IEA: Accelerating clean energy transition can relieve global cost of living pressures – EQ

In Short : The International Energy Agency (IEA) states that speeding up the clean energy transition can help alleviate global cost of living pressures. This shift can reduce energy costs, create jobs, and enhance energy security, benefiting economies worldwide.

In Detail : Investing in renewables and clean energy technologies can make energy more affordable, boost energy security and combat climate change, according to International Energy Agency Accelerating the transition to clean energy technologies worldwide could make energy more affordable and help relieve cost of living pressures, according to the International Energy Agency (IEA).

A report published today by the IEA argues it is “essential to keep in mind” that for most communities and regions worldwide, many clean and more efficient power technologies are also the most cost-effective in the long run as they require less day-to-day spending on fuels to operate.

As such, it emphasises that while decarbonising the global energy system requires additional upfront capital, this investment will pay valuable environmental and economic dividends in the future, potentially slashing global energy system operating costs by more than half over the next decade when compared with a trajectory based on current policy settings.

The benefits of such an accelerated clean energy push would be manifold, the report argues, delivering a fairer and more affordable energy system for consumers while also resulting in less severe climate impacts, better air quality and greater energy security.

Already today many clean energy technologies are more cost competitive over their lifespan when compared with their fossil fuel alternatives such as coal, natural gas, and oil, with Solar PV and wind power being “the cheapest options for the new generation”, the report points out.

And, while electric vehicles (EVs) may currently come with a higher price tag for consumers, overall they deliver savings due to lower operating and maintenance costs, it adds.

However, the report argues that realising the cost benefits of clean energy transitions in the future relies on unlocking higher levels of upfront investment now.

That is especially the case in emerging and developing economies where it warns clean energy investments are lagging due to real or perceived risks which could hinder new projects and access to finance, according to the report.

“The data makes it clear that the quicker you move on clean energy transitions, the more cost effective it is for governments, businesses and households,” said IEA executive director Fatih Birol.

“If policy makers and industry leaders put off action and spending today, we will all end up paying more tomorrow. The first-of-a-kind global analysis in our new report shows that the way to make energy more affordable for more people is to speed up transitions, not slow them down. But much more needs to be done to help poorer households, communities and countries to get a foothold in the new clean energy economy.”

Elsewhere, the report warns distortions in the present global energy system in the form of fossil fuel subsidies currently favour incumbent fuels, which makes investments in clean energy transitions “more challenging”.

In 2023 global governments collectively spent around $620bn subsidising the use of fossil fuels, far more than the $70bn spent on support for consumer-facing clean energy investments, it points out.

Meanwhile, during the global energy crisis, the report found that consumers spent nearly $10tr on energy in 2022, which is 20 per cent more than the average spend over the previous five years, with high prices hitting the most vulnerable hardest, both in developing and advanced economies.

As such, the report argues incentives and greater support – particularly targeted at poorer households – could improve the uptake of clean energy technologies, enabling all consumers – particularly those who are less well-off – to fully reap the benefits of clean technologies and cost savings while at the same time supporting efforts to reach international energy and climate goals.

To that end, the report sets out a series of recommended measures, drawing on policies from countries around the world, which it urges global governments to deploy to make clean technologies accessible to everyone.

These include delivering energy efficiency retrofit programmes to low-income households; obliging utilities to fund more efficient heating and cooling packages; making highly efficient appliances more readily available; providing affordable clean transport options, including more support for public transport and second-hand EV markets; replacing fossil fuel subsidies with targeted cash transfers for the most vulnerable; and using carbon price revenues to tackle potential social inequities that may arise during energy transitions.

Such policy interventions are critical to addressing the “stark inequalities” which already exist in the current energy system, where affordable and sustainable energy technologies remain out of reach for many people, the report argues.

However, if poorer households, communities, and countries are excluded from the new clean energy economy because they cannot afford to pay the upfront costs of the switch to a safer and more sustainable energy system, it risks undermining the broader energy transition, the report warns.

The biggest inequalities are faced by the almost 750 million people living in emerging and developing economies who lack access to electricity, as well as around two billion people worldwide without clean cooking technologies and fuels, the report states.

At the same time, it found the poorest 10 per cent of households in advanced economies spend up to a quarter of their disposable income on energy for their home and transport, even though they consume less than half as much energy as the richest 10 per cent.

Following the energy crisis of 2022, which was largely spurred by major cuts to fossil gas supply in the wake of Russia’s invasion of Ukraine, the IEA said governments would need to remain vigilant on new risks that could affect energy security and affordability in the future. Geopolitical tensions and upheavals remain significant potential drivers of volatility, both in traditional fuels and more indirectly in clean energy supply chains, it warns.

“There is still an important debate to be had about affordability and fairness in clean energy transitions – notably in terms of how the costs and benefits will be shared,” added Birol.

“That is why we have produced this important new analysis. We wanted to provide an evidence base and actionable advice for policy makers as they consider their strategies for the future.”