Bridging the Gap How to Finance the Net Zero Transition 2025

The decarbonization of key sectors – transport, energy, buildings, industry and agriculture – is essential for achieving global climate goals and requires extensive financial investment and strategic innovation (see Table 1). Although all sectors of the economy demand attention with regards to decarbonization efforts, the needs of these sectors are more complex. Each sector faces unique challenges: for example, the high cost of electric vehicle (EV) infrastructure in the transport sector, or the substantial capital required for the energy sector to transition to renewables. While significant capital investments are essential, equally important are robust policies, innovative technologies and equitable approaches that ensure the benefits of decarbonization are broadly shared. Blended finance will play a decisive role in mitigating investment risks, particularly in EMDEs and LDCs, while policy instruments, such as quantity and price incentive-based market instruments, can stimulate low-carbon innovation investment in developed and large emerging economies.1.4 Key sectors Sector Actual investment Annual investment by 2030 Annual investment by 2050 Transport $95.9 billion (2019-20)$2.5 trillion $3.2 trillion Energy $1.74 trillion (2023)$4.5-5.7 trillion $125 trillion (cumulative) Buildings & infrastructure $14.2 billion (2019-20)$731 billion Industrial $10.2 billion (2019-20)$320-540 billion Agriculture, forestry and other land use $6.5 billion (2021-22)$130 billionTABLE 1 Actual investment vs. investment needed to transition key sectors towards a Paris-aligned pathway Source: Climate Policy Initiative (CPI).54 Transport sector The CPI55,56 estimates that greening the transport sector demands an annual investment of $2.5 trillion by 2030, rising to $3.2 trillion by 2050. These investments are essential for transitioning to EVs, developing EV infrastructure and promoting alternative fuels for other forms of transport, including freight.However, the high upfront costs associated with EVs, and the necessary infrastructure, pose significant challenges, especially in emerging markets where disposable income is typically low.57,58 Blended finance instruments that improve the risk-return profile of transport projects could play a pivotal role in addressing these challenges by leveraging public and private capital to mitigate investment risks. Greening the transport sector demands an annual investment of $2.5 trillion by 2030, rising to $3.2 trillion by 2050. Bridging the Gap: How to Finance the Net-Zero Transition 9