Panel, Conference Presentation
Climate Outcomes 2035: New Pathways to Accelerate Capital Deployment | Global Conference 2024
Milken InstituteDan Carol, Mark Gallogly, Amber D. Miller, Hiromichi Mizuno, Helen Mountford, Adam Wang-Levine
- Global emissions are projected to reach 60 billion gross tons in 2024, with carbon levels expected to be higher than the previous year, creating a paradoxical zone where power and oil demand rise alongside growth in EV and clean energy deployment.
- Current commitments place the world on a pathway to 1.7 degrees Celsius of warming rather than the targeted 1.5 degrees, while the Japanese government pension fund (GPIF) portfolio trajectory points toward 3.5 degrees.
- Approximately $2.5 trillion in additional annual investment is required globally, yet less than 10 percent of capital committed by the Glasgow Financial Alliance for Net Zero is allocated to developing economies, and nature-based solutions receive only 3 to 7 percent of climate finance despite potentially accounting for one-third of solutions.
- The United States is expected to make its largest energy security investment via the Inflation Reduction Act, motivating $282 billion in private clean energy investment across 1,300 projects, $120 billion in utility clean energy generation, and driving EV sales to triple since President Biden took office.
- Department of Energy projections anticipate wind energy tripling and solar energy increasing seven to eight times by 2030, potentially reducing total greenhouse gas emissions by 40 percent by that year.
- Material financial risks include the expectation that without policy guardrails, carbon pricing, or revised disclosure frameworks, the private sector will wait too long to shift capital, a scenario that could result in four years of lost effort toward the 2050 zero-emission goal if major countries move in the wrong direction.
- Current fossil fuel subsidies amount to $1.5 trillion globally as of 2022, while India plans to build 20 gigawatts of coal power now, has 82 gigawatts on the drawing board, and expects to add 22 gigawatts for smelters.
- The Milken Institute plans to address key issues over the next decade using six Ps, while the World Bank group expects to invest $33 billion this year, with the IFC contributing $1.8 billion in equity.
- Multilateral Development Banks and private sector participation are expected to expand, with MDB guarantees projected to triple by 2030 and an anticipated unlocking of $200 billion for MDBs over the next 10 years through Biden administration policies and MDB reform.
- Three Cairns is establishing funds of $200 to $250 million each in India, Southeast Asia, Africa, the Caribbean, and Central America to leverage junior capital from wealthy individuals and encourage follow-on investment from MDBs and the private sector.
- Policy expectations include 70 countries implementing carbon pricing which generated $98 billion in revenue last year, and anticipated discussions at COP 29 and G20 meetings regarding voluntary versus compliance carbon market interactions and the need for carbon border adjustments.
- Educational models are expected to face pushback from faculty regarding ESG integration due to a perceived lack of financial theory, potentially reproducing professionals uneducated on climate finance, though universities like USC are testing new public exchange models to develop bankable projects over a 50 to 100-year horizon.
- Americans are expected to save between $27 billion and $38 billion in electricity costs due to the Inflation Reduction Act, while the sector anticipates the creation of 170,000 new clean energy jobs with an additional 1.5 million jobs projected.
- EV deployment targets originally set for 15 percent of new car markets in India, China, the US, and the EU by 2026 were achieved in 2022, serving as a model for global expansion, though 99 percent of CIOs believe their portfolio valuations do not yet reflect climate risk.
- Voluntary carbon markets currently face structural challenges as trades are unaudited and cannot be placed on balance sheets, necessitating a revised rating mechanism and risk matrix to shift core market capital.
- Future capital allocation relies on the expectation that the private sector requires price stability and equity, particularly where Federal Reserve requirements dictate, and that a government-set carbon budget or market-generated price could drive significant market arbitrage and reaction.