France’s energy transition: funding needs to significantly increase to meet long-term goals

According to the Institute for Climate Economics, households, companies and the government would have to invest between €13 billion and €30 billion per year between 2021 and 2030 to stay on course for carbon neutrality. Audrey Garric discusses in an artlcle on the Le Monde website.

France needs to dramatically boost spending to achieve carbon neutrality by 2050

Financing the climate transition has never seemed more urgent than under the pressure of the climate and energy crises, both linked to the world’s addiction to fossil fuels. After a decade of “chronic underinvestment” in France, there is both a note of hope and grounds for concern, said the Institute for Climate Economics (I4CE) in its annual overview, published Friday, October 14, in the midst of France’s budget debate. The think tank shows that public and private investments dedicated to the climate have risen sharply in 2021, to €84 billion, up 18% compared to 2020. But this surge remains “fragile,” experts warn, and much-increased spending will still be needed to achieve carbon neutrality in 2050 and sustainably reduce dependence on coal, oil and gas.

These investments made by households, companies and public authorities are increasing in the three sectors studied by I4CE: transport, buildings and energy production, which concentrate 60% of French greenhouse gas emissions. The biggest increases are found in the purchase of electric and hybrid vehicles (68 % in one year), the development of renewable energies (34 %) or the energy renovation of buildings (20 %).

Green investments

This “exceptional” increase is “in a context of economic recovery but also dynamic public support,” said Hadrien Hainaut, one of the authors of the study. The increase in investment is thus linked to the postponement of projects delayed in 2020 due to the coronavirus pandemic, but also to the consequence of the €100 billion stimulus plan launched by the government in 2020, a third of which is devoted to green transitions. For example, the state has paid €5.1 billion in subsidies to households to help them renovate their homes, and local authorities have increased subsidies paid to France’s public railway company, SNCF Réseau. Regulations have also played a role: new European CO2 emission standards have, for example, pushed manufacturers to bring electric and hybrid vehicles to markets.

In total, climate investments grew by 71% between 2011 and 2021. “Last year, we got close to what we should be doing in terms of volume,” said Damien Demailly, the deputy director general of I4CE, “and we’re very pleased. But there are still questions about quality.” The increase in financing has not, for example, necessarily led to high-performance energy renovations with real energy efficiency gains, he points out.

‘Concern’ for 2023

Could this growth be structural? “Several elements worry us for the future,” answers Mr. Demailly. First, there is the stimulus plan, which expires at the end of the year “without any new programming at this stage”. Then, the exceptionally high prices of energy, associated with a lack of labor in some sectors (especially construction) and a lack of supply of materials, may prevent some spending favorable to the climate.

According to preliminary I4CE data, these investments are expected to increase moderately in 2022, with a “stronger concern” for 2023. “Some households or companies can no longer afford to invest in renewables because of the sudden rise in energy prices, and others have been sitting on their hands thinking that the situation will return to normal,” Mr. Hainaut said.

On the contrary, it should be strongly accelerated. According to I4CE, households, businesses and the government would have to invest between €13 billion and €30 billion per year on average between 2021 and 2030 to stay on course for carbon neutrality. The figures, calculated from environmental transition agency Adme’s insights, differ depending on whether the demand for energy, materials and resources is radically reduced or, on the contrary, whether the same lifestyles are maintained with greater use of technology.

In any case, these amounts remain a low range since they do not include the agriculture, industry or waste sectors, nor adaptation to climate change. Moreover, some of the scenarios studied by Adme do not allow for the new European emissions reduction target (-55 % by 2030 compared to 1990, compared to -40 % previously), which France will have to decline in its law. I4CE recommends planning climate investments over time – an amendment to the 2023-2027 public finance programming bill has just been voted by the National Assembly with this purpose.

The institute also calls for vigilance regarding climate-unfriendly investments. Expenditures in fossil fuels (thermal vehicles, airlines, gas or oil boilers) amounted to €62 billion in 2021, in clear decline since the health crisis. The main reason for this drop is the decline in registrations of thermal vehicles, caused by supply difficulties for certain components (such as semiconductors), but also by more demanding regulations. To meet national targets, fossil fuel investments still need to be halved by 2030. “We are worried about a possible rebound in the medium term if the energy crisis continues,” Mr. Hainaut warns, such as new investments in gas.

These figures differ from the “green budget” presented by the government on Tuesday, October 11, because the latter counts budgetary and fiscal public spending that is both favorable and unfavorable to the environment, while the I4CE is only interested in investments – public and private – in equipment, “which determines tomorrow’s emissions.” The finance ministry claims a €4.5 billion increase in favorable spending in the 2023 budget. But with the tariff shield on electricity and gas, which amounts to €45 billion, unfavorable spending has jumped, warns the I4CE.

The energy crisis may prevent local authorities from further investing in resources to transition to green energy. Yet, according to another report by the Institute of Climate Economics published on Friday, October 14, they should invest €12 billion per year between 2021 and 2030 to meet climate goals, compared to €5.5 billion today, a doubling of their effort. “The need to accelerate investment is particularly strong in recycling facilities and in the energy renovation of public buildings,” said Aurore Colin, one of the authors of the report. The €2 billion green fund released by the government to help local authorities accelerate the transition “is only part of the answer,” warned I4CE.

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