A low-carbon economy would cost a total of $10 trillion and most of that money would have to be found from private investors, but a delay in action would cost $500 billion a year, Nobuo Tanaka, executive director of the International Energy Agency, told CNBC Monday.
"Ten trillion US dollars of additional investment is necessary to clean up the carbon-related economies," Tanaka said.
But a delay in tackling climate change could cost $500 billion a year, he said.
Global leaders have gathered at the Copenhagen Climate Change Summit to try and hammer out an agreement on climate-related issues. They are coming under increasing pressure from business leaders to give clear direction to the private sector.
- Watch the full interview with Nobuo Tanaka above.
Tanaka believes that a clear agreement is vital to gaining the investment needed for a low-carbon economy. If there is no agreement on emission reductions, private investors won't buy in, Tanaka said.
"The government money is a quite limited part of this $10 trillion. So what is necessary is to make a financial structure mechanism to make this happen because the savings of this investment is clear," he said.
Many business leaders have told CNBC that a political agreement would allow them to push ahead with their own plans to reduce carbon emissions.
"What I would hope to get out of Copenhagen is at least an agreement on the framework for an inclusive, for a fair and equitable agreement going forward by all the nations,” Muhtar Kent, president & CEO at The Coca-Cola Company, told CNBC.
Governments around the world also need to offer incentives to encourage clean energy sources as they are not yet advanced enough, Tanaka said.
"We need more innovation in these technologies for sure. Providing certain incentives is necessary… Without incentives from the government, these renewable energies will not fly, but the incentives will not continue forever," he said.
Energy efficiency is one of the best ways to achieve a low-carbon economy, according to Tanaka. But renewable energy sources, such as nuclear, and carbon capturing and storage will also be important, he added.