Going Green: Green energy investment needed to save energy markets

October 19, 2021

3 min read

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What's going on here?

The International Energy Agency (IEA) has released a statement emphasising the need for significant investments in green energy to prevent further uncertainty in the energy markets.

What does this mean?

The IEA’s World Energy Outlook report warned that clean energy and infrastructure needs at least $4tn in investments. These investments are needed in order to achieve the Paris Climate Conference goal to limit global temperatures to 1.5 degrees above pre-industrial levels. Governments are asked to provide their citizens with wider access to cleaner energy in the form of up-front payments and allow for robust investments into sustainable energy through changes in tax, regulation, and infrastructure. With concerns mounting over the health of the planet, the transition to green energy means that countries, both developed and developing, will have to work together to ensure that sufficient energy funding and policies are put in place to meet climate goals due to be met in the next decade.

What's the big picture effect?

The warnings further emphasise the importance and prominence of sustainable energy and the drastic uptick in energy prices in Asia, Europe and the UK. The IEA report calls for governments to take action now more than ever, stating that governments around the world need to not only reduce current levels of carbon emissions but also need to further incentivise clean energy investment. With all of the climate crises crashing down one after another, governmental changes need to happen on an international scale and the COP26 conference will hopefully be a turning point for real change. This new sense of urgency, however, means that changes will be implemented on a wider and faster scale. Consumers will likely face continually soaring prices for fuel and energy bills due to continued shortages but may also experience an initial cost barrier to renewable energy due to the current insufficient investments in green energy firms. To reduce such costs and enhance investments, the IEA suggests changes in the tax system and energy regulations. Law firms will likely see an increase in tax-related work to ensure clients are complying with new and updating government policies. It is also likely that they will see more clients in the energy sector, due to an uptick of firms implementing green business strategies. 

Where the most change needs to be made is in clean energy investments. Dr Fatih Birol, Executive Director of the International Energy Agency, urged leaders to push for further investments because “if you push clean energy, energy efficiency, solar electric cars and other [solutions], you don’t need any more to use fossil fuels, you switch to clean energy sources.” Such investments are also needed to prevent energy crises such as the fuel shortages seen in October 2021. 

Forthcoming rapid changes in government regulations and climate goals shifts the global economy towards renewable, net-zero compliant solutions. Tom Dorner, the investment director of European equities at Aberdeen Standard Equities, notes that there is plenty of evidence such as the Green New Deal and the US’ return to the Paris Climate Agreement to suggest that the energy transition will be a positive, “multi-decade secular trend”. Because of renewable energy’s prominence in global affairs, it is likely that investments in this area will have consistent cashflow through continued investment. Multiple sources note that it will be unlikely that nations will meet the deadline for Paris climate goals, however, the evidence suggested points to ESG being a positive addition to an investor’s portfolio. Once supported with the appropriate regulations and solutions from the government following COP26 and future ESG-related conferences, green energy will hopefully receive the boost in investments it requires to make significant advances in climate change and prevent further supply-side energy crises as seen earlier this month.

Report written by Woojin Jina Nim

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