IEA: Redoubling international cooperation ‘vital’ to usher clean energy era faster and end fossil fuel reign
The International Energy Agency’s new report outlines that the energy world is expected to change its stripes by 2030. While global energy woes have eased somewhat, as the Ukraine crisis drags on and the risk of protracted conflict in the Middle East looms large, markets are still tense and volatile even though oil and gas prices are down from their 2022 peaks. Despite the emergence of a new clean energy economy, which is seen as a glimmer of light at the end of the tunnel against this backdrop, the IEA is adamant that much stronger policies and international cooperation are needed to keep the 1.5 °C target alive. Will a legacy of the global energy crisis usher in the beginning of the end of the fossil fuel era?
The IEA’s latest edition of the World Energy Outlook (WEO) portrays an energy system in which clean technologies play a greater role in 2030, including almost ten times as many electric cars on the road worldwide; solar PV generating more electricity than the entire U.S. power system does currently; renewables’ share of the global electricity mix nearing 50%, up from around 30% today; heat pumps and other electric heating systems outselling fossil fuel boilers globally; and three times as much investment going into new offshore wind projects than into new coal- and gas-fired power plants.
These increases, based on the current policy settings of governments around the world, show that significant changes are on the energy horizon in 2030, if countries deliver on their national energy and climate pledges on time and in full, opening the doors to further acceleration of the clean energy progress. However, the IEA warns that “stronger measures” would still be needed to reach the goal of limiting global warming to 1.5 °C.
Dr. Fatih Birol, IEA Executive Director, commented: “The transition to clean energy is happening worldwide and it’s unstoppable. It’s not a question of ‘if’, it’s just a matter of ‘how soon’ – and the sooner the better for all of us. Governments, companies and investors need to get behind clean energy transitions rather than hindering them.
“There are immense benefits on offer, including new industrial opportunities and jobs, greater energy security, cleaner air, universal energy access and a safer climate for everyone. Taking into account the ongoing strains and volatility in traditional energy markets today, claims that oil and gas represent safe or secure choices for the world’s energy and climate future look weaker than ever.”
With peaks in global demand for coal, oil, and natural gas all visible this decade, the International Energy Agency’s report emphasizes that the growing momentum behind clean energy technologies and structural economic shifts around the world have “major implications” for fossil fuels. Therefore, the share of fossil fuels in the global energy supply, which has been stuck for decades at around 80%, is set to decline to 73% by 2030, with global energy-related carbon dioxide (CO2) emissions peaking by 2025.
Furthermore, the report notes that the demand for fossil fuels is currently expected to remain far too high to keep within reach the Paris Agreement goal of limiting the rise in average global temperatures to 1.5 °C. While bending the emissions curve onto a path consistent with this goal remains possible, the IEA points out that this is also “very difficult” to accomplish. However, the costs of inaction have the potential to be “enormous,” as global emissions would remain high enough to push up global average temperatures by around 2.4 °C this century, based on the report’s data.
With this at the forefront, the WEO-2023 proposes a global strategy for getting the world on track by 2030 that consists of five key pillars, which can also provide the basis for a successful COP28 climate change conference. These entail tripling global renewable capacity; doubling the rate of energy efficiency improvements; slashing methane emissions from fossil fuel operations by 75%; innovative, large-scale financing mechanisms to triple clean energy investments in emerging and developing economies; and measures to ensure an orderly decline in the use of fossil fuels, including an end to new approvals of unabated coal-fired power plants.
“Every country needs to find its own pathway, but international cooperation is crucial for accelerating clean energy transitions. In particular, the speed at which emissions decline will hinge in large part on our ability to finance sustainable solutions to meet rising energy demand from the world’s fast-growing economies. This all points to the vital importance of redoubling collaboration and cooperation, not retreating from them,” added Birol.
The WEO-2023 examines the evolving range of energy security challenges as it comes at a time when rising geopolitical tensions in the Middle East have refocused attention on energy security concerns once more and when many countries are still contending with the impacts of the global energy crisis that erupted last year. The IEA’s report highlights that the natural gas market, which has been dominated by fears about security and price spikes after Russia cut supplies to Europe with market balances remaining precarious, is set to see pressures ease in a couple of years.
The pressure relief will be brought about by “an unprecedented surge” in new liquefied natural gas (LNG) projects, coming online from 2025 and adding more than 250 billion cubic meters per year of new capacity by 2030, equivalent to around 45% of the current total global LNG supply. This rise in capacity will ease prices and gas supply concerns but the report underscores that it also carries a risk of creating a supply glut, given that global gas demand growth has slowed considerably since the gas market’s ‘golden age’ of expansion during the 2010s. The IEA further points out that the increase will provide a “very limited opportunity” for Russia to expand its customer base, as its share of internationally traded gas, which stood at 30% in 2021, is set to drop in half by 2030.
Moreover, the WEO-2023 elaborates that China, which has an outsize influence on global energy trends, is undergoing a major shift as its economy slows and undergoes structural changes. The report projects that the country’s total energy demand is set to peak around the middle of this decade, with continued dynamic growth in clean energy putting its fossil fuel demand and emissions into decline.
Based on the report’s findings, renewables are set to contribute 80% of new power generation capacity by 2030 under current policy settings, with solar alone accounting for more than half of this expansion. By the end of the decade, the world is set to have manufacturing capacity for more than 1,200 gigawatts (GW) of solar panels per year, but it is projected to actually deploy only 500 GW in 2030.
If the world were to reach deployment of 800 GW of new solar PV capacity by the end of the decade, the report underlines that it would lead to a further 20% reduction in coal-fired power generation in China in 2030 compared with a scenario based on the current policy settings. Additionally, the electricity generation from coal and natural gas across Latin America, Africa, Southeast Asia, and the Middle East would be a quarter lower.
The IEA claims that policies supporting clean energy are delivering with the projected pace of change picking up in key markets around the world, as signs of a change in direction are evident in the lessening of the demand for fossil fuels. Despite this, the end of the growth era for fossil fuels does not mean an end to fossil fuel investment, but it undercuts the rationale for any increase in spending.
While a stronger clean energy outlook and lower projected fossil fuel demand are visible, the report underlines that the current investment in oil and gas is almost double the level required to reach emission reduction targets, signaling “a clear risk” of protracted fossil fuel use that would put the 1.5 °C goal out of reach.
The IEA further elaborates that simply cutting spending on oil and gas will not get the world on track for the net-zero aspirations as the key to an orderly transition is to scale up investment in all aspects of a clean energy system. The report warns that the urgent challenge is to increase the pace of new clean energy projects, especially in many emerging and developing economies outside China, where investment in energy transitions needs to rise by more than five times by 2030.
On this mission, a renewed effort, including stronger international support, will be “vital” to tackle obstacles such as high costs of capital, limited fiscal space for government support, and challenging business environments, says the report. The IEA is adamant that no country is an energy island or insulated from the risks of climate change, thus, the necessity of collaboration has never been higher.
Taking this into consideration, the IEA believes that governments need to find ways to safeguard cooperation on energy and climate, including by embracing a rules-based system of international trade and spurring innovation and technology transfer. Without this, the report concludes that the chance to limit the rise in global temperatures to 1.5 °C will disappear and the outlook for energy security will look “perilous if we lose the benefits of interconnected and well-functioning energy markets to ride out unexpected shocks.”