IEA World Energy Investment 2021 review: Stop fossil fuel investment and push clean on energy investments for post-Covid recovery and net zero alignment

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This year, the IEA World Energy Investment report gives the latest data and analysis on energy investment flows through the recovery from the Covid-19 pandemic, as well as full-year estimates of the outlook for 2021. It looks at how investors are calculating risks and opportunities across all areas of fuel and electricity supply, efficiency and research and development, as global energy demand recovers from the shocks of the past year and growing momentum around net zero as governments and private sector tackle climate change. EcoAct’s Research and Innovation team takes a look.

World Energy Investment report compares IEA’s net zero emission scenario for 2050 to current trends in energy investments and the gaps are high

The IEA has been particularly active these months. Indeed, after publishing The Role of Critical Minerals in Clean Energy Transitions report and Net Zero by 2050 document in May(see our review here), last week it then released the World Energy Investment report.

This 64-page report echoes the impact of the Covid crisis in energy investment while producing a gap analysis between current spending in the sector and their recent net zero emission scenario (NZE).

A rebound in global energy investment in 2021

Annual global energy investment is set to rise to $1.9 trillion in 2021. Although investment in traditional fuel production was significantly impacted by Covid last year, rebound is already expected.

globan energy investment

A significant boost in “cleaner” energy thanks to the support of post-Covid stimulus plans

“Cleaner” energy solutions took advantage of the health crisis, increasing from 35% of total energy investment between 2017 and 2019 to 40% in 2020. However, this means that fossil fuels still retain a major position with 60%, which is not compatible with a net zero trajectory in line with the Paris Agreement.

clean energy investment

On a more market-focus basis, three sectors are highlighted:

  • Electricity: renewables as electricity networks and battery storage are dominating inflows of capital to new power generation capacity. These investments remained robust in 2020 despite the Covid-19 crisis.

investissement énergie par secteur

  • Transport: oil and gas still dominate all energy-related investments, but the EV market is starting to take off. A 50% increase in EV sales was observed in 2020, which implies that these “cleaner” vehicles represent 4% of global sales. Investment in low-carbon fuels seem too low to expect any global impact on GHG emissions at this stage.
  • Building: investments increased during 2020. 50% was made by Europe, revealing the leading action of the old continent in this sector.

Mind the gap: A radical investment shift is required to achieve Net Zero emission 

Following a year of shocks and uncertainties, the findings are mixed but the IEA is clear on the conclusion: a radical investment shift is required within this decade to align with NZE.

The following moves are needed to get investments compatible with NZE on the 2026-2030 period:

  • Oil & gas investments should decrease by 30%
  • Coal spending must decrease fivefold to become NZE or even Sustainable Development Scenario (SDS) compatible in the same period.

dépenses en charbon

  • Renewable power investment may increase by 240% to be aligned with the most IEA’s ambitious scenario.
  • Electricity network global investment would have to increase by 115%.
  • Energy efficiency in buildings spending should increase threefold.
  • Electrification of transport investment would have to close the gap from less than $50 billion/year today to more than $500 billion/year in 2025’s.

investissement zéro émission nette

Overall, the report shows that gaps are high to transit towards a net zero emission trajectory globally. While some data may be encouraging today regarding the Covid crisis recovery and investments in renewable power, the IEA clearly shows that “the world is a long way short of the path that needs to be followed to avoid severe impacts from climate change”.

According to IEA Executive Director, Dr Fatih Birol “Global carbon emissions are set to jump by 1.5 billion tonnes this year. This is a dire warning that the economic recovery from the Covid crisis is currently anything but sustainable for our climate.” He warns that unless governments around the world move rapidly to emissions reduction, results for next year’s report will be far worse and calls on world leaders to commit to clear and immediate action ahead of COP26 in Glasgow.

Achieving Net Zero emission needs strong R&D developments

One way to close this gap and deliver net zero transition is through Research and Development (R&D). R&D must be one of the leading cornerstones to level up the ambition and deliver results. Companies’ R&D spending in energy-related fields fell by around 2% in 2020 after steadily increasing since 2015. As for today, companies are still a long way from helping the transition away from conventional energy:

  • The automotive and oil and gas sectors still attract two thirds of private investments on energy R&D
  • Companies invest as much in fossil fuel production as in renewables.

The anticipated USD 750 billion to be spent on clean energy technologies and efficiency in 2021 is promising but is far short of what’s required for a net zero trajectory. Clean energy investment for innovation and scaling needs to triple in the 2020s to put the world on track to reach net-zero emissions by 2050, thereby keeping the door open for a 1.5 °C stabilisation of the rise in global temperatures. We hope that globally we find the commitment, investment and collaboration for effective R&D to drive change so we can all reach net zero because as Dr Fatih Birol recently pointed out, the Race to Zero is against time and not each other. If we don’t all cross the finish line, then no-one wins.

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