Ireland has committed to the ambitious target of net-zero emissions for 2050 and a 51 per cent reduction in emissions by 2030. However, implementing these measures is going to cost money — a figure estimated to be €20-€40 billion. How can this cost be met and can sustainable financing help?
Ireland’s Green Energy Transition
The Green Energy Transition is the move away from our reliance as a country on fossil fuels (oil, coal, gas) and towards sustainable energy sources, including solar, wind and biomass, says Yvonne Holmes, chief sustainability officer at AIB. “Currently in Ireland we only source about 40 per cent of our energy from renewable sources. The Government has committed to 80 per cent of our electricity to be generated from renewable sources by 2030.
“The figure of €20 billion has been quoted by the International Monetary Fund as the investment required per annum to meet Ireland’s transition to a zero-carbon economy by 2030. This is the estimated overall cost of the required transition that would include materials, human labour, investment in innovation and services in order to deliver projects such as retrofitting housing, transport infrastructure and renewable energy projects.”
What is ‘sustainable funding’?
Generally speaking, sustainable funding covers the provision of finance for projects that have a “sustainability” angle, for example, the reduction of energy use, waste, and water usage, says Brian Haugh, director, sustainability advisory at BDO. “For the most part, the focus is environmental sustainability but I am also aware of a number of ‘social bonds’ which are issued to fund social sustainability projects.
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“Governments around the world have set up funds to provide finance for these projects, for example, the EU has launched the European Green Deal Investment Plan to provide €1 trillion of funding. Private funders are also committing substantial sums, for example, the Glasgow Financial Alliance for Net Zero has committed over $100 trillion to fund sustainability projects. These funds are intended to be provided to projects that aim to help us meet our target of limiting global warming to 1.5 degrees.”
There is no single form that sustainable funding can take; it can range from non-repayable grants to seed finance for start-ups, to traditional debt finance, says Haugh. “The key is that projects that are not sustainability linked cannot compete for the finance. In many cases, the cost of finance is also lower than traditional finance.”
Banks that issue green bonds use the funds raised to finance or refinance eligible green projects, says Holmes. In order to be labelled green, the AIB bond must comply with the International Capital Markets Association’s (ICMA) Green Bond Principles, which govern the use of the bond proceeds and requirements for related transparency and reporting.
Funding the movement
Ireland’s transition to clean energy will require substantial investment, says Haugh, not only in renewable energy generation projects but also in improving our electricity grid and funding energy efficiency measures across the country. “These projects can benefit from the large number of financiers seeking to fund sustainable projects both in terms of access to capital and also the cost of finance.
“While there is debate as to what projects are truly sustainable, the EU taxonomy seeks to set a benchmark for sustainable funding in Europe. It provides detailed criteria which must be met in order for financial institutions to include this funding as taxonomy-aligned sustainable funding in their reporting. The taxonomy is not without controversy, however, with many criticising the late inclusion of nuclear energy and natural gas in the taxonomy as being a decision based on politics rather than sustainability.”
Holmes says the money for this transition will come from a number of sources. “There will be a significant portion from public funds — most recently in the 2023 budget the Government allocated €1 billion to climate-related activities and supports for 2023.”