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How much investment do we need to reach net zero?

The size and scope of investments needed to reach net zero will have significant macroeconomic implications.

Publishing date
25 August 2021

To become climate neutral by mid-century, the European Union and other major economies must substantially reduce their greenhouse gas (GHG) emissions during this decade. The EU aims to reduce its emissions by 55 percent by 2030 compared to 1990 levels with a wide range of policies recently proposed in the ‘Fit for 55’ package. Meanwhile, the United States (US) aims to reduce its emissions by 50-52 percent by 2030 compared to 2005 levels, and China wants its CO2 emissions to peak before 2030. To achieve this, serious investments will be needed.

Below, we review the multiple estimates of the investment required to reach climate goals and discuss the macroeconomic relevance of investment on top of what will already be spent to replace existing infrastructure.

Global energy investment trends

Global energy investments currently stand at around $2 trillion per year or 2.5 percent of global GDP, according to the International Energy Agency (IEA). In an illustrative pathway they recently developed, this will have to rise to $5 trillion or 4.5 percent of GDP by 2030 and stay there until at least 2050 to reach net zero CO2 emissions by 2050 (Figure 1). Much of this will be spent on electricity generation and infrastructure to electrify new economic sectors and to make the electricity system more suitable for much higher volumes and variability of renewable energy.

Other net zero pathways point to similar orders of magnitude (Figure 2). The International Renewable Energy Agency (IRENA) frontloads the necessary investments to the current decade, resulting in investments of $5.7 trillion per year until 2030, though less thereafter. Bloomberg New Energy Finance (BNEF) estimates average investment requirements to be between $3.1 trillion and $5.8 trillion per year until 2050.

In the EU, the European Commission estimates that reaching the 2030 climate target will require additional annual investments of  €360 billion on average, starting now. This will raise relevant investments from an average of €683 billion per year in the last decade to around €1,040 billion per year. Roughly a third of the additional investment is in transport, by far the largest component because of large vehicle replacement needs. Apart from transport, the emphasis seems to lie more on doubling investment in residential heating, but smaller components like power grids and plants still have to increase by a factor of two (Figure 3).

According to all these estimates, reaching climate neutrality by mid-century will require additional investments in energy and transport systems amounting to roughly 2 percentage points of GDP than current levels.

The size and scope of the required investments means that their macroeconomic implications will be significant. We will analyse these implications in a series of forthcoming publications, based on a new Bruegel research project into the macroeconomics of decarbonisation.

Recommended citation:

Lenaerts, K., S. Tagliapietra and G.B. Wolff (2021) ‘How much investment do we need to reach net zero?’, Bruegel Blog, 25 August

About the authors

  • Guntram B. Wolff

    Guntram Wolff was the Director of Bruegel. Over his career, he has contributed to research on European political economy and governance, fiscal, monetary and financial policy, climate change and geoeconomics. Under his leadership, Bruegel has been regularly ranked among the top global think tanks and has grown in influence and impact with a team of now almost 40 recognized scholars and around 65 total staff. Bruegel is also recognized for its outstanding transparency.

    A recognized thought leader and academic, he regularly testifies at the European Finance Ministers' ECOFIN meeting, the European Parliament, the German Parliament (Bundestag) and the French Parliament (Assemblée Nationale). From 2012-16, he was a member of the French prime minister's Conseil d'Analyse Economique. In 2018, then IMF managing director Christine Lagarde appointed him to the external advisory group on surveillance to review the Fund’s priorities. In 2021, he was appointed to the G20 high level independent panel on pandemic prevention, preparedness and response. He is also a professor (part-time) at the Solvay Brussels School of Université Libre de Bruxelles, where he teaches economics of European integration.

    He joined Bruegel from the European Commission, where he worked on the macroeconomics of the euro area and the reform of euro area governance. Prior to joining the Commission, he was coordinating the research team on fiscal policy at Deutsche Bundesbank. He also worked as an external adviser to the International Monetary Fund.

    He holds a PhD in economics from the University of Bonn and studied in Bonn, Toulouse, Pittsburgh and Passau. He taught economics at the University of Pittsburgh and at Université libre de Bruxelles. He has published numerous papers in leading academic journals. His columns and policy work are published and cited in leading international media and policy outlets. Guntram is fluent in German, English, French and has good notions of Bulgarian and Spanish.

  • Simone Tagliapietra

    Simone Tagliapietra is a Senior fellow at Bruegel. He is also Adjunct professor of Energy, Climate and Environmental Policy at the Università Cattolica del Sacro Cuore and at The Johns Hopkins University - School of Advanced International Studies (SAIS) Europe.

    His research focuses on the European Union climate and energy policy and on the political economy of global decarbonisation. With a record of numerous policy and scientific publications, he is the author of Global Energy Fundamentals (Cambridge University Press, 2020), L’Energia del Mondo (Il Mulino, 2020) and Energy Relations in the Euro-Mediterranean (Palgrave, 2017).

    His columns and policy work are published and cited in leading international media such as the Financial Times, The New York Times, The Guardian, The Wall Street Journal, Le Monde, Die Zeit, Corriere della Sera, Il Sole 24 Ore and others.

    Simone holds a PhD in Institutions and Policies from Università Cattolica del Sacro Cuore. Born in the Dolomites in 1988, he speaks Italian, English and French.

  • Klaas Lenaerts

    Klaas worked at Bruegel as a Research Analyst until August 2022. He holds a Master in Economics from the KU Leuven and in European Economic Studies from the College of Europe. Additionally, he spent one semester at Uppsala University.

    Klaas has a broad background in economics and European affairs. Before joining Bruegel he did a traineeship at the Permanent Representation of Belgium to the EU, where he worked on enlargement discussions, and at the European Securities and Markets Authority in Paris, where he contributed mainly to the work of the Risk Analysis and Economics department on such topics as crypto regulation and sustainable finance.

    His fields of interest include European climate policy and Eurozone governance, as well as external relations and trade. He is fluent in Dutch and English and advanced in French and German.

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