Switch to low-carbon economy could save $1.8trn says Citi report

Switching to a low-carbon economy could save $1.8 trillion globally by 2040, according to new research by global investment bank Citi.

The bank released its Energy Darwinism II: Why a Low Carbon Future Doesn’t Have to Cost the Earth report in August which compares a business-as-usual scenario to one where significant investment is made on clean energy generation and energy efficiency in the short-term.

The report says that the estimated total spend on energy over the next 25 years is similar in both scenarios with the ‘action’ scenario resulting in a total spend of $190.2trn compared to $192trn for a business-as-usual approach.

The Citi report suggests that in the ‘action’ scenario, an extra 0.1 per cent of global GDP would be spent on low-carbon development with this initial spend on renewables and energy efficiency measures paid for over time.

The report describes the liabilities of not acting to develop a low-carbon global energy system as “vast”.

The impacts of climate change could lead to “lost” GDP of an estimated $44trn by 2060, the report says.

The report says: “We believe that that solution does exist. The incremental costs of following a low carbon path are in context limited and seem affordable; the 'return' on that investment is acceptable and moreover the likely avoided liabilities are enormous. Given that all things being equal cleaner air has to be preferable to pollution, a very strong "Why would you not?" argument begins to develop."

Citi’s proposed actions would have a profound impact on the global energy mix, with more than 80 per cent of coal reserves having to remain unused, as well as about half of gas reserves and a third of oil reserves.

The report highlights the required short-term investment as the main inhibitor to the plans being adopted and says: “There is a clear need for the investment, balanced by enormous investor appetite for these types of investments; the missing link has been the lack of, and quality of, the investment vehicles available… Financial markets must innovate to facilitate investment via the creation of new instruments, vehicles and markets…...We see the greatest opportunity in the credit markets”.

Citi announced a 10-year $100bn commitment to finance emissions reduction measures earlier this year to assist communities in their climate change adaptation efforts and the bank will directly finance sustainable infrastructure projects including green building initiatives.