The shift towards green energy faces impediments in securing investments, as only 20% of total investments in 2015 were allocated to renewables. The financial strain on governments worldwide has become a significant obstacle to this transition. Oil and gas companies must, therefore, play a substantial role in financing the move towards green energy generation for the future of renewable energy to depend largely on their investments and support from the financial services sector.
Geopolitical turmoil often disrupts the flow of funds into green technologies, hampering progress in renewables. This results in increased investments in fossil fuels from oil and gas companies, particularly during times of supply shocks. While this may provide a temporary solution, it is imperative to focus on long-term sustainable energy solutions to address challenges in energy security, affordability, and industrial competitiveness.
To meet the Paris Agreement target of limiting the maximum temperature increase to 1.5°C, it is crucial for states, including the European Union, to accelerate global energy investments. This necessitates a growth rate of two to four per cent annually, aligning with global GDP growth. It is estimated that energy investment should increase from $2.2 trillion in 2025 to $3.2 trillion in 2040. Furthermore, to mitigate severe impacts of climate change, carbon dioxide emissions must be restricted.
Despite governmental and corporate commitments to the transition, current investment levels fall short, with only 20% allocated to renewable and alternative solutions in 2015. To achieve a green energy transformation, this ratio should be elevated to 40 to 50% by 2040.
The shift towards green energy primarily relies on corporate investments and financing by the financial services sector, as governments face fiscal constraints. European economies, for example, allocate only around 20% of their overall energy investments to renewables and low-carbon solutions. This reflects a significant gap hindering the global achievement of a green energy transition.
With limited alternative solutions to scale the energy transition, the struggle for investments in renewables creates a competitive landscape among leading players. Major oil and gas firms are investing in low-carbon and renewable energy sources. Despite this, the level of investment in green and alternate energy remains low relative to their investments in fossil fuel projects.
According to a BNP Paribas report, corporate investments by publicly listed global companies should rise significantly in a scenario aligned with the UN Sustainable Development Goals (SDG). One-third of these SDG-aligned investments are projected to come from the global oil and gas sector, with a substantial increase expected by 2020. However, the current disparity in investment allocation highlights the need for a shift towards more sustainable and renewable energy sources.
The urgency of transitioning away from non-renewable sources is imminent to address potential climate change risks. It is essential for the industry to play a crucial role in spreading green and transition finance in the energy sector. Additionally, the financial services sector, including global banks and asset managers, should reallocate their investments towards renewables to support the transition to green energy.
Government policies also play a crucial role in driving the energy transition, as they can influence funding and regulatory oversight of large industry players. With the decreasing prices of renewable energy technologies, there is a pressing need for aligned incentives and comprehensive policy frameworks to support long-term debt financing for renewables.
In conclusion, unlocking financial support for energy alternatives is vital in alleviating regional energy dependencies. Collaborative efforts are essential to ensure a successful transition to green energy, and the oil and gas industry needs to be a key player in financing the shift towards sustainable and renewable energy sources.