Blog post

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
Authors: Guntram B. Wolff Simone Tagliapietra Klaas Lenaerts

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 is a Senior fellow at Bruegel. He is also a Professor of Public Policy and Economics at the Willy Brandt School of Public Policy. From 2022-2024, he was the Director and CEO of the German Council on Foreign Relations (DGAP) and from 2013-22 the director of Bruegel. Over his career, he has contributed to research on European political economy, climate policy, geoeconomics, macroeconomics and foreign affairs. His work was published in academic journals such as Nature, Science, Research Policy, Energy Policy, Climate Policy, Journal of European Public Policy, Journal of Banking and Finance. His co-authored book “The macroeconomics of decarbonization” is published in Cambridge University Press.

An experienced public adviser, he has been testifying twice a year since 2013 to the informal European finance ministers’ and central bank governors’ ECOFIN Council meeting on a large variety of topics. He also regularly testifies to the European Parliament, the Bundestag and speaks to corporate boards. In 2020, Business Insider ranked him one of the 28 most influential “power players” in Europe. 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 member and co-director to the G20 High level independent panel on pandemic prevention, preparedness and response under the co-chairs Tharman Shanmugaratnam, Lawrence H. Summers and Ngozi Okonjo-Iweala. From 2013-22, he was an advisor to the Mastercard Centre for Inclusive Growth. He is a member of the Bulgarian Council of Economic Analysis, the European Council on Foreign Affairs and advisory board of Elcano.

Guntram 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 worked in the research department at the Bundesbank, which he joined after completing his PhD in economics at the University of Bonn. He also worked as an external adviser to the International Monetary Fund. He is fluent in German, English, and French. His work is regularly published and cited in leading media.
Simone Tagliapietra

Simone Tagliapietra is a Senior fellow at Bruegel. He is also a Professor of EU Energy and Climate Policy at The Johns Hopkins University - School of Advanced International Studies (SAIS) Europe.

His research focuses on the EU climate and energy policy and on the political economy of global decarbonisation. With a record of numerous policy and scientific publications, also in leading journals such as Nature and Science, he is the author of Global Energy Fundamentals (Cambridge University Press, 2020) and co-author of The Macroeconomics of Decarbonisation (Cambridge University Press, 2024).

His columns and policy work are widely published and cited in leading international media such as the BBC, CNN, Financial Times, The New York Times, The Economist, The Guardian, The Wall Street Journal, Süddeutsche Zeitung, Frankfurter Allgemeine Zeitung, Corriere della Sera, Le Monde, El Pais, and several others.

Simone also is a Member of the Board of Directors of the Clean Air Task Force (CATF). He 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.