Making clean energy technologies available to those who might otherwise struggle with upfront costs is a key challenge for governments, says a new IEA special report.
Accelerating the transition to clean energy technologies is improving energy affordability and can ease cost-of-living pressures more broadly, according to a new IEA special report published today.
Report Strategy for Affordable and Fair Clean Energy Transitions, shows how putting the world on a path to net zero emissions by 2050 requires additional investment, but also cuts the operating costs of the global energy system by more than half over the next decade compared to a trajectory based on today’s policy settings. The net result is a more affordable and fairer energy system for consumers.
In many cases, clean energy technologies are already more cost-competitive over their lifetime than technologies dependent on conventional fuels such as coal, natural gas, and oil. Solar PV and wind are the cheapest options for the new generation. Although electric vehicles, including two-wheelers and three-wheelers, have a higher initial cost, which is not always the case, they usually lead to savings through lower running costs. Energy-efficient appliances such as air conditioners provide similar cost benefits over their lifetime.
However, realizing the benefits of clean energy transitions depends on unlocking higher levels of upfront investment. This is especially true in emerging and developing economies where clean energy investment lags due to real or perceived risks that hinder new projects and access to finance.
Moreover, the distortions of the current global energy system in the form of fossil fuel subsidies favor existing fuels, making investments in the clean energy transition more challenging. Governments worldwide will collectively spend around $620 billion on subsidizing fossil fuel use in 2023 – far more than the $70 billion spent on promoting consumer-oriented clean energy investments, according to the IEA report.
The benefits of a faster energy transition and a growing share of renewables – such as solar and wind, which have lower operating costs than fossil fuel alternatives – would filter down to consumers. Retail electricity prices are typically less volatile than petroleum product prices and provide more predictable costs. Approximately half of the total energy expenditure of consumers today is on petroleum products and another third on electricity. In rapid transitions, electricity prices become the main benchmark for consumers and households. Petroleum products are largely being replaced by electricity as electric cars, heat pumps and electric motors take a greater share of demand in transport, buildings and industry. By 2035, electricity will overtake oil as the main source of fuel in final consumption.
“The data clearly shows that the faster you move to a clean energy transition, the more cost-effective it is for governments, businesses and households,” said the IEA’s executive director. Fatih Birol. “If policymakers and industry leaders delay action and spending today, we will all pay more tomorrow. A first-of-its-kind global analysis in our new report shows that the way to make energy more affordable for more people is to accelerate transitions, not slow them down. But much more needs to be done to help poorer households, communities and countries gain a foothold in the new clean energy economy.”
In 2022, during the global energy crisis, consumers worldwide spent nearly $10 trillion on energy—an average of more than $1,200 for every person on Earth—even after accounting for subsidies and emergency support from governments. This is 20% more than the average of the previous five years, when high prices hit the most vulnerable hardest, in both developing and advanced economies.
The report says that incentives and more support, particularly aimed at poorer households, can improve the uptake of clean energy technologies. This would enable all consumers, especially those who are less affluent, to fully benefit from these technologies and cost savings, while supporting efforts to achieve international energy and climate goals.
The report outlines a number of measures, based on proven policies from countries around the world, that governments can implement to make clean technologies more accessible to all people. These include providing energy efficiency retrofit programs to low-income households; requiring utilities to fund more efficient heating and cooling packages; easier availability of highly efficient appliances; providing affordable clean transport options, including greater support for public transport and second-hand EV markets; replacing fossil fuel subsidies with targeted cash transfers for the most vulnerable; and using revenues from carbon pricing to address potential social inequalities that may arise during energy transitions.
Policy intervention will be essential to address the significant inequalities that already exist in the current energy system, where affordable and sustainable energy technologies are out of reach for many people. The most fundamental inequalities face nearly 750 million people in emerging and developing economies who do not have access to electricity, and more than 2 billion people without clean cooking technologies and fuels. Meanwhile, the poorest 10% of households in advanced economies spend up to a quarter of their disposable income on household and transport energy, despite consuming less than half the energy of the richest 10%.
The report warns that the risk of price shocks will not go away with the clean energy transition and that governments must continue to be vigilant about emerging risks that could affect energy security and affordability. Geopolitical tensions and upheavals remain significant potential drivers of volatility, both in traditional fuels and indirectly in clean energy supply chains. The shift to a more electrified energy system also brings into play a new set of dangers that are more local and regional, especially if investment in networks, flexibility and demand response lags behind. Energy systems are vulnerable to an increase in extreme weather events and cyber-attacks, so adequate investments in resilience and digital security are key.