Climate Week NYC 2024: Lessons Learned and the Work Ahead

Commentary by Joseph MajkutandRay Cai

Published October 30, 2024

Despite progress, capital deployment for the energy transition and climate action remains uneven across sectors and geographies. Policymakers, capital allocators, and industry stakeholders need to collaborate on amplifying effective policy solutions and business models that will scale investment and innovation with the necessary scale and speed.

This commentary summarizes key takeaways from the "Overcoming Investment Barriers to Net-Zero Solutions" roundtable, a Climate Week NYC event cohosted by the Energy Security and Climate Change Program and the Corporate Alliance for Innovation towards Net Zero (CAIN), a coalition of U.S.-led multinationals working towards energy and industrial decarbonization.

Three key themes stand out from a dynamic discussion between senior government, finance, and industry leaders at the event.

The Critical Impasse in Scaling Net-Zero Solutions and Persistent Risks

Notable progress has been made in the financing and deployment of clean energy since the adoption of the Paris Agreement in 2015. Global clean energy investment has increased by 40 percent since 2020 and is continuing to grow, as technological advancements and economies of scale have made mass-produced modular solutions such as solar photovoltaics (PV), electric vehicles, heat pumps, and batteries more cost-competitive. The private sector is making a substantial contribution to modern energy deployment. In total, nonpublic capital is now responsible for more than 80 percent of clean energy investments in advanced economies.

Nevertheless, a substantial gap persists. The International Energy Agency estimates that annual global clean energy investment needs to more than double over the coming decade to achieve net-zero emissions by 2050. The deployment of mature solutions needs to be deepened while emerging technologies such as carbon capture and storage, hydrogen, and advanced nuclear need to be scaled to address over 50 percent of remaining global emissions by some projections.

Influential market newcomers such as private equity, infrastructure funds, and technology firms hope to further accelerate the deployment of low-carbon technologies. Just before New York Climate Week, 14 large U.S. banks pledged to support the tripling of nuclear capacity by 2050. But to realize such ambitions, private investors need confident returns to demonstrate success and scale up their efforts.

Persistent and varied risks at macroeconomic, sectoral, and project levels are to blame for this gap. With climate technologies remaining an estimated six times more capital-intensive than incumbents, investors have struggled to achieve satisfactory risk-adjusted returns for many solutions that continue to be affected by supply, technology, labor, revenue, operational, environmental, and regulatory uncertainties. Even the more risk-tolerant venture capital investors have favored technologically mature and commercially viable sectors such as transport and clean energy, which together attracted over 60 percent of total funding since 2018.

Political and Policy Uncertainties are Key Limiting Factors

Clarity and continuity are crucial for effective government interventions to mitigate investment risks and foster favorable market conditions. While policies such as the U.S. Inflation Reduction Act, the EU Green Deal, and support for strategic industries in China have catalyzed clean energy investment and innovation, political and policy uncertainties have also continued to impede further private capital involvement.

Lengthy permitting and regulatory review processes have delayed final investment decisions, even for well-established technologies like wind and solar. This challenge is even more pronounced for emerging solutions such as hydrogen and carbon capture, where undefined market structures and business models add further complexity. The opaque definitions of key policy incentives, such as the Clean Hydrogen Production Tax Credit (45V), decrease investor confidence and risk stranding existing assets. Similarly, uncertainties surrounding grid reliability and firm power availability to meet load growth have also hindered investment.

The supply chains for key energy technologies including batteries and solar PVs tend to be geographically concentrated, making them vulnerable to fragmentation and bottlenecks. As geopolitical tensions rise, systemic governmental support across regulatory design, market infrastructure, knowledge transfer, offtake guarantee, and workforce development will be needed to create a resilient value chain that balances competing decarbonization, political, financial, and developmental realities.

Recent trade and export restrictions on critical minerals and related processing technologies illustrate the need for a system-level approach to mitigate risks for investors across the clean tech value chain. As governments consider international finance models that would prefer geopolitical allies, they must also contend with the market-distorting effects these policies may have on nascent climate solutions as well as global decarbonization progress. The political and economic stakes of a fracturing low-carbon investment environment need more scrutiny. Understanding topics such as supply chain reshuffling, capital allocation decisions, and economic statecraft will meaningfully inform the tradeoffs that will face firms, policymakers, and communities.

Cross-Cutting Cooperation to Amplify Successful Models

To address these complex and interrelated risks, government, industry, and financial stakeholders need to collaborate on identifying and amplifying effective policy solutions and business models optimized for high-potential technology segments.

Reaching net zero will require a wide range of technologies and solutions, each with distinct needs and challenges across geographies. For instance, decarbonizing hard-to-abate industrial sectors may involve cost, risk, and return profiles unfamiliar to capital allocators that have historically invested in more mature market segments. Similarly, legacy engineering, procurement, and construction companies may need to adopt new models to accommodate novel commercial, workforce, and regulatory restraints. Businesses and government need better tools to assess different approaches for success and lessons learned, and then share learnings widely.

Policymakers can address pain points across the value chain through tailored financial, regulatory, and technical support. The Department of Energy's Office of Clean Energy Demonstrations, for instance, can continue bankrolling first-of-its-kind projects, while the Loan Programs Office can provide bridge capital to help promising recipients avoid the "valley of death" and scale. For more mature solutions, the public sector can continue to underwrite risks and improve market infrastructure through measures such as tax credit transferability, which has enabled a larger cohort of investors to participate in renewable energy project finance.

Building a resilient low-carbon economy demands a new era of robust public-private partnerships that can mitigate risks, drive innovations, and mobilize capital at scale. Climate Week NYC brought promising developments under the spotlight, but sustained efforts from policymakers, investors, and industry stakeholders will be essential to enabling transformative progress.

Joseph Majkut is the director of the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Ray Cai is an associate fellow in the Energy Security and Climate Change Program at CSIS.

The insights represented here are those of the Energy Security and Climate Change Program and do not necessarily reflect the views of any of the roundtable participants.

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