The energy transition across the globe presents a big business opportunity for stakeholders in various sectors, according to the International Renewable Energy Agency (IRENA)’s World Energy Transitions Outlook.
However, for the world economy to maximise energy transition benefits, current policies and investments need to be accelerated to align decarbonisation goals with the Paris Climate Change Agreement of keeping the global temperature increase below 1.5°C.
Although a massive increase is required in investments in green projects, the health, environmental and economic benefits that would result from the investment far outweigh the investments. Accelerating energy transitions on a path to climate safety can grow the world’s economy by 2.4% over the expected growth of current plans within the next decade, resulting in the creation of 122 million energy-related jobs (more than double today’s 58 million, according to the study). The renewables sector alone would account for more than a third of energy jobs and employ 43 million people. However, a massive $44 trillion in investment, around 5% of the global GDP in 2019, on average is required per annum in renewable energy projects to align the globe with the 1.5°C energy transition pathway.
In addition, $33 trillion in additional investments would be required in efficiency, renewables, end-use electrification, power grids, flexibility, hydrogen, and innovations through 2050 to phase out the use of conventional energy resources, for every dollar spent on the energy transition to add benefits valued at between $2 and $5.5, in cumulative terms between $61 trillion and $164 trillion by the mid-century.
Have you read?
IRENA and Siemens Energy partner to drive decarbonisaton
African countries left behind in quest for sustainable energy for all
IRENA: No successful global energy transition without innovation
IRENA is calling for a rapid change in existing policies and financing mechanisms for the world to meet goals set and benefits anticipated under the 1.5°C energy transition pathway. For instance, the private sector has been urged to shift funding from equity to private debt capital. The latter will grow from 44% in 2019 to 57% in 2050, an increase of almost 20% over planned policies.
The shift in financing mechanisms would enable energy transition technologies to simply obtain affordable long-term debt financing, while fossil fuel assets will increasingly be avoided by private financiers and therefore forced to rely on equity financing from retained earnings and new equity. However, public financing will need to remain central to accelerate the energy transition and to catalyse private finance. In 2019, the public sector provided some $450 billion through public equity and lending by development finance institutions. In IRENA’s 1.5°C Scenario, these investments will need to almost double to $780 billion.
Existing policies will need to be revised and tougher regulations enacted to avoid fossil-fuels market players from accessing funding for their projects.
Moreover, an enhanced international cooperation approach to climate change mitigation will be vital to realise the full potential of the energy transition.
Francesco La Camera, IRENA’s Director-General, said: “This Outlook represents a concrete, practical toolbox to total reorientation of the global energy system and writes a new and positive energy narrative as the sector undergoes a dynamic transition.
“There is consensus that an energy transition grounded in renewables and efficient technologies is the only way to give us a fighting chance of limiting global warming by 2050 to 1.5°C. As the only realistic option for a climate-safe world, IRENA’s vision has become mainstream.
“Energy transition is a daunting task but can bring unprecedented new possibilities to revitalise economies and lift people out of poverty. IRENA’s Outlook brings unique value as it also outlines the policy frameworks and financing structures necessary to advance a transition that is just and inclusive. Each country will define what is the best for them, but collectively, we must ensure that all countries and regions can realise the benefits of the global energy transition for a resilient and more equitable world. We have the know-how, we have the tools, we need to act, and do so now.”
Read the full World Energy Transitions Outlook.