Banking sector will be pivotal to Europeâ€™s low carbon transition
Banks will play an increasing role in the financing of the transition, primarily through intermediating institutional capital, but stable and long-term government incentives and policies will remain critical.
The study, Carbon Capital, finds that development, procurement and implementation of 15 commercially viable low carbon technologies will require E2.9 trillion in funding from 2011 - 2020, helping to enable Europe to bring its emissions to 83 percent of 1990 levels by 2020, representing a carbon abatement of 2.2 Gt CO2e.
Where existing studies forecast capital requirements against assumed adoption rates needed for Europeâ€™s 2020 targets, this reportâ€™s forecasts are based on calculations of realistic actual adoption rates of low carbon technologies.
According to the report, of the E2.3 trillion of procurement capital identified, seventy-three percent (E1.65 trillion) will need to be funded externally, creating unprecedented demand for private capital and associated bank products and services. The largest share will be debt to finance the development of low carbon technology assets.
Asset leasing will be required to support consumer adoption of micro-generation and energy efficient equipment by spreading the upfront cost over its lifespan and using the energy savings to cover lease payments.
The report calculates that securitization of the debt into green bonds - low carbon technology asset-backed securities - could provide access to secondary markets for E1.4 trillion of capital required, providing new products for pension funds, individual and other institutional investors.
Work in collaboration with investors, borrowers and rating agencies to develop products that enable capital markets funding for low carbon technology backed assets. Create dedicated low carbon technology investment funds to provide investors with strategic exposure to the sector.
Develop partnerships with energy efficient and micro generation equipment providers to effectively fund an otherwise capital intensive and fragmented market. Create specific advisory services to provide technical, regulatory, financial and commercial expertise on the low carbon technology sector to be leveraged across the banksâ€™ product portfolios. This will enable accurate, risk adjusted valuation of low carbon technology investments.
The report assesses investment requirements across 15 commercially viable low carbon technologies. The report uses demand-driven adoption forecasts and technology cost learning curves to measure the capital required between 2011 and 2020 in the EU-25.
Out of the E2.9 trillion required to finance Europeâ€™s low-carbon transition, E2.3 trillion will finance the procurement and implementation of the low carbon equipment and infrastructure, while E0.6 trillion will be required to finance the research, development and production of these technologies.
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