- Global decarbonization efforts over the next three decades will require a $100 trillion investment, generating a massive opportunity for private equity to deploy capital and drive the energy transition, according to Rob Horn, a senior managing director and global head of the sustainable resources group at Blackstone Credit.
- "Frankly, every kind of capital is going to be needed," Horn said Wednesday at the BNEF Summit. "But credit is going to be required for well-north of half of that capital."
- Private investment will play a vital role, along with public funds and good tax policies, said John Morton, climate counselor to the U.S. Department of the Treasury. In some markets where clean energy options are cost-competitive "it's no longer a case that public funds or public development finance institutions need to be funding the renewable buildout," he said.
The International Energy Agency last year estimated that reaching global net-zero emissions by 2050 will require an annual investment of around $4 trillion by 2030. The capital-intensive nature of the energy sector opens the door for private equity to make long-term investments with predictable payoffs, said Horn.
"We're investing in really capital intensive industries that have historically consumed credit," Horn said, including the natural resources needed for battery production, commercial and residential solar, and energy efficiency.
Blackstone, a global investment business, has deployed roughly $15 billion in energy transition investments over the last couple of years, he said, and expects to deploy at least $100 billion more over the next decade.
"There is really a distinct advantage in the private markets when you are thinking about outcomes that you're trying to drive, such as decarbonization," said Jean Rogers, a senior managing director who oversees Blackstone’s corporate environmental, social and governance team.
Rogers contrasted private investment strategies — which can peg loans to decabonization, efficiency, renewable energy or equity outcomes — with ESG-focused public market vehicles like exchange-traded funds.
Those public market products "are not actually decarbonizing the world. They might be decarbonizing your portfolio, but that's a big difference," Rogers said. Companies are beginning to realize that to actually manage the systemic risk of climate change "we need to decarbonize, which means we don't need the passive strategies that just track a benchmark. We need active concentrated private market strategies where you can actually bring that carbon down."
About 90% of the world's gross domestic product and 40% of global assets under management are now covered by net-zero commitments by mid-century, said Morton, the Treasury Department's climate advisor. And a lot of those must be met through energy sector transition, he said.
"We now see that in many markets — not all, but in many markets — private capital can drive the renewable energy deployment," Morton said. "It's often a case of getting the regulations and the policy right, and then the markets can take over."
As clean energy solutions are becoming more economical, "we are seeing [an] alignment of policy and private capital commitments that would have been unfathomable just a couple of years ago," Morton said.
That means the government can consider turning public funds towards "some of these thornier, hairier issues related to expedited closure of assets," Morton said. "Oftentimes, you will find that taking something offline gets you as high, if not higher, bang for the buck than building something new."
The U.S. government is now working, alongside the U.K., France, Germany and other nations on a financing package to help South Africa decarbonize, said Morton. That country's energy system is bankrupt and will need help transitioning away from coal, and the nations hope to have something finalized in the next few months.
Similar models could also be used in countries like Indonesia, Vietnam and India, Morton added. "We've been working with all of those countries."
For South Africa, Morton said the initial funding package is expected to be around $8.5 billion, "and that does not speak to the private capital that would be mobilized on the back of the structures that we hope to put in place."