Between the Covid-19 pandemic, the Ukraine conflict, inflation, and the renewables transition, the 2020s have been a volatile decade for energy. The pandemic reduced demand for electricity and oil all over the world, causing prices to plummet. Then the Ukraine invasion brought sanctions on Russian oil and gas, pushing energy prices up and leaving European countries scrambling (particularly for natural gas). High energy prices have since contributed to inflation, and in many places utility costs are far surpassing inflation. All the while, worry over climate change has continued to mount, with calls to reduce our dependence on fossil fuels growing ever louder.
In short, the energy situation in the US and around the world is a mess. But the International Energy Agency released some good news in its recent World Energy Investment report. The report is compiled annually, and the 2023 version came out at the end of May. For the first time ever, it found that investment in renewables—specifically solar power—will overtake spending on oil.
The IEA estimated that a total of $2.8 trillion will be invested in energy globally this year, with clean energy accounting for more than $1.7 trillion of that total. The “clean” designation includes renewables like wind, solar, and hydro, but also nuclear power, grids, storage, low-emission fuels, efficiency improvements, and electrification (such as replacing combustion-engine cars with electric cars). The remainder of the $2.8 trillion total, about $1 trillion, will go to oil, gas, and coal, with 15 percent going to coal specifically.
This means that for every dollar spent on fossil fuels, $1.70 will be spent on clean energy. Five years ago the ratio was one to one, so that’s a pretty significant change in a relatively short period of time. The Ukraine conflict has been a major factor in spurring renewables development as countries try to decrease their reliance on imported fossil fuels. In the US, the Inflation Reduction Act has driven a large portion of clean energy investment, including into things like securing the battery supply chain. And adoption of electric cars is consistently going up, with global sales expected to increase by 35 percent this year.
Global spending on solar power, the IEA projects, will hit $382 billion this year. That’s more than $1 billion per day. Investment in oil production, meanwhile, is estimated to total $371 billion.
In terms of geographic distribution, China’s leading the clean energy charge (though they also account for more than half of the world’s coal electricity generation), followed by the European Union and the US.
Transitioning away from fossil fuels to clean energy is something the world needs to do. But the fanfare surrounding the phasing-out of coal and oil needs to be tempered with some realism.
For starters, taking coal, nuclear, and natural gas power plants offline before there are sufficient renewable sources to replace them has already resulted in grid instability in multiple parts of the US. Demand for electricity will go up as more electric cars get on the road. And even if we cover thousands of square miles with wind turbines and solar panels, battery storage capability isn’t nearly where it needs to be for us to rely on these as baseload power sources.
Accordingly, the IEA report predicts investment in fossil fuel supply will rise by more than six percent this year, with the largest increase going towards upstream oil and gas exploration. While working towards ambitious renewable energy targets, we must also prioritize keeping grids stable and energy affordable. Our day-to-day activities and livelihoods depend on it, along with the economy as a whole.
We won’t be doing away with fossil fuels anytime soon. But it seems investors are putting their money where their mouths are, and betting on clean energy.