Government spending on clean energy rises to over $710bn, but countries with limited fiscal means continue to neglect transition in an effort to maintain food and fuel affordability
Clean energy spending earmarked by governments in response to the Covid-19 crisis has risen by 50pc over the past five months and now stands at over $710bn worldwide, according to the latest data from the IEA.
According to Petroleum Economist, the agency highlighted last year that only $320bn had been earmarked to support the energy transition as part of Covid-19 recovery spending—just 2pc of national fiscal support levels.
But spending has sped up in recent months, partly as nations accelerate efforts to gain greater energy independence in response to Russia’s invasion of Ukraine.
Since the start of winter, governments worldwide have announced an additional $270bn in short-term measures to protect businesses and households from spiking gas and electricity prices.
$710bn – Government finance earmarked for clean energy
And with the Biden administration committed to tackling climate change and setting new emissions-reduction targets of 50-52pc from 2005 levels by 2030, capital in the US is starting to flow more rapidly to the sector.
Both China and India have also started to see changes in investment patterns towards clean energy.
Development challenge
However, only $52bn of the $710bn reported by the IEA is from developing countries—well short of what is needed to be consistent with a pathway towards net-zero emissions by 2050.
And this is unlikely to change in the near future, as governments with already limited fiscal means face the challenge of maintaining food and fuel affordability for their citizens amid surging commodity prices.
“Countries, where clean energy is at the heart of recovery plans, are keeping alive the possibility of reaching net-zero emissions by 2050, but challenging financial and economic conditions have undermined public resources in much of the rest of the world,” says IEA executive director Fatih Birol.
“International cooperation will be essential to change these clean energy investment trends, especially in emerging and developing economies where the need is greatest.”
Blended finance
Private sector engagement such as technology partnerships, climate finance and collaborative investments will also be needed to rectify the problem, according to the IEA. It estimates that government spending earmarked prior to 2023 could now support over $1.6tn worth of clean investments by mobilising higher levels of private sector participation.
“International cooperation will be essential to change these clean energy investment trends” Birol, IEA
If it is sustained, this level of spending could keep the world on a pathway to reaching net-zero emissions by 2050, the IEA says.
However, some problems remain. Even in developed economies, some of the earmarked funds risk not reaching the market within their envisaged timelines. Delays in setting up government programmes, ongoing supply chain disruptions, labour shortages and financial uncertainty have all served to slow project pipelines.
In addition, consumer-facing measures—such as incentives for building retrofits and electric vehicles—are struggling to reach a wider audience due to bureaucracy and poor consumer education.
“Governments who can remove red tape and quickly set up effective programmes will be the ones to reap the benefits and position themselves in the new global energy economy that is emerging,” says Birol.
“While the latest update of the sustainable recovery tracker does point to promising signs in advanced economies, the world still needs to massively expand its clean energy deployment efforts throughout this decade—first and foremost in developing economies—if we are going to preserve the hope of limiting the global temperature rise to 1.5