The overall ETI score is composed of two subindices as described in the previous section: energy system performance and transition readiness. The figure below shows the distribution of countries across four quadrants, depending on their scores on these two sub-indices in 2021, and the cumulative GDP (nominal) and CO2 emissions from fuel combustion of countries in the respective quadrants in 2021 and 2012 to reflect net progress over this period.

ETI system performance and transition readiness scores, 2021

The figure assigns each country to one of four quadrants:

In the category of countries with potential challenges, with a high level of current system performance but a weak enabling environment, there has been relatively less movement since 2012. The strong performance of energy systems in these countries is supported by abundant natural resource endowments and the robustness of legacy energy infrastructure. However, these attributes can be impediments to accelerated progress on energy transition, given the inertia from a legacy-installed base.

The trajectory of leading countries over the past decade has been largely consistent, displaying the advantages of building a strong enabling environment and continuing the momentum of policies that support the energy transition. For countries with below-average energy system performance (mainly those countries with an increasing demand for energy), there has been significant movement from the “emerging” to the “leapfrog” category, signaling the gradual strengthening of enabling environments in emerging demand centres.

The energy transition is an opportunity for emerging economies to avoid the risk of carbon lock-in by leveraging the increasing cost-competitiveness of new energy technologies.

Over the past decade, 70% of the countries tracked by the ETI have improved their energy system performance scores, providing a strong indication of the growing capacity of their energy systems to deliver across the following three performance dimensions:

However, the pattern of improvements in system performance varies by dimension. More than 70% of countries (representing 86% of global total energy supply) have improved their scores on energy access and security since 2012. Higher relative gains were achieved by countries in emerging and leapfrog categories, driven by improvements in energy access. Leading countries have only managed to achieve marginal improvements, which is to be expected given the maturity of their current energy system infrastructures. The environmental sustainability dimension displays similar trends, with a comparable number of countries improving on this dimension. However, the gains on environmental sustainability are higher for countries in the emerging and leapfrog categories, supported by the strengthening of their enabling environments.

The trends on the economic growth and development dimension have been mixed, with more than half of countries regressing over the past decade. In relative terms, economies in the emerging category have been able to make faster progress on this dimension, but their average scores remain 30% lower than leading countries.

The following sections provide further insights into the evolution of countries on these dimensions over the past decade.

The economic development and growth imperative of energy transition stems from the critical role played by the energy sector in socio-economic development. Current economic growth pathways rely on the availability of abundant, secure and affordable energy supplies. As is evident in emerging economies around the world, the demand for energy is growing as they progress along their economic growth journeys. While economic growth may not be the sole objective of energy transition, the economic benefits should outweigh the costs.

The ETI’s economic development and growth dimension tracks the affordability, competitiveness and fiscal implications of the energy sector in countries. Over the past decade, the average global scores for this dimension have been largely flat, reflecting the continuing challenge to decouple economic growth from energy production and consumption. However, the trends vary depending on the stage of each country’s economic development.

While more than three-quarters of the countries tracked increased their aggregate ETI scores over the past decade, fewer than half were able to do so while also increasing their scores on the economic development and growth dimension. The effect is more pronounced for advanced economies, with the primary factor being a 25% real-terms increase in average household electricity tariffs over the past decade for this peer group. For example, the increase in the retail electricity price across the European Union (EU) outpaced the consumer price inflation index between 2010-2019.15 At the same time, the externalities of energy consumption continue to be inefficiently priced, which risks exacerbating the affordability challenge. While the cost of failing to deliver on energy transition might be higher than the cost of energy transition, distributional considerations remain at the centre of this challenge, especially in a global climate of widening income inequality¹⁶.

The impact of the energy transition on labour markets is central to the “just transition” challenge (see below image). While energy transition will create substantial employment because of policies and investment, it is also leading to job losses in the fossil fuel sector. According to the International Labour Organization (ILO), the shift towards sustainable practices is expected to create 18 million net jobs by 2030¹⁷.

As shown in the figure below, countries leading on the ETI have a larger share of jobs in low-carbon sectors as a share of total domestic labour force. Evidence suggests that jobs in renewable energy and energy efficiency are geographically more diversified, more genderdiverse¹⁸ and more likely to employ young people – as opposed to the more localized, gender-biased and ageing workforce of the fossil fuel sector¹⁹. However, in the short term, geographical redistribution and timing of availability of new jobs can create labour market dislocations, disproportionately affecting communities reliant on fossil fuel sectors. Focused social programmes for the reskilling and rehabilitation of fossil fuel workers, and investment in development of low-carbon value chains locally. These measures are critical to gaining employment dividends from the energy transition. The ongoing reallocation of public funds to fuel the economic recovery from COVID-19 is an opportunity for countries to address this imbalance.

ETI 2021 scores and percentage of jobs in low-carbon sectors

The COVID-19 pandemic has led to a shift in energy consumption patterns – primarily due to remote working arrangements, a decline in business travel and the exponential rise of digitally-enabled services. Additionally, an increasing number of major automobile manufacturers are aggressively pursuing electrification of their product lines. These trends could have a lasting impact on the demand for oil. While forecasts of peak oil demand vary considerably, some analysts argue that the pandemic might have fast-tracked the timeline, with implications for countries across the oil supply chain²². For oil-producing countries, this increases the urgency to diversify their economies to maintain a steady source of fiscal revenue, and to harness the synergies from legacy technological and operational expertise to obtain competitive advantage in the new energy landscape. For energy-consuming countries, consumption tax on road transport is a significant component of their tax base (e.g. 5% for OECD countries), which risks erosion from potential changes in travel habits and the electrification of transportation²³. This underscores the need for efficient pricing of the externalities of fossil fuel consumption and fiscal reforms to design a tax system for a low-carbon future.

Global average scores remain the highest in the energy access and security dimension. More than 70% of countries have improved their scores in this dimension since 2010. Advanced economies and large fuel exporters score highly, due to more mature energy infrastructure and domestic reserves. The highest improvements in this dimension come from lower middle-income and low-income countries, notably in Sub-Saharan Africa and emerging and developing Asia (e.g. Ghana, Kenya, Mozambique, Cambodia and Vietnam) that have steadily increased electricity access over the past decade. According to the International Energy Agency (IEA), energy security is defined as “the uninterrupted availability of energy sources at an affordable price.” For countries dependent on imported energy supplies, maintaining diversity of import counterparts is critical. Trends from the ETI indicate positive developments over the past decade, with the majority of countries diversifying both import counterparts and their energy mix. Renewable energy and energy efficiency have a synergistic effect of reducing import dependence while adding diversity to the energy mix, underscoring the security gains from energy transition.

The number of people without access to electricity has declined to 770 million in 2019 – the lowest on record. However, progress remains uneven and 75% of the population without access now lives in Sub-Saharan Africa, a share that is rising due to a growing population, according to the IEA. Further, past progress is threatened by COVID-19. The IEA suggests that the number of people without access to electricity in Sub-Saharan Africa is set to increase in 2020, pushing many countries farther away from achieving the goal of universal access by 2030. Beyond energy access, the quality and reliability of electricity are of top importance. The figure below shows the challenge in quality of electricity supply, particularly in Sub-Saharan African countries. Reliable power supply is critical for the delivery of public services, including healthcare²⁴. Lack of reliable electricity is one of the bottlenecks in rapid COVID-19 testing and vaccination programmes in African countries²⁵. In almost all countries, the top 10% income group consumes 20 times more energy than the bottom 10%²⁶. Energy access programmes need to focus on the quality of energy supply, the diversity of energy services available to households and the distribution of consumption across the country. Addressing inequalities in energy access is an important mechanism to ensure the resilience of the energy transition.

Quality of electricity supply (2019) - World Bank²⁸

A focus on grid resilience is especially crucial as energy systems transition to a system with more variable and distributed generation. Recent extreme weather events – including wildfires in California and Australia, and cold snaps in Texas²⁹ and Japan³⁰ – have shown that grid operators also need to be cognizant of tail-risks and plan for a grid that can bounce back quickly from crises. In the face of extreme weather events, levers for improving grid safety and reliability include: enhancing system flexibility, increasing grid restoration effectiveness, network hardening, effective communication with stakeholders and accurate forecasting of weather and its impact, according to a recent study by Accenture³¹. With an increasing share of electricity in final demand due to the electrification of end-use, the risks from the rising unpredictability and frequency of extreme weather events are compounded, making grids a serious area of vulnerability in the energy transition.

Encouraging progress has been made in this dimension in recent years, with global average scores reaching an all-time high in ETI 2021 and improvements across all indicators. Much of the progress can be attributed to reductions in energy intensity – the quantity of energy required per unit of output or product (a basic measure of energy efficiency). Progress in this space can lead to a reduction in carbon emissions and can also improve the marginal contribution of energy to livelihoods, through co-benefits such as better air-quality and reduced energy costs for households and businesses.

The figure below shows a tale of two intensities. Globally, energy intensity fell by 15% between 2010 and 2018, indicating a decoupling between primary energy use and GDP growth, driven by factors such as improved energy efficiency. While reducing the economy’s reliance on energy is vital, equally important for improvements in environmental sustainability is reducing the carbon intensity of energy use – measured in the ETI as units of CO2 per unit of energy supply. Globally, the CO2 intensity of energy use has remained broadly flat since 2010, suggesting a continued dependence on high-carbon energy sources and ongoing inertia from legacy energy infrastructure.

A regional view reveals significant variation (see below figure). CO2 intensity has fallen in advanced economies and in much of Europe due to sustained reduction in the carbon content of energy production. This is mainly a result of switching from coal to gas for power generation. However, CO2 intensity is stagnant or rising in regions where energy demand is growing – in emerging Asia, Latin America and Sub-Saharan Africa. This suggests that CO2 -intensive sources continued to fuel incremental demand over the past decade. Trends in per capita emissions support this conclusion. While absolute emissions in North America and Europe remain structurally higher than the rest of the world, CO2 per capita is falling. However, CO2 per capita has risen in regions where energy demand growth is the highest.

Boosting progress across these lagging variables, including in advanced economies where headway has been made, will be a key measure of success over the next decade. Countries should seek to lower the carbon content in energy production across all end-uses. More efforts are needed to transfer technology, provide access to finance, and foster international cooperation to enable developing countries to meet new demand growth with less CO2 intensity than the pathway taken by developed nations.

Attention also needs to turn to cutting emissions intensity beyond electricity in other sectors such as transport, manufacturing and the built environment. Countries with highly energy-intensive industries, including oil and gas producers, can make improvements in this dimension by focusing on reducing emissions intensity. In Canada, for example, the government has set new regulations that require the oil and gas sector to reduce its methane emissions by 40% from 2012 levels by 2025³³.

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The energy system’s ability to deliver on the imperatives described in the preceding sections depends on the presence of an enabling environment for energy transition, measured in the ETI framework by the transition readiness subindex. Readiness for energy transition is determined by factors including stability of the policy environment and level of political commitment, investment climate and access to capital, level of consumer engagement, and development and adoption of new technologies.

While the average transition readiness score reached a high this year (54.7 compared to 53.5 in 2012), progress across dimensions shows a mixed picture. Data since 2012 shows marked progress in the dimensions of regulation and political commitment, and capital and investment, borne out by increased international commitment to climate action and growing levels of energy transition finance³⁴. Progress is slower in other readiness dimensions, including energy system structure, which tracks the transformation of a country’s energy demand and sources of supply.

Enhanced political commitment and improved regulatory support for the energy transition is encouraging. Last year saw a proliferation of net-zero announcements and targets. Now around 68% of the world’s emissions from fuel combustion are covered by some type of net-zero target³⁵. This compares with just 16% a year earlier. One of the most significant announcements came from China, with a policy mandate to achieve net-zero by 2060. However, this ratcheting up of ambition needs to be reflected in legislation, policy and regulation, and supported by concrete roadmaps and milestones³⁶.

Status of countries’ net-zero targets, 2020

The capital and investment dimension is another enabler showing strong improvement over the past decade, primarily supported by improvements in access to credit and investment freedom levels. This lays the foundation for investments in the energy transition. Record flows of finance have been pouring into the energy transition, totaling $501 billion of global investment in 2020, up from $458 billion in 2019³⁷. However, mature renewable energy technologies account for most of this investment, while other energy transition areas such as mobility, electrified heat, storage, and carbon capture and storage (CCS) account for a small proportion of the total investment.

The above figure shows that energy transition investment is concentrated in a handful of economies, with China and the United States (US) accounting for the large share of investments. However, investment outside the top 10 is growing steadily. Countries such as Vietnam, Kenya, Brazil, South Africa and Chile have shown that a combination of the right enabling policies, infrastructure and better integration into global financial markets can lead to record levels of new investment. By enacting measures including deepening national capital markets, developing new risk management solutions and generating healthy returns from low-carbon solutions, countries can create a pipeline of bankable projects that will attract the capital needed to propel their energy transitions.

In the next decade, political commitment and increased capital will need to translate into structural shifts in the energy mix. Progress has been made in renewable capacity and generation. The share of renewables in the global electricity mix grew from 18% in 2000 to 26% in 2019.38 Much of this progress has been driven by additions in solar and wind capacity. Solar and wind generation is growing at record pace, with solar up 22% and wind up 12% between 2018 and 2019.39 The latest estimates suggest that renewables have been resilient throughout the pandemic. As the world went into lockdown, the power mix shifted towards renewables due to depressed demand, low operating costs and renewables’ priority access to the grid.

Decarbonizing the rest of the energy sector is critical over the next decade. Achieving our climate goals will require electrification across other sectors of energy end-use, notably industries, HVAC (heating, ventilation and air conditioning) and transport. This means that renewables will need to meet approximately 80% of global electricity demand growth in the next 10 years.

Recent progress in renewables is tempered by the view that if Europe and the US are excluded, coal’s share in the electricity mix has been rising, not falling. In advanced economies, coal generation appears to be in structural decline, due to continued growth in renewables and coal-togas switching. In 2019, the strongest declines in coal-fired power generation were in the EU, which saw coal use decline by 19% or 111 million tonnes, and in the US where coal use fell by 14% or 87 million tonnes. However, coal generation remains high and growing in many parts of the world. For example, in the Asia-Pacific region, coal consumption increased by 1.2% or 69 million tonnes in 2019⁴⁰.

Moreover, while coal’s share in the electricity mix globally has been declining, electricity generation from coal in absolute terms has been on an upward trajectory since 2010, despite a slight dip in 2019 (see figure above). New coal power plants have long operating lifetimes and can lock in future emissions for decades. Breaking the carbon lock-in will require early retirement of existing assets and revisiting the long-term viability of assets not yet in operation.