The global energy crisis triggered by Russia’s invasion of Ukraine is causing profound and long-lasting changes that have the potential to hasten the transition to a more sustainable and secure energy system, according to the latest edition of the International Energy Agency’s (IEA) World Energy Outlook (WEO).
Today’s energy crisis is delivering a shock of unprecedented breadth and complexity. The biggest tremors have been felt in the markets for natural gas, coal and electricity – with significant turmoil in oil markets as well, necessitating two oil stock releases of unparalleled scale by IEA member countries to avoid even more severe disruptions.
“Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for the time being, but for decades to come,” said IEA Executive Director Fatih Birol. “Even with today’s policy settings, the energy world is shifting dramatically before our eyes. Government responses around the world promise to make this a historic and definitive turning point towards a cleaner, more affordable and more secure energy system.”
The WEO’s analysis found that in the most affected regions, higher shares of renewables were correlated with lower electricity prices – and more efficient homes and electrified heat have provided an important buffer for some consumers, albeit far from enough. The heaviest burden is falling on poorer households where a larger share of income is spent on energy.
Alongside short-term measures to try to shield consumers from the impacts of the crisis, many governments are now taking longer-term steps. In the WEO’s Stated Policies Scenario, which is based on the latest policy settings worldwide, these new measures help propel global clean energy investment to more than 2 trillion US dollars a year by 2030, a rise of more than 50 per cent from today. For the first time ever, a WEO scenario based on today’s prevailing policy settings has the global demand for every fossil fuel exhibiting a peak or plateau. In this scenario, coal use falls back within the next few years, natural gas demand reaches a plateau by the end of the decade and rising sales of electric vehicles (EVs) mean that oil demand levels off in the mid-2030s before ebbing slightly to mid-century. This means that total demand for fossil fuels declines steadily from the mid-2020s to 2050 by an annual average roughly equivalent to the lifetime output of a large oil field. The declines are much faster and more pronounced in the WEO’s more climate-focused scenarios.
Stronger policies will be essential to drive the huge increase in energy investment that is needed to reduce the risks of future price spikes and volatility. While clean energy investment rises above 2 trillion US dollars by 2030 in the States Policies Scenario, it would need to be above 4 trillion US dollars by the same date in the Net Zero Emissions by 2050 Scenario, highlighting the need to attract new investors to the energy sector. And major international efforts are still urgently required.
“The environmental case for clean energy needed no reinforcement, but the economic arguments in favour of cost-competitive and affordable clean technologies are now stronger – and so too is the energy security case,” added Dr Birol. “Today’s alignment of economic, climate and security priorities has already started to move the dial towards a better outcome for the world’s people and for the planet. It is essential to bring everyone on board, especially at a time when geopolitical fractures on energy and climate are all the more visible.”
