$53 trillion must be channelled towards low carbon energy by 2035 to stave off dangerous climate change, says IEA
Investment in low carbon sources of energy will fall well short of what is needed to stave off climate change unless a breakthrough is reached in stalled UN climate talks, the IEA said in a report on Tuesday.
In a major report highlighting trends in energy spending, the Paris-based agency said $53 trillion will need to be funnelled towards lower carbon energy and efficiency over the next two decades in order to limit a rise in global temperatures to below 2C.
A total of $1.6 trillion was spent on all types of energy extraction, generation and distribution last year, the IEA said, but just $250 billion (16%) of this was directed towards renewables and energy efficiency, around $50 billion less than in 2011 as investment stalled in some countries and the costs of solar technology declined.
“The investment path that we trace in this report falls well short of reaching climate stabilisation goals, as today’s policies and market signals are not strong enough to switch investment to low-carbon sources and energy efficiency at the necessary scale and speed,” the IEA report added.
The agency, which represents members of the OECD, said a clear steer from government and the imposition of high costs on extracting and burning fossil fuels would be essential so that low carbon energy can be made sufficiently attractive to investors.
Spending on renewables and energy efficiency will need to almost treble to $730 billion a year by 2030 for the world to make a decisive move away from fossil fuels.
If the world’s major emitters do manage to agree policies that can cap a temperature rise to 2c, then $300 billion of fossil fuel investments would be rendered as stranded assets, the report adds.
The report came as policymakers and energy companies digested the publication of proposals by the US Environmental Protection Agency to curb emissions from the country’s electricity sector, particularly from coal-fired power stations, while China on Tuesday said it would set an absolute cap on carbon emissions from 2016.
UN climate talks in Bonn this week – which are aimed at preparing the ground for a climate deal next year in Paris – will try and make progress on how the world can slow investment in fossil fuels and scale up spending on renewables.
But the IEA noted that governments are finding it increasingly difficult to agree clear policies that would prompt a major shift to low carbon technologies because of demands by energy consumers for lower energy prices and growing public concerns about subsidies for renewables.
Governments negotiating at Bonn this week still bear most of the responsibility for driving investment in low carbon technologies, rather than markets, the IEA said.
“In many countries, governments have direct influence over energy sector investment, for example, through retained ownership of more than 70% of global oil and gas reserves or control of nearly half of the world’s power generation capacity, via state-owned companies,” today’s report said.
But the IEA noted that governments are finding it increasingly difficult to agree clear policies that would prompt a major shift to low carbon technologies because of demand for low energy prices and concerns about the level of subsidy needed for renewables.
“Against this backdrop, there is a risk that policymakers fail to provide clear and consistent signals to investors, with particular impacts on low-carbon technologies that depend, for the moment, on policy support,” the report said.
The IEA’s report is more grist for the mill for investors who are pressing governments to back up carbon trading with ambitious targets.
“Where carbon isn’t priced, where the price is weak or where fossil fuels are subsidised, the incentive to make this switch is much reduced. A strong carbon price which boosts investment will also reduce the need for fossil fuel imports and strengthen regional energy security, said Stephanie Pfeifer, Chief Executive of the Institutional Investors Group on Climate Change.
The group represents 88 of Europe’s largest investors with assets worth €7.5 trillion.