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The fastest growth in energy investment is coming from the power sector –
mainly in renewables and grids – and from energy efficiency, according to
the IEA’s World Energy Investment 2022 report. The rise in clean energy
spending is not evenly spread, however, with most of it taking place in
advanced economies and China. And in some markets, energy security
concerns and high prices are prompting higher investment in fossil fuel
supplies, most notably on coal.
“We cannot afford to ignore either today’s global energy crisis or the climate
crisis, but the good news is that we do not need to choose between them –
we can tackle both at the same time,” said IEA Executive Director Fatih
Birol. “A massive surge in investment to accelerate clean energy transitions
is the only lasting solution. This kind of investment is rising, but we need a
much faster increase to ease the pressure on consumers from high fossil
fuel prices, make our energy systems more secure, and get the world on
track to reach our climate goals.”
Clean energy investment grew by only 2% a year in the five years after the
Paris Agreement was signed in 2015. But since 2020, the pace of growth
has accelerated significantly to 12%. Spending has been underpinned by
fiscal support from governments and aided by the rise of sustainable
finance, especially in advanced economies. Renewables, grids and storage
now account for more than 80% of total power sector investment. Spending
on solar PV, batteries and electric vehicles is now growing at rates
consistent with reaching global net zero emissions by 2050.
Tight supply chains are also playing a large part in the headline rise in
investment, though. Almost half of the overall increase in spending is a
reflection of higher costs, from labour and services to materials such as
cement, steel and critical minerals. These challenges are deterring some
energy companies from picking up their spending more quickly.
However, despite some bright spots, such as solar in India, clean energy
spending in emerging and developing economies (excluding China) remains
stuck at 2015 levels, with no increase since the Paris Agreement was
reached. Public funds to support sustainable recovery are scarce, policy
frameworks are often weak, economic clouds are gathering, and borrowing
costs are rising. All of this undercuts the economic attractiveness of capital-
intensive clean technologies. Much more needs to be done, including by
international development institutions, to boost these investment levels and
bridge widening regional divergences in the pace of energy transition
investment.
Another warning sign comes in the form of a 10% rise in investment in coal
supply in 2021, led by emerging economies in Asia, with a similar increase
likely in 2022. Although China has pledged to stop building coal-fired power
plants abroad, a significant amount of new coal capacity is coming onto the
Chinese domestic market.
Overall, today’s oil and gas spending is caught between two visions of the
future: it is too high for a pathway aligned with limiting global warming to 1.5
°C but not enough to satisfy rising demand in a scenario where governments
stick with today’s policy settings and fail to deliver on their climate pledges.
Today’s high fossil fuel prices are generating pain for many economies but
are also generating an unprecedented windfall for oil and gas producers.
Global oil and gas sector income is set to jump to $4 trillion in 2022, more
than twice its five-year average, with the bulk of it going to major oil and gas
exporting states.
Clean energy technologies require a host of critical minerals, and for the first
time the World Energy Investment report includes a detailed review of
investment trends for critical minerals. Higher and more diversified
investment is needed to curb today’s price pressures and create more
resilient clean energy supply chains. Worldwide exploration spending rose
30% in 2021, with the increase in the United States, Canada and Latin
America offering the prospect of more diversified supply in the years ahead.