## A CALL TO CLEAN

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### The scramble for energy: crisis and context
- The global energy crisis, triggered by Russia’s invasion of Ukraine, has disrupted investment plans across all energy sectors and exacerbated strains in global commodity markets.
- Immediate fuel substitution is necessary for energy-importing countries to avoid factory closures, job losses, and increased energy insecurity.
- The crisis has produced a false narrative that now is not the moment to invest in clean energy; the author argues that we must do both—respond to the immediate crisis and accelerate the clean-energy transition.

### Investment gaps and trajectories
- Global-energy-related CO2 emissions rose by a record amount in 2021.
- The $1.4 trillion expected to be spent on energy transitions in 2022 would have to rise to well over $4 trillion by 2030 to get on track to limit global warming to 1.5 degrees Celsius while ensuring sufficient energy supply.
- In the five years following the 2015 Paris Agreement, clean energy investment grew only 2 percent a year; since 2020, this rate has risen to 12 percent a year.
- Clean energy spending is concentrated in advanced economies and China; except in China, clean energy spending in emerging market and developing economies is stuck at 2015 levels—about $150 billion a year.
- Falling clean-technology costs increase the reach of existing funds, but the overall amount is far short of needs in developing economies.

### Emerging technologies and project activity
- Low-emission hydrogen, new battery technologies, and carbon capture, utilization, and storage (CCUS) show strong momentum from a small base.
- In 2021, plans for about 130 commercial-scale carbon capture projects in 20 countries were announced, and six CCUS projects were approved for final investment.
- Investment in battery energy storage is hitting new highs and is expected to double in 2022.
- Russia’s war against Ukraine has bolstered policy support for low-emission hydrogen, especially in Europe.

### Finance, capital availability, and distributional challenges
- There is no shortage of global capital; sustainable financing worldwide has surged in recent years.
- Sustainable debt issuance in 2021 hit a record $1.6 trillion, but more than 80 percent was in advanced economies.
- Public funds for sustainable energy projects in many emerging market and developing economies were already scarce and have become scarcer since the COVID-19 pandemic.
- Policy frameworks are often weak, economic outlooks uncertain, and borrowing costs rising, impeding clean energy investment in many developing regions—African progress on electricity access was partly reversed after the pandemic.

### Roles for institutions and policy measures
- International financial organizations and development institutions can:
  - Work with local governments to develop policies that improve the investment environment.
  - Provide financing to help de-risk private sector involvement.
- Clearer standards, definitions, and reporting for sustainable finance and ESG investing are needed; the EU has introduced risk management and reporting requirements for financial market participants regarding climate risks and sustainability practices.
- Clearer guidelines to finance credible transition plans in carbon-intensive sectors would ensure ESG requirements do not prevent financing for essential-but-emitting energy sectors.
- The entire ESG ecosystem must better engage with emerging market and developing economies and account for their needs and circumstances; institutions such as the IMF have a major role.

### Strategic investment priorities and caution against stranded assets
- The IEA’s net-zero-by-2050 road map indicates a massive surge in investment in clean energy technologies and energy efficiency could cut global fossil-fuel demand so much that there would be no need for investment in new oil and gas fields.
- Continued spending on existing assets—including investments to reduce upstream emissions—remains essential even on a net-zero pathway.
- Judicious short-term investments are required to replace immediate shortfalls in fossil-fuel production from Russia while avoiding infrastructure that would lock in heavy emissions or become stranded assets.
- Suitable interim options include extending production from existing fields and better use of natural gas currently flared or vented.
- Some new infrastructure, such as liquefied natural gas import terminals in Europe, may be needed to diversify supply away from Russia; with planning, such terminals could facilitate future imports of low-emission hydrogen or ammonia.
- In countries open to it, nuclear power (including small modular reactors in development) can play a role.

### A historic turning point and industry responsibilities
- The run-up in prices is set to generate an unprecedented $2 trillion windfall for oil and gas producers in 2022, bringing their total income to a record $4 trillion in 2022.
- The oil and gas industry is still spending only modestly on energy transitions: on average, clean energy spending accounts for about 5 percent of total oil and gas company capital expenditure, up from 1 percent in 2019.
- The current windfall gains are an opportunity for oil- and gas-producing countries to diversify their economies and for major oil and gas companies to invest in clean energy sources.

### Efficiency, demand reduction, and immediate measures
- Energy security includes efficient energy use: renovating building stock, better materials and insulation, newer technologies, and more efficient appliances reduce the energy needed to heat, cool, and light buildings.
- Smart electrical grids can better manage and reduce power demand.
- Simple consumer actions—such as adjusting thermostats to avoid overheating or overcooling—can collectively yield massive savings.
- The IEA’s 10-point plan to reduce the European Union’s reliance on Russian natural gas (published in March, one week after Russia’s invasion) includes both replacement of Russian gas and a major push on renovating building stock to reduce demand.

### Policy momentum and the path forward
- Encouraging policy steps already observed include the Inflation Reduction Act in the United States; the REPowerEU package in the European Union; Japan’s Green Transformation plan; and the growth of renewables in China, India, and beyond.
- A new global energy economy is emerging; governments and businesses that invest early and wisely stand to reap the benefits.

*Fatih Birol, FINANCE & DEVELOPMENT, December 2022*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2022/december/birol.pdf_