According to the IEA, the fossil fuel peak could occur in 2030, and these new investment drivers are emerging

By 2030, the world's energy system will undergo significant changes.

The International Energy Agency (IEA) concluded in its World Energy Outlook 2023 (the "Report") released at the end of October that the rapid development of technologies such as solar, wind and heat pumps is reshaping the way energy is supplied to everything from factories and vehicles to home appliances and heating systems.

By 2030, the number of electric vehicles in the world will be nearly 10 times that of today; The share of renewables in the global electricity mix will rise from about 30% today to nearly 50%; Heat pumps and other electric heating systems will outsell fossil fuel boilers; The investment in new offshore wind projects will be 3 times that of new coal and gas-fired power plants...

In his report, Fatih Birol, director of the International Energy Agency, stressed: "Countries around the world are transitioning to clean energy, and they are unstoppable. It's not a question of 'whether it will work', but whether it will be fast or not. For all of us, of course, the sooner the better. ”

Fossil fuel peaks

The report begins by mentioning that although global energy prices have fallen from their peaks in 2022 after the Russia-Ukraine conflict, energy markets, geopolitics and the global economy remain unstable. Coupled with the fact that the global average surface temperature is already about 1.2 degrees Celsius above pre-industrial levels, the impact of heat waves and other extreme weather events is still ongoing, and the underlying instability and risks cannot be ignored.

One legacy of the global energy crisis could be the beginning of the end of the "fossil fuel era," the report argues. In Birol's view, statements such as "oil and gas are a safe or reliable choice for the world's energy and climate future" will be greatly less credible due to the tight and volatile traditional energy markets.

The rapid development of clean energy technologies on a global scale, combined with the transformation of the global economic structure, has had a significant impact on fossil fuels. According to the report, the current momentum of the clean energy transition is strong enough for global demand for coal, oil and gas to reach the high point of STEPS (Updated Policy Environment Outlook) by 2030 and then begin to slow gradually.

The share of fossil fuels, represented by coal, oil and natural gas, in the global energy supply has remained around 80% for decades. The report argues that the share of fossil fuels in the global energy supply will fall to 73% by 2030, continuing the current trend. Among them, the share of coal will decline the fastest, possibly by 40 percentage points by 2050 compared to the current level.

The report predicts that global energy-related carbon dioxide emissions will also peak in 2025. According to IEA data, global energy-related carbon dioxide emissions reached a record high of more than 36.8 billion tonnes in 2022, but increased by less than 1% from 2021, a slower-than-expected increase, thanks to the growth of clean energy sources such as solar, wind, electric vehicles and heat pumps. Carbon emissions from the global energy sector increased by 6% in 2021.

Against this complex backdrop, the report argues that the emergence of a new clean energy economy, led by solar photovoltaics and electric vehicles (EVs), offers hope for future development. In 2020, one out of every 25 cars sold was electric; By 2023, one out of every five cars will be electric. In 2023, renewable energy generation capacity will exceed 500 gigawatts, setting a new record; More than $1 billion is spent on solar deployment every day. Production capacity for key components of clean energy systems, including solar photovoltaic modules and electric vehicle batteries, is also rapidly expanding. In particular, the global solar panel manufacturing capacity currently being planned will exceed 1,200 gigawatts (GW)/year by 2030, about doubling from 2022.

"Clean energy development will be faster if countries meet their energy and climate commitments on time and in full. However, stronger measures are needed to limit global temperature rise to 1.5 degrees Celsius above pre-industrial levels. The report said.

New investment drivers

Of course, the end of the era of fossil fuel growth does not mean the end of fossil fuel investment, but it weakens any case for increased spending. Meeting projected demand under the STEPS outlook so far this year will mean increasing investment in oil and gas over the decade, but as the clean energy outlook strengthens and demand for fossil fuels declines, global investment in the energy sector will also change.

If countries around the world fully meet their declared energy and climate commitments, the global market for critical mass-produced clean energy technologies could be worth about $650 billion a year by 2030, more than three times the current level, the report said. By 2030, the number of jobs related to clean energy manufacturing will more than double from the current 6 million to nearly 14 million, with more than half of those jobs related to electric vehicles, solar photovoltaics, wind energy, and heat pumps. As the transformation progresses, it is expected that the employment in this sector will grow further rapidly in the coming decades.

In 2022, global investment in clean energy reached US$1.4 trillion, up 10% year-on-year, accounting for 70% of the total growth in the energy sector. Clean energy investment has grown by 40% since 2020. Pushing for emissions reductions is a key reason, but not the only one. The energy security pursued by countries is also an important factor.

While clean energy investments require high upfront expenditures, fossil fuel investments have a higher short-term rate of return. The report argues that the borrowing costs and debt burden of fossil fuel investments will continue to rise over time. The lower operating costs of clean energy will offset the high upfront investment. The IEA outlook says that clean energy will require about $1.2 trillion in cumulative investment by 2030 to reach the goal of net-zero emissions.

While attracting investment, the IEA also believes that the world should benefit from a more diverse cleantech supply chain. At present, the "green supply chain", which includes both technical manufacturing and material manufacturing, is facing the problem of high centralization. For example, in terms of technology manufacturing and geographical distribution of critical mineral resources, the concentration is relatively high.

The IEA's tracking of announced projects estimates that the concentration of global green supply chains will remain high in 2030, especially in refining and processing operations. The IEA believes that policies that encourage innovation, mineral substitution and recycling, while investing in diversified supply, can moderate demand-side trends and ease market pressures. "These policies are an important part of the safety of critical minerals and the creation of a green supply chain."

Diversification and innovation are the best strategies to manage supply chain dependencies on clean energy technologies and critical minerals, the report reads. The international community has seen a series of strategies to strengthen the resilience of clean energy supply chains and reduce the current high levels of concentration, but these strategies will take time to bear fruit.Cartography / Jiang Haoming