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IEA Sees Dire Need for More Clean Energy, Efficiency Investment

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Construction of Alltwalis wind farm in Wales (Photo: Aslak Øverås/Statkraft)

The Obama administration’s proposed new rules on power plant carbon emissions have been cause for celebration among U.S. climate-change activists, many of whom believe the policy sets the stage for a surge in clean energy and energy efficiency investment. (See related story: “Four Key Takeaways from EPA’s New Rules for Power Plants.”)

Greentech Media’s Stephen Lacy captured the view well with a piece headlined, “The Federal Government Just Announced the Biggest Clean Energy Boost Since the Stimulus.”

But if things might be looking up in the United States, where cleantech investment had stalled in recent years, the global picture is less rosy, according to the International Energy Agency (IEA). In a report delivered right on the heels of the U.S. announcement, the agency warned that the world is on an energy investment path that “falls well short of reaching climate stabilization goals.” (Related: Can China Help boost U.S. Clean Energy Investment?)

The IEA’s “Energy Investment Outlook” was put together before the U.S. Environmental Protection Agency unveiled its “Clean Power Plan” on Monday. IEA chief economist Fatih Birol subsequently called the EPA plan a “good example” of the sort of actions needed, and added that China, the world’s biggest polluter, also seemed to be “moving in the right direction.” Nevertheless, he said, “unless other countries follow suit, it is unlikely to dramatically alter the breakdown of investment needs at the global level.” (Related: Chinese Adviser’s Carbon Cap Remarks: Promising But Overblown?)

The source of the IEA’s pessimism: its conclusion that on our current investment course, efforts to keep emissions low enough such that temperature rise less than 2 degrees Celsius by 2035 will fail miserably. Instead of a cumulative $48 trillion, the agency said, the world needs to invest $53 trillion into the energy sector, with less of the money going to fossil fuels and more going to clean energy and energy efficiency. The agency described its optimistic and $5 trillion more expensive scenario this way:

[A]n additional $12 trillion needs to be directed to low-carbon technologies and energy efficiency, a rise of 75 percent. Of this increase, 45 percent, or $5.6 trillion, is required for additional investment in energy efficiency; $4.2 trillion for more rapid deployment on the supply side in renewables, nuclear and biofuels; and $2.4 trillion for investment in new technologies such as electric vehicles and CCS.

But if China and the United States are trending in the right direction (or so it now appears), where are the problems? A recent Pew Charitable Trusts report cited trouble in Europe, noting that with incentives curtailed, clean energy investment last year “plunged in once-vibrant markets, with levels in Germany down 55 percent and Italy down 75 percent.” And, indeed, the IEA said rising electricity costs have spooked European governments, leaving policymakers with a thorny challenge “as they seek to make simultaneous progress towards ensuring energy security, environment sustainability and economic competitiveness.”

Still, the bigger issue lies “outside the OECD and outside China, in some cases in countries that have a higher incidence of political instability, weaker institutions and less robust legal frameworks,” the IEA said.

To tackle that challenge, the UN’s next big climate confab, in Paris in late 2015, will need to produce a big breakthrough, the IEA said. What does it have in mind? The agency noted that under its optimistic investment scenario, “after 2020, one of the main deficiencies of current climate policy is remedied: a CO2 price is adopted globally in the power generation and industry sectors at a level sufficiently high to make investment in low-carbon technologies attractive.”