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Investments into renewable power, energy efficiency and electric vehicles are set to make up the bulk of spending on energy this year, but still won’t be enough for the world to achieve net-zero carbon emissions over the next three decades, according to the International Energy Agency.
The IEA expects spending on clean energy to exceed US$1.4 trillion this year, accounting for almost three-quarters of overall investment, according to a report published on Wednesday. The average annual growth rate has accelerated to 12 per cent since 2020, compared with 2 per cent in the five years following the 2015 Paris climate accord.
“The rise is good, but not strong enough to lift us from the strong energy crisis we have and to prepare us for a better climate future,” IEA Executive Director Fatih Birol said in a press conference.
It’s also “well short of what is required to hit international climate goals,” the Paris-based Agency said.
“Without a massive surge in spending on efficiency, electrification and low-carbon supply, rising global demand for energy services will simply not be met in a sustainable way.”
Overall investments in all forms of energy including fossil fuels in recent years has been too low, feeding the current global crisis, the IEA said. Russia’s invasion of Ukraine and its impact on oil and gas supplies and prices has simply “added another layer of expectation and uncertainty to the picture.”
While total energy investment is set to rise 8 per cent this year, half of that increase will be eaten up by growing costs linked to supply-chain pressures, shortages in specialized labor and higher prices for construction materials such as steel and cement. Clean energy will also be hit by higher costs, with solar panels and wind turbines up around 10 per cent to 20 per cent from 2020
levels, the IEA said.
The Agency also found that almost all the growth in clean energy investment came from advanced economies and China. “In the rest of the world, clean energy investments are more or less flat since the year 2015,” Birol said.
China has continued to lead the way in green investments, with spending last year of US$380 billion. The European Union was the next biggest spender last year at US$260 billion, while the US followed at US$215 billion, according to the IEA. While solar accounted for most new investments, offshore wind had a record year in 2021, with more than 20 gigawatts of power commissioned and around US$40 billion of expenditure.
The war in Ukraine has spurred the EU to reduce its reliance on Russian oil and gas in the long run. In the short- term, however, the world is seeing some countries increase fossil fuel investments amid historically high prices, the IEA said. That includes the expansion of coal in some emerging Asian economies.
Still, aggregate investment in oil, gas, coal and low-carbon fuels remains below pre-pandemic levels. Fossil fuel spending is almost 30 per cent below where it was when the Paris agreement was signed. The IEA estimates that global oil and gas producers’ net income will double this year to an unprecedented
US$4 trillion. But despite “sky-high” fuel prices, companies are taking a more cautious approach to big capital commitments due to policy uncertainty and financing costs.
Oil and gas firms are only spending 5 per cent of their capital expenditure on clean energy technologies, while the remainder continues to be funneled into traditional fossil fuel investments, Birol said. Tight supplies caused investment into coal to rise 10 per cent year on year in 2021 to US$105 billion, and the industry is set for another 10 per cent increase in 2022. The rise comes despite an agreement in climate talks in Glasgow last year to phase out the fuel.
“The lasting solutions to today’s crisis lie in speeding up clean energy transitions via greater investment in efficiency, clean electricity and a range of clean fuels,” the agency said.