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.
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).
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.
“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.
On a more market-focus basis, three sectors are highlighted:
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:
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.
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 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.
EcoAct’s ACTR approach helps organisations navigate the complexities and obstacles of transitioning to net-zero, leverage the opportunities from the business transformation process, while building resilience, protecting nature, and actively contributing to the regeneration of our environment.
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