With energy transition off-track, IRENA calls for diverting $1 trillion of annual fossil fuel investment by 2030 to accelerate it

The International Renewable Energy Agency (IRENA), an intergovernmental organisation, has outlined the investment needs of $35 trillion by 2030 as the price for the green shift while pointing out that investments in renewables and technology and infrastructure required for the net-zero shift need to more than quadruple on an annual basis, so that, the energy transition stops lagging behind the Paris Agreement goal.

The global energy crisis, which enveloped the world in its embrace in 2022, put energy security at the helm, driving countries to take measures to strengthen it, including ramping up fossil fuel production and in some cases hindering the energy transition progress as a result.

IRENA revealed on Tuesday, 28 March 2023, that the global energy transition was off-track, aggravated by the effects of global crises, while its Director-General introduced the World Energy Transitions Outlook 2023 Preview at the Berlin Energy Transition Dialogue (BETD). This preview not only warns of a dramatic lack of progress but also calls for a strategic shift in the energy transition to sustain the 1.5°C climate target.

While getting to grips with the global energy and climate crises seems to be a very challenging task, especially in the wake of the current geopolitical challenges following the Ukraine crisis, which assisted the global oil and gas industry in boosting its income to nearly $4 trillion in 2022 from its recent average of $1.5 trillion, progress has still been made in the pursuit of the energy transition to a sustainable future.

However, the World Energy Transitions Outlook 2023 Preview shows that the scale and extent of change falls far short of the 1.5°C pathway, despite the progress made in the power sector where renewables account for 40 per cent of installed power generation globally, contributing to an unprecedented 83 per cent of global power additions in 2022.

According to IRENA, a successful energy transition demands “bold, transformative measures” reflecting the urgency of the present situation, thus, investment and comprehensive policies across the globe “must grow renewables and instigate the structural changes required for the predominantly renewables-based energy transition.”

Francesco La Camera, IRENA’s Director-General, remarked: “The stakes could not be higher. A profound and systemic transformation of the global energy system must occur in under 30 years, underscoring the need for a new approach to accelerate the energy transition. Pursuing fossil fuel and sectoral mitigation measures is necessary but insufficient to shift to an energy system fit for the dominance of renewables.

“The emphasis must shift from supply to demand, towards overcoming the structural obstacles impeding progress. IRENA’s preview outlines three priority pillars of the energy transition; the physical infrastructure, policy and regulatory enablers and well-skilled workforce, requiring significant investment and new ways of cooperation in which all actors can engage in the transition and play an optimal role.”

Keeping the 1.5°C target alive is no easy feat, thus, IRENA believes “a fundamental course correction” in the energy transition journey is required with the renewable energy’s deployment levels growing from some 3,000 gigawatts (GW) today to over 10,000 GW in 2030, an average of 1,000 GW annually. As deployment is also limited to certain parts of the world, China, the European Union and the United States accounted for two-thirds of all additions last year, leaving developing nations further behind. 

Even though global investment in energy transition technologies reached a new record of $1.3 trillion in 2022, IRENA’s preview warns that a lack of progress further increases investment needs and calls for a systematic change in the volume and type of investments to prioritise the energy transition. In line with this, yearly investments need to reach over $5 trillion to stay on the 1.5°C pathway.

The intergovernmental organisation highlights that cumulative investments should amount to $44 trillion by 2030, with transition technologies representing 80 per cent of the total, or $35 trillion, “prioritising efficiency, electrification, grid expansion and flexibility.” Therefore, IRENA underscores that new investment decisions should be “carefully assessed” to simultaneously drive the transition and reduce the risk of stranded assets.

As about 41 per cent of planned investment by 2050 remains targeted at fossil fuels, the organisation emphasises that around $1 trillion of planned annual fossil fuel investment by 2030 should be redirected towards transition technologies and infrastructure to keep the 1.5°C target within reach. In addition, public sector intervention is required to channel investments towards countries in a more equitable way.

Furthermore, some 85 per cent of global renewable energy investment in 2022 benefitted less than 50 per cent of the world’s population with Africa accounting for only one per cent of additional capacity last year. IRENA’s Global Landscape of Renewable Energy Finance 2023 confirms that regions home to about 120 developing and emerging markets continue to receive comparatively little investment. 

Bearing this in mind, La Camera, stated: “We must rewrite the way international cooperation works. Achieving the energy transition requires stronger international collaboration, including collective efforts to channel more funds to developing countries. A fundamental shift in the support to developing nations must put more focus on energy access and climate adaptation.”

The forthcoming 2023 edition of IRENA’s World Energy Transitions Outlook (WETO) will contribute to the first Global Stocktake concluding at COP28 in the United Arab Emirates and will propose effective ways to accelerate progress over the next five years towards 2030.  

“Moving forward, multilateral financial institutions need to direct more funds, at better terms, towards energy transition projects and build the physical infrastructure that is needed to sustain the development of a new energy system,” concluded La Camera.