To achieve the target of stabilizing global warming at 1.5°C, a rapid divestment from fossil fuels is essential.
What does the annual study from the International Energy Agency (IEA) tell us about this issue?
On the positive side, low-carbon investments are maintaining their pace in 2023 and 2024. However, the recovery in fossil fuel investments, which began in 2022, has continued in 2023 and 2024.
Oil and gas companies are still reinvesting the majority of their profits in oil and gas.
Acceleration of Low-Carbon Investments
Let’s start with the good news: “Total energy investments will exceed $3 trillion for the first time in 2024, with $2 trillion going towards clean energy. Investment in clean energy has accelerated since 2020, and spending on renewables, grids, and storage is now higher than the total spent on oil, gas, and coal.”
The opening lines of the IEA report are rather reassuring. The rise in interest rates and the rebound in inflation have not broken the pace of low-carbon investments. Their recessive impact has been countered by the reduction of bottlenecks in supply chains, the fall in prices of critical metals, and the 30% drop in solar panel prices in two years.
However, the IEA draws attention to two areas of concern:
- Despite some progress, investments in low-carbon energy are spreading far too slowly in emerging economies (excluding China) and in less developed countries where the cost of capital is high and international financing is insufficient.
- Investments in electricity grids and storage are struggling to keep up with those in renewable electricity supply, which will hinder their integration into electricity systems.
While total investment in fossil fuels is declining over the 2015-2024 period, the recent trend is more worrying. After falling between 2015 and 2021, investment in fossil fuels has been slowly recovering since 2022, and 2024 is not expected to interrupt this trend.
A Difficult Endgame for Coal, Expanding Capacity for Oil and Gas
In the electricity sector, divestment seems to be underway for coal-fired power plants, which are expected to account for only 2% of the sector’s investments (compared to 16% in 2015). Investments in gas and oil-fired power plants have halved between 2015 and 2020. They have since increased slightly, due to investments in gas-fired power plants.
Electricity production only represents 30% of total energy investments. When considering the total, the recent recovery in fossil fuels is much more significant than in the electricity sector alone:
- Investments in coal production have been increasing since 2020, mainly due to India and China wanting to reduce their dependence on imports. Additionally, primary steel production capacity, still almost entirely coal-based, continues to expand globally.
- Middle Eastern producing countries, Russia, and the United States have strategies to expand their oil and gas production and export capacities. The war in Ukraine has also led to a sharp acceleration in LNG transport capacity from the United States and Qatar to Europe.
Decarbonized Investment by Oil and Gas Companies: A Meager Share!
Oil and gas companies justify the profits they make from oil and gas by the investments they generate in low-carbon energy. The table below shows the limits of this reasoning:
- The most ambitious European companies still allocate less than half of their investments to low-carbon energy, and this proportion is much lower for major American companies.
- Three national companies (ADNOC, Aramco, and PetroChina) invest significant sums in low-carbon energy, but these investments are far from the amounts they direct towards oil exploration.
- Other national companies are conspicuously absent from low-carbon investments.
The Path to Fossil Fuel Divestment
In conclusion, the divestment from fossil fuels is still a challenge ahead. To achieve this, it would be necessary to place greater emphasis on controlling energy demand and expanding carbon pricing mechanisms to make fossil fuel producers accountable for the climate damage caused by their greenhouse gas emissions.
This article was published on Christian de Perthuis’ website here.
Read the article in The Economist (limited access) Here:
Read the IEA report on investment Here: