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Energy investment ‘mismatched’ to climate goals: IEA

The International Energy Agency has advised of an alarming “mismatch” in global investment in the energy sector and what is needed to achieve a “sustainable” future, including a stalling of funds flowing into low-carbon supply.

Low-carbon investment accounted for only 35 per cent of the almost $US1.85 trillion ($2.66 trillion) invested in the global energy sector last year, well short of the 65 per cent share needed, the IEA said, calling for a “step-change” in policy focus, new financing options and faster advances in technology.

Investment needs to step up in any scenario, it said, noting investment had plateaued in 2018 after three years of decline. There was a 2 per cent increase in spending on coal supply last year – the first increase since 2012 and well out of step with emissions targets –  and a 1 per cent dip in investment in the power sector and in renewables for transport and heat.

“Current market and policy signals are not incentivising the major reallocation of capital to low-carbon power and efficiency that would align with a sustainable energy future,” IEA executive director Fatih Birol said in a report released early on Tuesday in Paris.

“In the absence of such a shift, there is a growing possibility that investment in fuel supply will also fall short of what is needed to satisfy growing demand.”

The shortfall in spending is worst in the regions that need it most, such as sub-Saharan Africa, where investment in low-carbon technologies is hampered by weak regulation, challenging project development and strained utility and public finances.

Investment in renewable power, at just more than $US300 billion last year, needs to double to meet Paris climate goals, as in the IEA’s Sustainable Development Scenario, while spending on nuclear, electricity networks and battery storage is also well below par. Spending is running too high in oil supply for that scenario, but falling short in gas, which is needed to complement higher renewable energy use.

While investment is “far out of step” with the Paris climate targets, it is also “misaligned” with where the world appears to be heading, under the New Policies Scenario, the IEA noted. Continuing “robust” demand growth for oil and gas would need a sharp pick-up in approvals of new oil and gas production projects and more investment in gas-fired power.

The New Policies Scenario, the IEA’s central case, has come in for criticismfrom fund managers and climate advocates that say it would lead to global warming of 2.7 degrees  to 3 degrees above pre-industrial levels. They also say the Sustainable Development Scenario would miss Paris targets.

In any case, investment in coal supply is running ahead of what is required in either scenario, while more spending is also needed on biofuels.

“Total investment across low-carbon energy – including supply and efficiency – has stalled in recent years and needs a rapid boost to keep Paris in sight,” the IEA said.

Investment in coal supply rose almost 2 per cent to $US80 billion last year, including higher spending in almost all the main producing regions, including Australia, China and India, while softening in the rest of the world. Most investment was in sustaining production and increasing productivity and safety, with little going into any new projects.

The IEA highlighted the rising strength of the coal divestment movement, which included QBE, China’s State Development & Investment Corporation and some Japanese trading companies advising they would end their exposure to the sector.

The agency named Australia as the fastest-growing investment market in the power sector worldwide on a percentage basis. China still accounted for more than a quarter of the total but its power investment dropped 7 per cent last year, the first decline this century, largely due to a continued shrinking of spending on coal power and also lower solar PV and grid investment.

Meanwhile spending on energy efficiency across buildings, transport and industry stagnated at $US240 billion last year, well below what is needed, the agency said

Source: Financial Review