According to the latest IEA report, investment in clean energy technologies is significantly outpacing spending on fossil fuels as affordability and security concerns fueled by the global energy crisis fuel the momentum behind more sustainable options.
2023: Expected to invest $1.7 trillion in clean technologies
According to the latest World Energy Investment Report by the IEA, around 2.8 trillion US dollars will be invested in energy production worldwide in 2023, and now more than 1.7 trillion US dollars are to be invested in clean technologies – including renewable energies and electric vehicles , storage solutions, low-emission fuels and efficiency gains and heat pumps. The rest, just over $1 trillion, is slated to go into coal, gas and oil.
“Clean energy is advancing rapidly. Faster than many people realize. This is clearly shown by the investment trends, where clean technologies are giving way to fossil fuels,” says IEA Executive Director Fatih Birol. She adds: “For every dollar invested in fossil fuels, about $1.7 now goes to clean energy. Five years ago, that ratio was one to one. A shining example is investment in solar energy, which will exceed investment in oil production for the first time.”
Annual clean energy investment is projected to increase by 24% between 2021 and 2023, driven by renewable energy and electric vehicles, compared to a 15% increase in fossil fuel investment over the same period. But more than 90% of that increase can be attributed to advanced economies and China, according to the report, which could pose a serious risk for new dividing lines in global energy if the clean energy transition doesn’t gain momentum elsewhere.
IEA: Important player for the global energy dialogue
The IEA plays a central role in the global energy dialogue. It provides authoritative analysis, data and practical solutions. Originally formed in 1974 to coordinate a collective response to major oil supply disruptions, the IEA has evolved significantly since then. It regularly recommends actions to improve the reliability, affordability and sustainability of energy. This includes focus areas such as renewable energy, oil, gas, coal, energy efficiency, clean energy technologies, power systems and markets, access to energy and demand management. Since 2015, the IEA has opened its doors to major emerging economies to expand its global impact and deepen collaboration in the areas of energy security, data and statistics, energy policy analysis, energy efficiency and the use of clean energy technologies.
Reasons for the green rethinking
The report shows: Clean energy has been promoted in recent years for various reasons. These include strong economic growth, volatile fossil fuel prices and concerns about energy security, particularly in the wake of the Russian invasion of Ukraine. Political support from measures such as the US Inflation Reduction Act and initiatives in Europe, Japan, China and elsewhere also played a role.
Upstream oil and gas spending is expected to grow 7% in 2023, reaching 2019 levels. Most pre-COVID-19 investments come from Middle East state-owned oil companies. Though many fossil-fuel producers posted record-breaking profits last year, most of that money went into dividends, share buybacks, and deleveraging rather than traditional energy supplies.
Investments in fossil fuels are nevertheless expected to recover soon
Still, the expected rebound in fossil fuel investment means that in 2023 it will more than double the level required for 2030 in the IEA’s “net-zero emissions by 2050” scenario. Global demand for coal hit an all-time high in 2022, and coal investment this year is set to reach almost six times the level projected in the 2030 net-zero scenario.
The oil and gas industry’s investment in low-emission alternatives such as clean power, clean fuels and carbon capture technologies was less than 5% of its upstream spending in 2022. Although this proportion is higher for some larger European companies, it has changed little compared to the previous year.
Emerging and developing countries remain problem children
According to the IEA, the greatest deficits in investments in clean energy are in emerging and developing countries. There are said to be some bright spots, such as dynamic investment in solar energy in India and in renewable energy in Brazil and parts of the Middle East. However, factors such as higher interest rates, unclear political frameworks and market designs, weak grid infrastructure, financially strained utilities and high capital costs are holding back investments in many countries. Much more needs to be done by the international community, particularly to encourage investment in lower-income economies where private sector activity has been hesitant.
To address this issue, the IEA and IFC will release a new special report on June 22 on expanding private finance for clean energy in emerging and developing countries.