Investments in clean energy could outpace spending on fossil fuels due to energy security concerns exacerbated by the war in Ukraine, as well as policy support from wealthy countries, according to a new report published by the International Energy Agency (IEA).
The report estimates approximately $2.8 trillion will be invested in energy in 2023. Of which, more than $1.7 trillion will be invested in clean energy, including renewable power, nuclear, grids, storage, low-emission fuels, efficiency improvements and end-use renewables and electrification.
Over $1 trillion will be invested in unabated fossil fuel supply and power, with 15% of which going to coal and the rest going to oil and gas.
Yet, investments in coal are projected to increase by around 10% in 2023, nearly six times more than what the IEA has estimated they should be for the world to end its reliance on fossil fuels and achieve emissions reduction targets for combating climate change, the report said.
Part of the problem is that demand for energy is outstripping increases in supplies in many places around the world. The decision to invest in future capacity can be swayed by powerful energy industry interests, which are often in favor of fossil fuels.
2022 saw a record high in global coal demand, and about 40 GW of new coal power plants were approved, the highest figure since 2016, with almost all of them located in China, the report says.
Nevertheless, there is a clear shift toward renewable energy. Currently, for every $1 spent on fossil fuels, $1.70 is being invested in clean energy. This marks a significant change from the 1:1 ratio observed five years ago, according to the report.
Clean energy investment has been driven by various factors in recent years, such as strong economic growth and unstable fossil fuel prices that have raised concerns about energy security, particularly following Russia's invasion of Ukraine.
Additionally, policy support such as the Inflation Reduction Act in the U.S. and initiatives in Europe, Japan, China, and other areas have contributed to this increase.
More than 90% of the growth in clean energy investments comes from advanced economies and China, with much less investment from less wealthy nations. The report also highlights various factors that hold back renewables investments, including high-interest rates, inadequate electricity grid infrastructure, and unclear policies.
