 42 Appen