The upheaval in oil and gas markets started by Russia’s war in Ukraine is helping fuel a clean-energy boom as countries scramble to secure their power supply.
One notable record: Investment in solar outpaced that in oil for the first time last year, according to the International Energy Agency, which released a report this week on global energy investment.
But the world is still investing far too much in fossil fuels, the Paris-based group warned. Investment in that sector is currently double the maximum amount that would be allowed if nations are to meet their stated pledges to reduce emissions, the IEA said.
A growing gap
Since 2018, far more funding has been put into clean-energy development than into fossil fuels, and the gap continues to grow. Last year saw a record $2.8 trillion invested globally into energy sector, of which more than $1.7 trillion is dedicated to clean energy.
“For every dollar invested in fossil fuels, about 1.7 dollars are now going into clean energy. Five years ago, this ratio was one-to-one,” IEA Executive Director Fatih Birol said in a statement. “One shining example is investment in solar, which is set to overtake the amount of investment going into oil production for the first time.”
Russia’s brutal invasion of Ukraine which began last year boosted demand for energy of all types, raising investment in fossil fuel as well as clean power. The war set off a price spike in oil and gas, of which Russia is a major producer — supplying about 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, throwing money into developing gas and oil sources outside of Russia, as well as into new renewable energy developments that don’t need gas at all.
Natural gas is a fossil fuel that contributes to global warming. While it was long considered “cleaner” than older fuels, like coal and oil, recent research shows it could be much more damaging to the climate than previously thought, as its extraction releases large amounts of methane, a powerful heat-trapping gas.
The rapid acceleration of clean-energy investment is good news for the world’s pledge to meet its climate targets. If the pace of the last two years continues, “then aggregate spending in 2030 on low-emission power, grids and storage, and end-use electrification would exceed the levels required to meet the world’s announced climate pledges,” the IEA wrote. “For some technologies, notably solar, it would match the investment required to get on track for a 1.5°C stabilization in global average temperatures.”
However, that can only happen if planned oil and gas development is scaled back significantly, IEA warned.
“The risks of locking in fossil fuel use are clear: Fossil fuel investment in 2023 is now more than double the levels required to meet much lower demand in the [net zero emissions] scenario,” the report found.
Fossil fuel prices create a dilemma
The still-high prices of fossil fuels, and oil and gas companies’ record profits in the past year, have created a quandary for investors, who are eager to make more profits off 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 longer-term demand,” IEA wrote.
If the clean-energy boom is to continue, the agency said, another key point needs to be addressed: Equality. So far, clean-power investment has been restricted to just a few countries — primarily China, the European Union and the U.S.
“Remarkably, the increases in clean energy investment in advanced economies and China since 2021 exceed total clean energy investment in the rest of the world,” the IEA found.
The high upfront costs of clean-energy infrastructure and high interest rates mean that many developing countries aren’t investing in renewables, even though its use, in the long term, would cost less than fossil fuels and would save lives, the IEA said.