Clean tech investment set to hit $2tn in 2024

Burning fossil fuels accounts for 75 per cent of global greenhouse emissions: the “poisoned root of the climate crisis”, according to António Guterres, secretary-general of the UN. But quitting them is far from easy.

Global investment in clean technologies is on track to hit $2tn this year, according to the International Energy Agency, which is almost twice the amount being spent on fossil fuels. Even so, this is still less than half the estimated $4.5tn of annual investment needed by the early 2030s to achieve net zero goals.

Progress on a global level has been sluggish, with huge growth in wind and solar capacity over the past few years failing to keep pace with climbing energy demand in economies such as China and India. Fossil fuels accounted for 81.5 per cent of global energy consumption in 2023, slightly down from 82 per cent in 2022 and 86 per cent in 1995, according to the Energy Institute’s Statistical Review of World Energy, published last week.

“Arguably, the [energy] transition has not even started,” Nick Wayth, chief executive of the Energy Institute, told reporters at the time. “Clean energy is still not even meeting the entirety of demand growth and, therefore, at a global level, not displacing fossil fuels.”

It has been almost nine years since 193 countries plus the EU signed the landmark 2015 Paris Agreement to curb global warming. Twenty-four countries, including the UK, Germany and France, as well as the EU as a bloc, now have legally binding plans to cut their emissions to net zero by 2050, according to Net Zero Tracker, a data platform.

Dozens more, such as the US, China and India, have set out goals in policy papers or have committed to later targets.

Still, no major economy is on track to meet its 2030 emissions reduction targets, let alone net zero, according to an analysis by Wood Mackenzie last year. “The pace of change just isn’t there,” says Lindsey Entwistle, senior research analyst at the energy consultancy. “It’s very weighted towards action accelerating post-2030 if countries want to meet their targets.”

Moreover, several key political events this year raise the prospect of some countries pursuing less climate-friendly policies. Donald Trump, who briefly pulled the US out of the Paris agreement in 2020 when he was president, could return to the White House after November’s election.

And, at the European parliament elections earlier this month, advances were made by populists and far-right parties that are promising to slow the energy transition, while the greens lost ground.

Higher interest rates have also affected the profitability of renewables projects. In addition, the US and the EU plan to increase tariffs on goods such as electric cars from China, raising concerns that increased costs will slow down adoption or snarl up supply chains. “It’s a challenge when you start to see this pullback from collaboration,” observes Entwistle.

The pace of change just isn’t there . . . it’s very weighted towards action accelerating post-2030

Yet there are reasons to be optimistic. Overall data from last year hides several encouraging trends. For the first time since the industrial revolution, fossil fuels last year accounted for less than 70 per cent of primary energy consumption in the EU, according to the Energy Institute’s analysis. The continent had moved to cut its reliance on gas in the wake of Russia’s invasion of Ukraine.

Meanwhile, in the US, fossil fuels usage fell by 2 per cent, to make up 80 per cent of primary energy consumption, with coal use down 17 per cent over the past year. Several plants shut down, while President Joe Biden’s Inflation Reduction Act subsidy package has driven a surge in renewables projects.

The EI believes fossil fuel demand is now likely to have peaked either side of the Atlantic. “It may be too soon to call an absolute peak but, regardless of who is in the White House, the US seems likely to follow the European trend,” says Wayth.

Both the US and the EU managed to cut emissions from energy production while growing their economies, potentially boding well for other regions trying to sever the tie between emissions and economic growth. China’s emissions from burning fossil fuels grew by 5.2 per cent last year, as its economy grew, but it also accounted for almost 60 per cent of the world’s 510 gigawatts of new renewables capacity installed in 2023 — the fastest global growth rate in two decades.

Optimists argue that renewables’ long-term trajectory of falling costs and technological improvement should continue, steadily pushing fossil fuels off the system. Solar costs, for example, have fallen more than 75 per cent over the past decade according to the Rocky Mountain Institute, a think-tank. Some also note that the size of the challenge is smaller than it may appear, as so much energy today is spent extracting, refining, and processing fossil fuels.

“There’s no point looking at the size of the current fossil fuel system to work out where things are headed,” says Kingsmill Bond, at RMI. “That’s akin to saying in the 1920s, ‘there are 10mn horses out there and only 100,000 cars; it’s all about horses, isn’t the horse the future?’. You’ve got to look at the change.”

According to RMI, global solar generation has doubled every two to three years since 2010, and battery storage capacity has doubled every year. It estimates new solar and wind output will exceed electricity demand growth this year, and electricity will make up the majority of final energy demand growth. Bond adds that China’s focus on clean energy technologies is likely to fuel a “race to the top” as the US and the EU try to compete, rather than holding back the transition.

“Net zero can be met if we continue to allow these technologies to grow on their S-curves,” he says, referring to the growth trajectory of renewables over time. But he agrees there is political risk: “If, of course, we elect politicians who seek to hold back the tide of change, then we can indeed shoot ourselves in the foot and fail to reach this superior world.”

John Bromley, managing director for clean energy strategy and investments at Legal and General, shares Bond’s optimism. “There is a real acceleration and huge progress being made,” he says. “A lot of these technologies offer much stronger long-term investment prospects. [ . . .] The long term picture is clear.”

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here.

Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here