Energy affordability and security challenges reinforce the need to supercharge the transition by accelerating investments in the “new” (decarbonized) energy system and embedding more efficient energy consumption habits in post-pandemic societies. The strengthening of governments’ and companies’ efforts to reduce their reliance on fossil fuels is key, but individuals’ “civic duty” towards energy use must also intensify.

The momentum on environmental sustainability has been strong throughout the past decade. Enabled by policies, investments and innovations, renewable energy technologies, such as solar photovoltaics and wind power, are cost-competitive with fossil-fuel-based power generation alternatives in countries around the world.⁸⁵ Although low at absolute levels, the market share of electric vehicles has steadily increased, doubling in 2021.⁸⁶ Costs of energy storage solutions, such as lithium-ion batteries, critical for providing flexibility services to a decarbonized grid, are rapidly approaching cost competitiveness.⁸⁷ Despite COVID-19 pandemic restrictions, periods of lockdowns, supply chain bottlenecks and the increasing turmoil in energy markets, the past two years accelerated the global momentum in the transition towards more sustainable energy systems, with record capacity expansion of solar photovoltaics and wind power. Wind and solar energy combined now generate 10% of global electricity for the first time ever (Figure 7).⁸⁸ In addition, low-carbon power sources including solar, wind, hydro, nuclear and bioenergy combined generated 38% of the world’s electricity in 2021, overtaking coal, with Europe leading the way and China and Japan making over a tenth of their electricity from wind and solar for the first time.⁸⁹ An analysis of historical trends from the ETI supports this trend, with the global average score on the environmental sustainability dimension of the index increasing in seven of the past 10 years (Figure 3), with more than 70% of countries showing growth on this dimension. Energy security challenges arising from fossil fuel dependency have intensified due to the ongoing war in Ukraine, strengthening political and popular resolve to accelerate the pace of the clean energy transition.

Figure 7: Share of global electricity generation by source, 2000 - 2021

Nevertheless, the ground to cover remains considerable. The latest IPCC assessment indicates that average annual GHG emissions between 2010 and 2019 were higher than in any previous decade.90 Emission reductions in carbon dioxide from fossil fuels and industrial processes were insufficient to offset the increase from rising global activity in industry, energy supply, transport, agriculture and buildings.⁹¹ While the drop in energy demand in 2020 from COVID-19 pandemic restrictions led to reduced global CO2 emissions by almost 6%,⁹² emissions sharply rebounded in 2021 above pre-pandemic levels to their highest level in history on account of the rapid restoration and rebound of economic and industrial activity levels, and energy market volatilities. To contain the average temperature increase to below 1.5°C, the global GHG emissions must peak before 2025 and be reduced by 43% by 2030.⁹³ At the same time, methane, the second fastest-growing GHG emissions behind CO2,⁹⁴ would also need to be reduced by about a third by 2030. According to IEA’s net zero by 2050 report, annual capacity additions of solar and wind need to be higher than 1,000 GW, four times the record installation levels achieved in recent years.⁹⁵ Additionally, annual sales of electric vehicles would need to scale up eighteen-fold by 2030. Achieving a transformation of this magnitude and complexity necessitates long-term and ambitious policies, enabling infrastructure and investments, as well as supporting consumption behaviour changes.

At COP26, governments and businesses demonstrated strong commitment to address the climate emergency, with 197 countries signing the Glasgow Climate Pact, formalizing their commitments and pledges to net-zero targets.⁹⁶ As of the end of 2021, countries responsible for 90% of global emissions have announced or are considering net-zero targets.⁹⁷ In addition, over 100 countries have joined the Global Methane Pledge, which aims to cut global methane emissions by 30% by 2030.⁹⁸ However, current ambitions still fall short of fulfilling the targets set in the Paris Agreement on climate change in 2015. Despite the momentum at COP26, analyses by the IEA and Climate Action Tracker show that even if all climate pledges are met, the world would still not be on track to limit global warming to 1.5°C by the end of this century.⁹⁹,¹⁰⁰ Additionally, pledges must be turned into concrete policies and actions that make a difference on the ground in the few remaining years to 2030; the widening gap between pledges and implementation effort is a growing concern.

The demand for electricity grew at a record pace¹⁰¹ in 2021, equivalent to adding the demand of India to the world’s grid.¹⁰² Lack of requisite natural gas supply led to a record increase in the use of coal in power generation, including in regions where coal had been in structural decline, such as the United States and the EU. Considering potential energy security implications in the medium term, China, India, Indonesia, Japan and Vietnam plan to build more than 600 coal power plants, which accounts for 80% of new coal power investment.¹⁰³ According to the IPCC, unabated emissions from existing or planned fossil fuel infrastructure until the end of their lifetime is equivalent to the emissions allowance from all sectors in pathways to limit global warming to 1.5°C.¹⁰⁴ Phasing out coal requires the accelerated capacity expansion of not just proven alternatives like solar and wind, but also of other low-carbon sources of energy, such as hydro, bioenergy, hydrogen-based geothermal technologies and infrastructure to capture and store carbon dioxide.

Carbon capture and sequestration, while a mature yet costly abatement technology for gas processing and enhanced oil recovery, remains unproven in the power sector, highlighting the need for investment in research and development, and policy measures to support demonstrations and deployment. Additionally, clean energy investments would have to triple by 2030 to meet demand in a sustainable way, according to the IEA.¹⁰⁵ While investments in energy transition have approximately doubled over the last decade, China, the United States and the EU account for more than 80%¹⁰⁶ of the investments. Africa, which has 39%¹⁰⁷ of global renewable energy potential, attracted only 2% of global investment in renewable energy over the last decade.¹⁰⁸ Geographical disparities in global climate finance aside, investments in fossil fuel assets remain higher than low-carbon assets, also reflecting a mismatch between pledges and actions.¹⁰⁹

Overall, the macroeconomic challenges that came with the 2021 economic recovery as well as the energy affordability and energy security concerns for many countries exacerbated by the Russian invasion of Ukraine reinforce the rationale to supercharge the energy transition.

Apart from supply-side measures, energy efficiency is regarded as the world’s “first fuel” and is the strongest lever in the transition to net zero, according to the IEA.¹¹⁰ While the energy intensity of GDP has been declining, the rate of decline needs to double to meet the levels for net zero emissions by 2050. Given the energy footprints across economic sectors, this highlights the importance of improving energy productivity of such end-consuming sectors as industry and transport, as well as economic diversification to decouple growth from energy consumption. An analysis of G20 countries indicates an inverse relationship between their level of national economic output from the industrial sector (including energy-intensive sectors such as manufacturing, mining, construction and energy producing activities) and their scores on the ETI. Fostering an innovative business environment and human capital development can support the growth of higher value added sectors, enabling necessary economic diversification.

In addition to supporting sustainability ambitions, integrated demand-side measures to improve energy efficiency can also offer security dividends. For example, Japan, a major energy importer, was able to reduce its import burden of oil and gas by 20% in 2016, as a result of energy efficiency improvements since 2000.¹¹¹ Current paradigms with heightened energy security risks indicate the need to further harness the synergistic potential of energy efficiency. Effective demand-side management can offset supply-side additions as well as the need for carbon capture and storage solutions for emissions management. A combination of the right policies, infrastructure and efficient end-use technologies for demand-side mitigation can lead to a 40-70%¹¹² reduction in GHG emissions by 2050 across the three primary end-use segments: transport, buildings and industry. The expansion of transport electrification infrastructure with incentives to purchase electric vehicles, utilizing remote work arrangements
to restrict business air travel, and providing affordable and reliable public transportation where possible can significantly reduce emissions from transportation. Optimizing residential energy consumption through the electrification of heating and cooking, and adopting simple lifestyle changes such as shorter showers or adjusting the setpoint for heating and cooling on thermostats, coupled with sustainable urban design can reduce residential emissions by more than 50%.¹¹³

Active consumer engagement and participation are pivotal for effective demand-side management.

While behavioural and cognitive barriers have been persistent in energy efficiency initiatives, the experience from the COVID-19 pandemic demonstrated that social behaviour adaptation is possible in the short term. Lessons from the management of the pandemic highlight the importance of transparent information dissemination campaigns and of the trust in institutions. Additionally, as the pandemic restrictions disproportionately affected low-income households, it also highlights the distributional considerations of lifestyle and behaviour change programmes, emphasizing the need for equity measures to enhance social acceptance.