Global energy investment could fall by $400 billion this year. Climate goals are at risk

The coronavirus pandemic may have slashed global carbon emissions but a historic slump in global energy investment this year could threaten climate goals in the longer term, according to a new report.

The International Energy Agency said Wednesday that global investment could plunge by a record $400 billion this year, with spending expected to plummet across every major sector, from oil and gas to renewable energy.

“The unparalleled decline is staggering in both its scale and swiftness, with serious potential implications for energy security and clean energy transitions,” the Paris body warned in its latest report.

Emissions rise from a smoke stack at the Conesville Power Plant in Conesville, Ohio, U.S., on Saturday, April 18, 2020. The Trump administration on Thursday attacked the legal basis of requirements to capture mercury and other heavy metal pollution from power plants, setting the stage for a court to potentially toss out the mandates altogether. Photographer: Dane Rhys/Bloomberg via Getty Images

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At the start of 2020, global energy investment was on track for the largest annual rise in six years. But the pandemic brought economic activity to a standstill and investment is now expected to plummet by 20%, or almost $400 billion compared to last year. Global investment in oil and gas is expected to fall by almost a third in 2020, with investment in shale anticipated to fall by 50%.

The historic plunge means “lost jobs and economic opportunities today, as well as lost energy supply that we might well need tomorrow once the economy recovers,” IEA executive director Fatih Birol said in a statement.

“The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems,” he added.

Renewable energyhas fared better than fossil fuels this year, but investment in large wind and solar projects in the first quarter of 2020 fell back to the levels of three years ago, according to the report.

Capital allocated to all clean technologies, including nuclear energy and carbon capture, utilization and storage, is expected to dip this year, increasing its share of global investment only because of the huge hit to fossil fuels.

There are over 1,100 producing oil wells in the McKittrick oil field, just north of the town of McKittrick on California State Route 33 in McKittrick, California, on APRIL 29, 2020. With the falling price of oil, some pumpjacks that need repair are being left idle. (Carolyn Cole/Los Angeles Times via Getty Images)

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“Low oil prices and a reluctance to pay higher upfront costs could even usher in a new cycle of cheaper, less-efficient vehicles and appliances,” the report said. “This raises the specter of an energy system characterized by systematic underinvestment in new technologies and overreliant instead on its existing capital stock, with all that this implies for emissions,” it added.

Cheap coal comeback?

The report finds that energy revenues for governments and industry are set to fall by well over $1 trillion this year, with oil accounting for most of the decline, leaving fewer funds to commit to cleaner technologies.

And rising debt levels as result of the pandemic present lasting risks to investment in renewable energy, particularly in developing countries, which could become more dependent on fossil fuels as they seek to revive their economies.

“There is a risk that some state actors fall back on familiar levers for economic development, pushing up coal use and emissions,” the report said. Based on available data and announced projects, approvals of new coal plants in the first quarter of 2020, mainly in China, were running at twice the rate observed over 2019 as a whole, it added.

While global CO2 emissions are expected to decline by an unprecedented 8% this year, to levels last seen 10 years ago, the rebound in emissions after previous crises has been larger than the initial decline.

HUAINAN, CHINA - JUNE 12: Chinese workers prepare panels that will be part of a large floating solar farm project under construction by the Sungrow Power Supply Company on a lake caused by a collapsed and flooded coal mine on June 12, 2017 in Huainan, Anhui province, China. The floating solar field, billed as the largest in the world, is built on a part of the collapsed Panji No.1 coal mine that flooded over a decade ago due to over-mining, a common occurence in deep-well mining in China's coal heartland. When finished, the solar farm will be made up of more than 166,000 solar panels which convert sunlight to energy, and the site could potentially produce enough energy to power a city in Anhui province, regarded as one of the country's coal centers. Local officials say they are planning more projects like it, marking a significant shift in an area where long-term intensive coal mining has led to large areas of subsidence and environmental degradation. However, the energy transition has its challenges, primarily competitive pressure from the deeply-established coal industry that has at times led to delays in connecting solar projects to the state grid. Chinaas government says it will spend over US $360 billion on clean energy projects by 2020 to help shift the country away from a dependence on fossil fuels, and earlier this year, Beijing canceled plans to build more than 100 coal-fired plants in a bid to ease overcapacity and limit carbon emissions. Already, China is the leading producer of solar energy, but it also remains the planetas top emitter of greenhouse gases and accounts for about half of the worldas total coal consumption. (Photo by Kevin Frayer/Getty Images)

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“The crisis has brought lower emissions but for all the wrong reasons,” said Birol. “If we are to achieve a lasting reduction in global emissions, then we will need to see a rapid increase in clean energy investment.” The extent to which “energy and sustainability concerns” are integrated into recovery strategies “will be critical,” he said.

Policymakers could kickstart consumer spending by, for example, providing incentives to replace old, poorly performing products with new, more efficient models, the report said. “Policy makers have the opportunity to design their responses to the crisis with these elements in mind, combining economic recovery with energy and climate goals.”

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