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According to a report released by the International Energy Agency (IEA), global energy investment will rise by 8% by 2022 to USD 2.4 trillion. The increase is primarily in clean energy. While this is encouraging, it is not enough to address the many dimensions of the energy crisis today and create a safer and cleaner energy future.
According to the World Energy Investment report, the fastest growth in energy investments is in the power sector – mainly in grids and renewables – and energy efficiency. However, the majority of clean energy spending growth is concentrated in advanced economies like China. In some markets, high prices and energy security are driving higher investments in fossil fuels, including coal, due to increased investment.
Fatih Birol, Executive Director of IEA, stated that “We can’t afford to ignore either the global energy crisis today or the climate crisis right now.” A massive increase in investment is needed to speed up clean energy transitions. While this type of investment is increasing, we need to increase it faster to reduce the pressure on consumers due to high fossil fuel prices and make our energy systems safer. This will help us get the world on the right track to meet our climate goals.
In the five years following the 2015 signing of the Paris Agreement, clean energy investments grew only by 2% per year. However, growth rates have accelerated to 12% since 2020. Fiscal support from governments has helped to boost spending, as well as the growth of sustainable finance, particularly in advanced economies. More than 80% of total investment in the power sector is now made in renewables, grids, and storage. The rate of investment in solar PV, batteries, and electric vehicles is increasing at a pace that will allow us to reach global net zero emissions by 2050.
However, tight supply chains play a significant role in the overall rise in investment. The increase in spending is almost half due to higher costs. This includes labour and services, as well as materials like cement, steel, and critical minerals. Some energy companies are finding it difficult to increase their spending.
There is a rapid increase in spending on emerging technologies from a low base. These include batteries, low-emission hydrogen and carbon capture utilisation & storage. The 2022 investment in battery storage will more than double, reaching almost $20 billion.
Despite some positive signs, like solar in India, clean-energy spending in emerging and developed economies (excluding China), remains at 2015 levels. There has been no increase in this level since the Paris Agreement. The public funds needed to support sustainable recovery are limited, the policy frameworks are weak and economic clouds are growing, while borrowing costs are increasing. This all reduces capital-intensive clean technology’s economic appeal. International development institutions need to do more to increase these investments and to bridge regional differences in the rate of energy transition investment.
A warning sign is the 10% increase in investment in coal supply by emerging economies in Asia in 2021. This will be followed by a similar increase in 2022. China has promised to cease building coal-fired power stations abroad. However, significant new coal capacity is being added to the Chinese domestic market.
The Russian invasion of Ukraine has caused energy prices to rise for many consumers and businesses all over the globe. This has had a devastating effect on households, industries, and entire economies, especially in developing countries where it is most difficult to afford. To offset the shortfalls in Russian exports, production needs to be increased elsewhere. This includes natural gas production. New LNG infrastructure may be needed to diversify Russia’s supply. Although oil and gas investments are up 10% compared to last year, they remain well below the 2019 levels.
Today’s oil-and-gas spending is stuck between two visions for the future. It is too high to support a pathway that limits global warming to 1.5 degrees Celsius, but not enough to meet rising demand in a scenario when governments continue to follow current policy settings and fail their climate promises.
High fossil fuel prices today are creating pain in many countries, but also providing unprecedented profits for oil and gas producers. The global oil and gas sector income will rise to $4 trillion by 2022, more that twice the average over five years. Most of this money will go to major oil exporting countries.
These windfalls are a unique opportunity for oil-producing countries to finance the necessary transformation of their economies and for major oil companies to diversify their spending. With little progress being made, the European majors and a few other companies driving the growth in clean energy spending, the share of oil and gas companies is slowly increasing. Globally, clean energy investments account for approximately 5% of all oil and gas company capital expenditures, up from 1% in 2019.