The upheaval in oil and gas markets caused by Russia’s war in Ukraine is helping to fuel a clean energy boom as countries scramble to secure their electricity supply.
A notable record: Investments in solar exceeded those in oil for the first time last year, according to the International Energy Agency, which recently released a report on global energy investments.
But the world still invests far too much in fossil fuels, the Paris-based group warned. Investment in this sector is currently double the maximum amount that would be allowed if nations were to meet their stated commitments to reduce emissions, the IEA said.
A growing gap
Since 2018, far more funding has gone into clean energy development than fossil fuels, and the gap continues to widen. Last year, a record $2.8 trillion was invested in the energy sector, of which more than $1.7 trillion is dedicated to clean energy.
“For every dollar invested in fossil fuels, about $1.7 is now spent on clean energy. Five years ago, this ratio was one to one,” said IEA Executive Director Fatih. Birol, in a press release. “A shining example is investment in solar energy, which is expected to exceed the amount of investment in oil production for the first time.”
Russiawhich began last year has boosted demand for energy of all types, increasing investment in fossil fuels as well as clean energy. The war has triggered a spike in the price of oil and gas, of which Russia is a major producer – supplying around 12% of the world’s crude oil and nearly half of the European Union’s natural gas.
Investors responded by doubling down on all options, pumping money into developing gas and oil sources outside of Russia, as well as new renewable energy developments that don’t need any gas.
Natural gas is a fossil fuel that contributes to global warming. While it has long been considered “cleaner” than older fuels, such as coal and oil, recent research shows it could be much cleaner.At than previously thought, as its extraction releases large amounts of a powerful heat-trapping gas.
The rapid acceleration of clean energy investment is good news for the world’s commitment to meeting its climate goals. If the pace of the past two years continues, “then overall spending in 2030 on low-emission electricity, grids and storage, and end electrification would exceed the levels required to meet announced climate commitments around the world.” , wrote the IEA. “For some technologies, notably solar, this would correspond to the investment needed to get on track for a stabilization of 1.5°C in global average temperatures.”
However, this can only happen if planned oil and gas development is drastically curtailed, the IEA warned.
“The risks of fossil fuel use lock-in are clear: Fossil fuel investment in 2023 is now more than double the levels required to meet much lower demand in the (net zero) scenario,” says The report.
Fossil fuel prices create a dilemma
Persistently high fossil fuel prices and record profits for oil and gas companies over the past year have created a dilemma for investors eager to squeeze more profit from commodity prices.
“A key dilemma for investors undertaking large, capital-intensive gas supply projects is how to reconcile strong near-term demand growth with uncertain and possibly declining long-term demand,” he said. writes the IEA.
If the clean energy boom is to continue, the agency said, another key point must be addressed: equality. So far, clean energy investments have been limited to just a few countries, mainly China, the European Union and the United States.
“Remarkably, the increase in clean energy investment in advanced economies and China since 2021 exceeds total clean energy investment in the rest of the world,” the IEA found.
The high up-front costs of clean energy infrastructure and high interest rates mean that many developing countries are not investing in renewables, even though their use, in the long term, would cost less than fossil fuels and would save lives, the IEA said. In the United States and many developed countries, the need for multiple approvals for an energy project, which often takes years or even decades, has slowed the development of clean energy.