Investments in global energy supplies will jump this year, led by an expansion in clean energy, but the spending will still prove insufficient to meet global climate targets or tackle soaring energy prices, the International Energy Agency warned.
The worst global energy crisis in decades, brought on in part by Russia’s invasion of Ukraine, has left energy investments caught between longstanding efforts to transition to green energy and more immediate demands to rapidly ramp up supply to contain soaring prices.
The latest figures, published by the Paris-based agency in an annual report Wednesday, suggest energy investments were struggling in both regards.
“As things stand, today’s energy investment trends show a world falling short on climate goals, and on reliable and affordable energy,” the report said.
Total energy investments are forecast to rise by 8% this year to $2.4 trillion, above pre-Covid-19 levels. A jump in spending on clean and renewable energy sources comprises the largest chunk of the rise, a promising sign for global efforts to reduce carbon emissions following years of lackluster growth, the IEA said.
Clean energy investments grew by an average of 2% a year in the five years after the landmark 2015 Paris Climate Agreement. Since 2020, they have expanded by 12%, a significant increase but still far short of the levels required to meet climate targets, the IEA said.
Spending on clean energy will exceed $1.4 trillion in 2022, far behind the roughly $2.8 trillion that would be required to meet current climate pledges by 2030 and further still behind the more than $4 trillion that will be needed to achieve net-zero emissions by 2050.
Oil CL.1, -3.72% and gas prices NG00, -2.34% have soared since Russia’s invasion of Ukraine. Russia, one of the world’s biggest exporters of oil, has seen much of its supplies shunned by Western nations. Sanctions have stranded millions of barrels of oil in the country and forced its oil companies to shut off wells. Meanwhile, geopolitical tensions have seen Russian gas supplies to Europe curtailed.
While the crisis has accelerated spending on clean energy, it has also revived investments in fossil fuels, prompted by concerns about energy security. Oil and gas investments rose 10% in 2021 but remain below pre-Covid levels, the IEA said. Investments in coal supply rose 10% in 2021 and are expected to rise by a similar amount this year, despite global pledges to move away from the fuel.
Despite those efforts, and the growing investment in clean energy, there was little sign that the extra energy supplies would be enough to bring about an end to high energy bills and threatened to push millions in Asia and Africa back into energy poverty, the IEA said.
“A massive surge in investment to accelerate clean energy transitions is the only lasting solution,” said Fatih Birol, the IEA’s executive director. “This kind of investment is rising, but we need a much faster increase to ease the pressure on consumers.”
While the IEA is forecasting energy investment will rise this year, much of the dollar value of those increases would be driven by inflation that is making new energy projects more costly to build.
Almost half of the additional $200 billion that will be invested in energy this year will be consumed by higher costs. High energy prices have been a key driver of higher steel, aluminum and cement prices, the production of which requires large amounts of electricity.
A lack of investment in the metals and minerals required by many sources of clean energy poses a further challenge for the energy transition, the IEA said. Rising input costs threaten to reverse a long-running trend whereby green technologies have steadily declined in price in recent years, the agency said.
While prices for electric vehicle batteries have been falling, the metals that go into them, such as lithium, cobalt and nickel, have risen from 5% of the total costs less than 10 years ago to more than 20%, the IEA said.
Investments in clean energy have been heavily focused in developed nations and China, leaving developing nations behind and threatening a global divide, the IEA said.
China spent $380 billion on clean energy in 2021, while the European Union spent $260 billion and the U.S. $215 billion. Clean energy spending in emerging and developing economies, excluding China, remains stuck at 2015 levels, the IEA said.
Write to Will Horner at william.horner@wsj.com