Recession-Proof Clean Energy Investments Prevail Over Fossil Fuels
Written by Morgan Lorenat
In the pursuit of a sustainable and greener future, the global energy landscape is witnessing a remarkable shift even amidst a downturn in the global economy. It is noteworthy that renewable energy investments continue to gain momentum while fossil fuel investments experience a continuous decline. This trend of increasing renewable investments, juxtaposed with the diminishing appeal of fossil fuel investments during an economic downturn, holds significant implications for the energy sector and our planet as a whole. The resilience and growth of renewable energy investments in the face of economic challenges underscore the fundamental shift in the perception of energy sources. It showcases the recognition that sustainability and long-term viability are crucial considerations for investors, even during economic downturns. This highlights a profound transformation in how we view and prioritize energy investments as the urgency to address climate change and achieve environmental goals takes precedence.
Renewable energy technologies have become increasingly cost-competitive in recent years, posing a significant advantage over fossil fuel investments. The declining costs of solar panels, wind turbines, and energy storage systems have made renewable energy sources more affordable and financially attractive. According to Bloomberg, Over the last six months, the costs of new-build offshore wind and storage projects have fallen by a respective 2% and 12%, and the global benchmark costs for onshore wind are down 6% over the last 12 months but remain unchanged since the second half of 2022. On the other hand, fossil fuel investments face uncertainties regarding price volatility, supply constraints, and the rising costs of extraction. The cost competitiveness of renewables positions them as a viable long-term investment option, contributing to the decline in fossil fuel investments.
Governments worldwide are increasingly implementing supportive policies and regulatory frameworks that favor renewable energy investments. These policies range from feed-in tariffs, tax incentives, and renewable portfolio standards to carbon pricing mechanisms. Such policy support encourages investors to allocate their funds towards clean energy projects, as they provide stability, market access, and long-term growth potential. In August of 2022, President Biden announced the passage of the Inflation Reduction Act (IRA) and the allocation of $370 billion in tax credits towards shifting away from fossil fuels thus allowing for less dependency on oil and natural gas which can undermine economic growth and long-term prosperity.
According to the Citizens’ Climate Lobby, by 2030, 80% of American electricity will be from clean sources. Clean power production from solar, wind, and other clean sources will TRIPLE, The vast majority of new cars and trucks sold will be electric, and Over 1 million new jobs will be created across the country in clean energy, clean manufacturing, and building retrofits. Conversely, fossil fuel investments face growing regulatory pressure due to concerns over climate change and pollution, making them less attractive in the eyes of investors.
The global consensus on the urgent need to mitigate climate change has led to a heightened focus on environmental considerations. Renewable energy investments are viewed as a means to reduce greenhouse gas emissions and combat climate change effectively. Increasing public awareness and growing demand for environmentally responsible investments have shifted investor preferences towards renewable energy sources.
According to the Environmental and Energy Study Institute, Fossil fuels produce hazardous air pollutants, including sulfur dioxide, nitrogen oxides, particulate matter, carbon monoxide, and mercury, all of which are harmful to the environment and human health. Air pollution from fossil fuels can cause acid rain, eutrophication (excessive nutrients that can harm aquatic ecosystems by lowering oxygen levels), damage to crops and forests, and harm to wildlife. In contrast, fossil fuel investments are increasingly scrutinized due to their significant carbon footprint and adverse environmental impacts, contributing to their decline.
Investor sentiment has undergone a transformative shift in recent years. Environmental, social, and governance (ESG) factors are gaining prominence in investment decision-making processes. Investors are increasingly recognizing the financial risks associated with fossil fuel investments, including potential stranded assets and reputational damage. According to Bloomberg, Equity investor interest remains strong and expected rates of return have not increased as fast as interest rates. Renewable power projects are considered a safe asset class and with the right power purchase agreement can even provide a hedge against inflation. As central bank interest rates come down, we may also see a wave of refinancing for the current crop of projects. In contrast, renewable energy investments align with sustainability goals and offer the potential for long-term returns, attracting a broader range of investors seeking both financial and environmental benefits.
The ongoing decline in fossil fuel investments, coupled with the rise of renewable energy investments, underscores a fundamental shift in the global energy sector. Cost competitiveness, supportive policies, environmental considerations, changing investor sentiment, and evolving market dynamics have all played significant roles in this transition. The increasing appeal of renewable energy investments presents a significant opportunity to accelerate the global clean energy transition, mitigate climate change, and create a more sustainable future in the presence of a downturn economy. By embracing renewable investments and divesting from fossil fuels, we can contribute to a greener, more resilient planet and economy for generations to come.
Stay informed by following Bloomberg, The Conference Board, and the Environmental and Energy Study Institute for more information.
Citations:
Bertrand , Savannah. “Fact Sheet: Climate, Environmental, and Health Impacts of Fossil Fuels (2021).” Environmental and Energy Study Institute (EESI), 17 Dec. 2021, www.eesi.org/papers/view/fact-sheet-climate-environmental-and-health-impacts-of-fossil -fuels-2021#2.
“Cost of Clean Energy Technologies Drop as Expensive Debt Offset by Cooling Commodity Prices.” BloombergNEF, 6 June
2023,about.bnef.com/blog/cost-of-clean-energy-technologies-drop-as-expensive-debt-off set-by-cooling-commodity-prices/.
“The Inflation Reduction Act Is about to Change Things for the Better.” Citizens’ Climate Lobby, 11 Jan. 2023,
citizensclimatelobby.org/inflation-reduction-act/?utm_source=google&utm_medium=ppc &utm_campaign=inflation-reduction-act&gclid=Cj0KCQjw1_SkBhDwARIsANbGpFuG MJvThTQbCKjrpPgj_1THFbJ5N_Ayyq0nznlGXmaxwCfbL1ZYdAUaAn_7EALw_wcB