The global race toward net-zero emissions is not just about slapping a fresh coat of green paint on existing infrastructures; it’s about a full-on overhaul of carbon-heavy industries that keep our economies humming. The International Renewable Energy Agency (IRENA) has laid bare the reality: sectors like steel, cement, transportation, and chemicals account for about a quarter of global energy consumption and roughly one-fifth of carbon dioxide emissions. These are the hard-to-abate sectors that pose some of the biggest decarbonisation challenges, but they also represent a goldmine of investment opportunities, if approached correctly.
Instead of steering clear of these high-emission industries, savvy investors are beginning to see the value in financing their transition to low-carbon operations. Alternative investment firm Brookfield Asset Management has coined a phrase for this strategy: “going where the emissions are.” By directing capital toward heavy emitters, investors can help utility companies pivot towards clean power generation and assist industries like cement and steel in revamping their manufacturing processes. As Connor Teskey, CEO of Brookfield Renewable, puts it, “Without doubt, for many of the most attractive and most impactful decarbonisation investments globally, decarbonisation and value creation are complementary.”
However, the path to decarbonisation is fraught with challenges. According to BloombergNEF, the world needs to cough up an average of $7 trillion annually for the next 25 years—more than three times the investment levels seen in 2021. While solar and wind have enjoyed a surge of investment, fossil fuels still dominate, with over 60% of the world’s power sources relying on them as of 2023. The International Energy Agency warns that this reliance must drop to 30% by 2030 to stick to net-zero targets by 2050. Meanwhile, energy demand is skyrocketing due to the electrification of various sectors, putting immense pressure on utility companies to not only transition to clean energy but also ramp up capacity.
Brookfield estimates that utilities need to boost clean energy capacity by a staggering 19 times to meet these dual demands. But here’s the kicker: simply building new clean energy facilities won’t cut it. Existing fossil fuel infrastructures must be transformed, and carbon-intensive industries like steel and cement are still in the early stages of adopting sustainable practices. Take the cement industry, for example; it’s dabbling with carbon capture technologies, while steel manufacturers are starting to use hydrogen instead of coal. Yet, these innovations often come with a hefty price tag, highlighting the urgent need for more investment and technological advancements.
This is where private capital steps in as a game-changer. With the ability to make long-term investments without the short-term pressures that public companies face, private investors are uniquely positioned to fund the transformation of utilities and heavy-emitting sectors. Brookfield exemplifies this approach by entering into long-term partnerships with industrial firms. They’ve even committed up to $1 billion in funding for LanzaTech, a company that captures carbon emissions and converts them into ethanol, which is already being utilized at major industrial sites like ArcelorMittal’s steel plant in Ghent, Belgium.
By backing companies that are committed to adopting greener production methods, Brookfield is not just cutting emissions; they’re also paving the way for established industries to evolve toward net-zero goals. This strategy not only identifies promising technologies that might otherwise be overlooked but also ties decarbonisation objectives to economic returns. As Teskey warns, “Investors who are unwilling to take on initial carbon emissions can risk missing out on a transformational opportunity from both an economic and an environmental standpoint.”
The message is clear: to truly make strides toward a sustainable future, we need to embrace a comprehensive strategy that invests in both clean energy and the decarbonisation of existing infrastructures. This dual approach is not just a necessity; it’s a monumental opportunity for those willing to step up and invest where it counts.
