The key task for governments is to make clean energy technologies more accessible to those who might otherwise struggle with upfront costs, the IEA’s new special report finds.
Accelerating the move to clean energy technologies improves energy affordability and could ease cost-of-living pressures more broadly, according to a new IEA special report published today.
Report, Strategies for Affordable and Just Clean Energy Transitions, shows how putting the world on track to meet net-zero emissions by 2050 requires additional investment, but also cuts the costs of operating the global energy system by more than half over the next decade compared to a trajectory based on in today’s policy parameters. 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 those that rely on conventional fuels such as coal, natural gas, and oil. Solar PV and wind are the cheapest options for new generation. Even when electric vehicles, including two- and three-wheelers, have higher upfront costs, which is not always the case, they usually result in savings due to lower operating costs. Energy-efficient appliances such as air conditioners offer similar cost benefits over their lifetime.
However, realizing the benefits of the clean energy transition depends on unlocking higher levels of upfront investment. This is particularly the case in emerging and developing economies, where clean energy investment has lagged behind due to real or perceived risks that hinder new projects and access to finance.
Furthermore, distortions in the current global energy system in the form of fossil fuel subsidies favor current fuels, making investments in clean energy transitions more challenging. Governments around the world collectively spent about $620 billion in 2023 subsidizing the use of fossil fuels – far more than the $70 billion that was spent on supporting consumer-facing clean energy investments, according to the IEA report.
The benefits of a faster energy transition and growing shares 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, offering more predictable costs. However, about half of total consumer energy spending 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 replaced by electricity as electric vehicles, heat pumps and electric motors take a greater share of demand for transport, buildings and industry. By 2035, electricity will overtake oil as the main fuel source in final consumption.
“The data makes it clear that the faster you move towards a clean energy transition, the more cost-effective it is for governments, businesses and households,” said the IEA Executive Director. Fatih Birol. “If policymakers and industry leaders delay action and spending today, we will all end up paying more tomorrow. The first global analysis of its kind in our new report shows that the way to make energy more affordable for more people is to speed up transitions, not slow them down. But much more needs to be done to help poorer families, communities and countries gain a foothold in the new clean energy economy.”
In 2022, during the global energy crisis, consumers globally spent about $10 trillion on energy – an average of more than $1,200 for every person on earth – even after price subsidies and emergency support from governments. This is 20% more than the average over the previous five years, with high prices hitting the most vulnerable countries hardest, in both developing and advanced economies.
The report finds that greater incentives and support, particularly targeted at poorer households, could improve the use of clean energy technologies. This will allow all consumers, especially those who are less affluent, to take full advantage of these technologies’ benefits and cost savings, while also supporting efforts to achieve international energy and climate goals.
The report sets out a series of measures, drawing on proven policies from countries around the world, that governments can put in place to make clean technologies more accessible to all people. These include providing energy efficiency retrofit programs for low-income households; obliging enterprises to finance more efficient heating and cooling packages; making high efficiency equipment more available; providing affordable clean transport options, including more support for public transport and used vehicle markets; replacing fossil fuel subsidies with targeted cash transfers for the most vulnerable; and using carbon pricing revenues to address potential social inequalities that may arise during the energy transition.
Policy intervention will be crucial to address the strong inequalities that already exist in the current energy system, where affordable and sustainable energy technologies are out of reach for many. The most fundamental inequalities are faced by the almost 750 million people in developing and emerging economies who lack access to electricity, and the more than 2 billion people without clean cooking technologies and fuels. At the same time, the poorest 10% of households in advanced economies spend up to a quarter of their disposable income on energy for their home and transport, even though they consume less than half as much energy as the top 10% richer.
The report warns that the risk of price shocks does not disappear in the clean energy transition and that governments must continue to show vigilance to new risks that could affect energy security and affordability. Geopolitical tensions and turmoil remain important potential drivers of volatility, both in traditional fuels and, more indirectly, in clean energy supply chains. The transition to a more electrified energy system also brings a new set of risks that are more local and regional, especially if investments in networks, flexibility and demand response fall behind. Energy systems are vulnerable to an increase in extreme weather events and cyber-attacks, making the right investments in resilience and digital security crucial.