Extreme volatility in energy markets will present a continued risk unless investment in clean power is tripled in the next decade, the head of the International Energy Agency warned, as he issued a call to arms for world leaders ahead of the upcoming UN climate summit.
Fatih Birol, IEA executive director, told the Financial Times that while projected investment in oil and gas was now aligned with the changes needed to reach net zero emissions of greenhouse gases by 2050, public spending on renewable power was only at a third of the future levels required.
“There is a gross mismatch, and the longer this mismatch persists the greater the risk of further sharp price swings and increased volatility in the future,” Birol said. Annual global energy investment is set to rise to $1.9tn this year, according to the IEA, including about $370bn on new renewable power generation.
The warning came as the Paris-based body said that even if all governments’ current net zero pledges were implemented in full and on time, the world would only achieve 20 per cent of the emissions cuts by 2030 needed to keep the goal of net zero emissions by 2050 a possibility.
Under that scenario, outlined in its annual World Energy Outlook released on Wednesday, global average temperatures would rise by 2.1C above pre-industrial levels by 2100, far higher than the target of an ideal limit of 1.5C laid out in the 2015 Paris climate accord.
After carbon emissions dropped steeply in 2020 because of the coronavirus pandemic, this year’s strong economic recovery meant that emissions were on course for their second-largest ever annual increase, driven in part by rising coal consumption, the IEA said.
The rapid return of economic activity in much of the world has contributed to record prices for gas and coal, and multiyear highs for oil, as supply has struggled to keep up with demand.
But Birol sought to allay concerns that soaring energy costs would test the world’s commitment to the energy transition. In Europe, gas prices have soared from about €14 per megawatt hours this time last year to €87 per megawatt this month.
“There is an inaccurate campaign that’s saying we’re seeing the first crisis caused by clean energy and that this can become a barrier for further policy action to address climate change. But this is definitely not true,” he said.
He argued that current energy market disruption was because of a confluence of factors, including an “unsustainable recovery” from the pandemic, weather conditions and significant gas supply outages.
Birol urged negotiators at the COP26 summit in Glasgow in early November not to let the energy crunch affect their decision-making, adding that governments had to give a “clear and unmistakable” commitment to rapidly scaling up clean technologies.
In order to stand any chance of keeping global temperature rises under 2C, immediate action was needed over the next decade to accelerate the decarbonisation of power generation, improve energy efficiency, cut methane emissions and tackle carbon-intensive sectors such as cement and heavy transport, he said.
COP26, the biggest diplomatic face-to-face since Covid-19, aims to finalise the implementation of the deal signed in Paris six years ago, when almost every government, 197 parties in total, agreed to hold global temperature rises to “well below” 2C above pre-industrial levels.
Whatever the outcomes of the meeting, Birol stressed that energy markets were set for fundamental changes.
Even if governments make no further climate change commitments, global oil demand would peak “soon after” 2025 at 97m barrels per day, and decline to 77m b/d by 2050, under the IEA’s so-called “announced pledges scenario”.
Under that scenario, demand for natural gas would also peak soon after 2025 and then plateau, falling to 3,850bn cubic meters in 2050, or just below current levels.
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