Profitable investments help avoid more than 1/6 of Norway’s emissions

May 23, 2024

Last year’s investments over Norfund’s Climate Investment Fund will help avoid greenhouse gas emissions equivalent to more than a sixth of Norway’s annual emissions, with annual financial returns so far above 20 %.

From Fourth Parner Energy in India.

Norfund’s investments through the Climate Investment Fund in 2023 of NOK 1.6 billion were invested in projects that will avoid 8.5 million tons of CO2 annually. This corresponds to more than one sixth of Norway’s annual emissions (48.9 million tons of CO2e in 2022). This is in addition to the projects financed in the fund’s first year in 2022, which will help avoid 6.2 million tons.

The Climate Investment Fund was established in 2022 to maximize avoided emissions through investments in renewable energy in emerging economies.

“This shows that the Climate Investment Fund is a very effective tool to accelerate the global energy transition. This type of contribution is crucial to mitigating the climate crisis. We are reminded daily that the crisis is hitting the world’s poorest hardest, and we have no time to lose in the fight against climate change,” says Minister of Development Anne Beathe Tvinnereim.

New figures from Norfund shows that the return from the Climate Investment Fund since its inception has been as much as 24.4 % (IRR) in investment currency, or 20.4 % in NOK. Over 25 years, Norfund’s investments in renewable energy have had an average annual return of 6 % in investment currency, and 9.8 % in Norwegian kroner. In comparison, NBIM reports an annual return of 6.1 % in the same period.

“Although these are figures from a very short period, it is an indication that it is possible to deliver better returns from the Climate Investment Fund than the already strong figures we have seen over time from Norfund’s energy investments,” says Thorleifsson.

Norfund’s Climate Investment Fund is also a key to mobilising private capital for developing countries. It was the main reason why Norway reached the target set at the climate summit in Glasgow in 2021 of doubling climate financing as early as 2022 – while the target was set for 2026.

Access to affordable capital pays big dividends in avoided emissions

Although the IEA expects strong growth in renewable energy in the coming years, it will not be enough to meet climate targets. The key challenge is the need to rapidly scale up renewable energy financing in developing countries and emerging economies, which have a huge need for more power generation in order to grow out of poverty. In the next 20 years, India alone will build as much as the entire EU has built today.

For all renewable energy, the cost comes as an upfront investment, while operation is almost free. Expensive capital as a result of higher perceived risk in emerging economies means that it can often still be profitable in the short term to choose coal and other fossil solutions, even though these have high and variable operating costs. The capital cost of large-scale solar energy, for example, is well over twice as high in emerging economies as in high-income countries, according to the IEA.

“Whether the world achieves its climate goals will largely depend on the extent to which these markets receive sufficient and affordable capital to tip the scales in favour of growth based on renewable energy,” says Thorleifsson.

Coal-based power generation in emerging economies accounted for more than 65% of the global increase in emissions in 2023.