Economic Security in a Changing World

4. The imperative of energy security: Old concerns, new challenges

Keisuke Sadamori
International Energy Agency

Introduction

The International Energy Agency (IEA), an autonomous body within the OECD system, was created in 1974 to ensure secure and affordable energy supplies. At first, heavy focus on oil, but over time the IEA's mandate has extended to all types of energy and technologies. The IEA is at the heart of global dialogue on energy. It publishes analysis, data, policy recommendations and real-world solutions to help countries to benefit from secure and sustainable energy and safely advance transition to clean energy. IEA’s mandate to ensure energy security is not only about having uninterrupted access to energy, but it is also about securing energy supplies at affordable prices. Affordability of energy has long been a concern, but it surged to the forefront of the policy agenda following the global energy crisis triggered by large-scale Russia’s invasion of Ukraine.

Today, 50 years on from the first oil shock that led to the founding of the IEA, the world once again faces a moment of high geopolitical tensions and uncertainty for the energy sector. There are parallels between then and now, with oil supplies in focus amid a crisis in the Middle East – but there are also key differences. The global energy system has changed considerably since the early 1970s, and rapid changes continue to unfold. Clean energy transitions, geopolitical tensions and the growth of cyber threats have expanded the scope of what constitutes energy security today.

Energy security issues become increasingly entangled with the rapidly progressing clean energy transitions. Energy transitions offer the chance to build a safer and more sustainable energy system that reduces exposure to fuel price volatility and reduces energy bills, but there is no guarantee that the journey will be a smooth one. The transitions to clean energy systems marks a change of unprecedented magnitude and will require a proactive approach by governments to address the risks associated with the introduction of a clean energy economy in a timely and effective manner. As the concept of energy security is multidimensional and complex (Box 4.1), this chapter focuses both on the traditional aspects of energy security and aspects related to clean energy transitions.

Box 4.1. Defining and measuring energy security

Securing affordable energy supply is paramount for modern economies and societies. Energy is a key input for production, whose efficiency and scale are linked to the availability and costs of energy resources. It is also vital for improving living standards. Energy enables the provision of basic amenities, contributing to health, education and overall societal progress. It is also interlinked with the efforts to combat climate change.

Energy security is usually defined in broad terms as making available enough quantity of energy in a reliable and affordable way. The IEA defines energy security as the uninterrupted availability of energy sources at an affordable price (IEA, 2022[1]). The Nuclear Energy Agency (NEA) adopted a definition of energy supply security as the resilience of the energy system to unique and unforeseeable events that threaten the physical integrity of energy flows or that lead to discontinuous energy price rises, independent of economic fundamentals (OECD/NEA, 2010[2]).

Energy security can be analysed in two different time perspectives. In the short term, it primarily deals with ability to react promptly to sudden changes in the supply-demand balances. In the long term, energy security deals with timely investments to supply energy in line with economic developments, technological changes and environmental needs. Energy security could cover broad issues related to nation-wide energy systems or focus more narrowly on specific energy products or regional issues.

Assessing energy security is complex, requiring analysing technical, economic, environmental and political considerations.

• Technical issues relate to the technology of energy production and transmission, which determines physical risks, substitutability between different sources of primary energy, as well as needs and duration of investment.

• Economic aspects revolve around the level and volatility of energy costs, linked with the affordability of energy and market regulation. They also deal with financing of energy investment and encouraging innovation to improve reliability and affordability and to minimise environmental impact.

• Energy security should be also analysed in the context of climate change. Extreme weather events, which are set to become increasingly frequent and more devastating with global warming, impact physical security of energy production and transmission directly. At the same time, greening energy production, which is necessary to counter climate change, may affect future energy security.

• Political aspects pertain to risks of domestic political and social instability in case of energy disruptions, geopolitical risks for imported energy sources, and international co-operation to boost resilience and sustainability of energy supply.

The IEA has for long been reviewing and assessing countries against common energy security indicators, recommending policy actions to enhance security and resilience. It regularly conducts Emergency and Security Reviews of its member countries and beyond. Major indicators used by the IEA to help rank countries on their energy security performance include (for oil and gas):

• Import dependency (share of imports in total consumption)

• Supply diversity (Herfindahl-Hirschman index)

• Storage and stocks (total storage capacity/stocks in days of average consumption/peak demand)

• Continuity of supply and economic importance (N-1 indicator; share in total demand).

Electricity requires a slightly different set of indicators, and the IEA has also established a catalogue of indicators to assess countries’ electricity security against the same measurements:

• Import dependency (share of imports in total consumption)

• Generation adequacy (peak load as a share of installed dispatchable generation capacity)

• Continuity of supply (stand-by black-start reserve capacity as a share of installed dispatchable generation capacity)

• Grid reliability (System Average Interruption Duration/Frequency / indices)

• Integration of variable renewable energy (VRE) (share of VRE in total electricity generation)

• Economic importance (value of lost load).

Given the rapidly changing electricity system, the IEA has started work towards a modern, comprehensible and actionable security framework for power systems. It will combine all three major elements of security: operational security, system adequacy, and governance and market arrangements. The IEA will measure them against several indicators, including instantaneous VRE penetration, critical resource size coefficient and price differentials.

Energy security and clean transitions

As the world changes, so do the challenges around energy security. While risks around the availability of oil and natural gas show no signs of abating, new ones are emerging. These risks could significantly hinder energy transitions and undermine the resilience of energy systems, if not addressed promptly and effectively. This calls for new and enhanced approaches to energy security – fit for today and the decades ahead – to ensure uninterrupted access to affordable energy. As underlined by the IEA’s report Net Zero by 2050: A Roadmap for the Global Energy Sector, energy security becomes even more important on the way to net zero.

Russia’s invasion of Ukraine provided a stern test of the resilience of today’s energy system to geopolitical shocks. The price spikes that followed cuts to gas supply from Russia were certainly very damaging, but the attempt by Russia to use gas supply for political leverage failed. Russia has lost its largest customer, shredded its reputation as a reliable exporter and created incentives for consumers to consider alternatives to natural gas.

The crisis has highlighted how geopolitical events can directly impact the energy sector. However, the relationship is reciprocal. Shifts in energy markets can also shape geopolitical dynamics. As clean energy transitions advance, they are altering the demand for different fuels and sources of electricity, changing the global energy landscape in profound ways.

For much of the fossil fuel era, geopolitics and energy have been tightly interwoven. Importing nations have long depended on exporters for crucial energy supplies, while exporters have relied on importers for revenue. This interdependence has driven the ebb and flow of political and commercial relationships between producers and consumers, helping to manage these delicate dependencies.

However, the risks have often been mitigated by open international energy markets. Initially, these markets centred on oil, but in recent years they have expanded to include natural gas. Well-functioning markets, alongside safety nets such as spare capacity from key producers and the IEA’s co‑ordinated system of oil reserves, have helped countries navigate supply and demand disruptions. This system proved its worth again in 2022, when two releases of oil stocks were co‑ordinated by the IEA just after Russia’s invasion of Ukraine.

The world faces a serious challenge with climate change, and energy and climate are inextricably linked. As global average temperatures break records year after year, the case for action has never been stronger. The current energy system is a major driver of global warming, accounting for about 75% of total greenhouse gas emissions. This means transforming how we produce and consume energy is essential, with the world’s ability to meet its climate goals hinging on the energy sector’s ability to reach net zero emissions by the mid-century. The rapid growth of some clean energy technologies – including electric cars, solar photovoltaic (PV), batteries and heat pumps – has kept the door open to limiting the rise in the global average temperature to 1.5°C above pre-industrial levels, the target set by the Paris Agreement to avoid the worst impacts of climate change. Yet to meet this goal, a much faster progress is needed and on a much larger scale, according to IEA analysis. Extreme weather events, which are set to become increasingly frequent and more damaging with global warming, impact physical security of energy production and transmission directly. Addressing this will require even greater international co-operation and ambition from policymakers.

Governments and industry must boost preparedness and resilience in the face of new and more frequent threats, such as cyberattacks and extreme weather events, particularly with regard to electricity infrastructure. The establishment of reliable and cost-effective supply chains for clean energy and ensuring the adequacy of the global supply of critical minerals to meet the demand from ramping up clean energy technologies are key for energy transitions.

Even as demand for fossil fuels falls, energy security challenges will remain since the process of adjustment to changing demand patterns will not necessarily be easy or smooth. For example, the peaks in demand we see based on today’s policies do not remove the need for investment in oil and gas supply, given how steep the natural declines from existing fields often are. At the same time, they underline the economic and financial risks of major new oil and gas projects, on top of their risks for climate change.

Clean transitions address energy security challenges

Traditional risks around fossil fuel supply evolve, but they do not disappear. Transition could be destabilising for fragile producing states that fail to diversify away from high dependence on hydrocarbon revenues. In the meantime, new geopolitical risks and dependencies arise in clean energy supply chains. And both traditional and new security risks are worsened in a more fragmented international system characterised by rivalries and the lack of co‑operation. The world can ill afford these tensions if it wants to get on track to limit global warming to 1.5 C.

At the COP28 climate change conference in Dubai in December 2023, nearly 200 countries adhered to the view that the world needs to transition away from fossil fuels to avoid the worst consequences of global warming. However, while the world's dependence on oil is lessening, it remains deep-rooted, with oil demand continuing its growth, supply disruptions can still cause significant economic harm and have a substantial negative impact on people’s lives. Natural gas demand is also growing. It should also be noted that the share of the Organization of Oil Exporting Countries (OPEC) in global supply rises over time as oil demand falls. But in exercising this influence they reduce it, because consumers have an increasing number of mature clean energy options at competitive prices.

The rising share of renewables in energy production not only reduces emissions, but also contributes to energy security. The energy shock created in the wake of Russia's invasion of Ukraine has led to a greater understanding of the problem of energy self-sufficiency, particularly in terms of electricity generation. And this can only be achieved by ensuring the largest possible share of domestic generation from domestic sources. There are some concerns about regional concentration of manufacturing capacities for clean energy technologies given that the vast majority of renewable energy generation is based on technologies and minerals controlled by China (see Special focus 2). Many countries are, therefore, trying to secure diverse and resilient supply chains for clean energy technology manufacturing including renewables. However, supply disruptions in solar panels, for instance, would not immediately affect power supply as long as sun is shining. Thus, increasing renewable power generation should be considered as a way to increase self-sufficiency and thereby enhancing energy security.

Solar PV and wind are now the cheapest source of electricity generation in many countries in terms of levelised cost of energy. Nonetheless, stronger policies are still needed to support the growth of renewables. Accelerating the permitting process and providing the right incentives for more rapid deployment – for all renewables including flexible hydropower – are some of the most important actions governments can take to address today’s energy security and future climate goals at once.

Oil security will continue to be critical during the clean energy transition

One of the IEA's core activities is ensuring the security of oil supplies by setting oil stockholding requirements for member countries. Each IEA country has an obligation to ensure it holds total oil stocks equivalent to at least 90 days of net oil imports. In case of a severe oil supply disruption, IEA members may decide to release these stocks to the market as part of a collective action.

An enduring focus on oil security is a consequence of the oil dependence for the transport sector (to fuel cars, trucks, ships and aircraft), which is expected to continue although the shift to a clean energy economy is gathering pace, with electric vehicle sales increasing, energy efficiency improving, and other clean energy technologies advancing rapidly. Based on today’s policy settings, global oil demand is expected to plateau at the end of this decade.

However, the threat posed by oil supply disruptions will not disappear anytime soon. Even after demand starts declining, oil will remain an important part of the global energy mix for some time. There is also good reason to believe that oil supply disruptions are even more likely to occur in the coming decades than they are today. This is due to lower appetite for oil upstream investments with uncertain demand outlook, increasing supply concentration for both crude oil and oil products, a highly uncertain geopolitical outlook, and a plethora of additional risks including the growing threat of cyberattacks and the increasing frequency of extreme weather events. 

Developments further along the oil value chain will also result in increased exposure to oil market risk for many countries. In the refining sector, a significant amount of capacity has been shut down in advanced economies over the past decade, particularly in Europe where some refiners have struggled to remain competitive following the completion of numerous large-scale, highly complex refineries in the Middle East and Asia. Faced with increased competition and a highly uncertain demand outlook in their main markets, more refineries in advanced economies are likely to close. This will leave many countries increasingly reliant on imports of oil products, such as diesel and jet fuel. As a consequence of their increased import dependence, these countries will become more vulnerable to disruptions in oil product markets.

The risks to oil security are manifold and wide-ranging, extending far beyond risks emanating from structural changes in global oil markets. Governments should take particular note of the threats posed by the increasingly uncertain geopolitical outlook, climate change and extreme weather events, and cyberattacks. In recent years, supply disruptions have been caused by events that fall into each of these categories.

Ultimately, reducing dependence on fossil fuels by promoting the uptake of clean energy solutions is the most effective means for any government to enhance energy security. Shifting to a clean energy economy should be seen as a golden opportunity to build a more sustainable energy system that minimises exposure to oil market volatility and decreases the prospect of supply shocks. However, the journey to a clean energy economy may not be a smooth one. For many years to come, oil supply disruptions will have the potential to cause significant economic harm and negatively impact people’s lives. Maintaining a resolute focus on oil security and emergency preparedness will therefore be critical throughout clean energy transitions worldwide, and the IEA’s emergency response capabilities will remain vital. 

The oil and gas Industry must play their part in Net Zero Transitions

Structural changes in the energy sector are expected to lead to plateauing of oil and gas demand by the end of this decade under today’s policy settings. Fossil fuel demand is not expected to decline quickly enough to align with the Paris Agreement and the goal to limit the increase in global temperature to 1.5°C. If governments were to deliver on their national energy and climate pledges in full and on time, oil and gas demand would be 45% below today's level by 2050 and the temperature rise could be limited to 1.7°C. 1.5°C trajectory would require net zero emissions from the global energy sector achieved by mid-century with oil and gas use falling by 75%.

The IEA’s Oil and Gas Industry in Net Zero Transitions report explores what oil and gas companies can do to accelerate net zero transitions and what this might mean for an industry which currently provides more than half of global energy supply and employs nearly 12 million workers worldwide.1 The implications of net zero transitions are far from uniform: the industry encompasses a wide range of players, from small, specialised operators to huge national oil companies. While attention often focuses on the role of the majors, which are seven large, international players, they hold less than 13% of global oil and gas production and reserves.

The oil and gas industry has so far played a marginal force in the world’s transition to a clean energy system. Oil and gas producers account for only 1% of total clean energy investment globally. More than 60% of this comes from just four companies, out of thousands of producers of oil and gas around the world today.

While there is no single blueprint for change, there is one element that can and should be in all company transition strategies: reducing emissions from the industry’s own operations. Less than half of current global oil and gas output is produced by companies that have targets to reduce these emissions. A far broader coalition – with much more ambitious targets – is needed to achieve meaningful reductions across the oil and gas industry. The production, transport and processing of oil and gas results in just under 15% of global energy-related greenhouse gas emissions. This is a huge amount, equivalent to all energy‑related greenhouse gas emissions from the United States. To align with the 1.5°C scenario, these emissions need to be cut by more than 60% by 2030 from today’s levels and the emissions intensity of global oil and gas operations must be near zero by the early 2040s. These are appropriate benchmarks for industry-wide action on emissions, regardless of the future scenario. The emissions intensity of the worst performers is currently five to ten times higher than the best. Methane accounts for half of the total emissions from oil and gas operations and is dozens of times more potent than CO2 for global warming. Tackling methane leaks is a top priority and can be done very cost‑effectively – but it is not the only priority.2

Some 30% of the energy consumed in a net zero energy system in 2050 comes from low‑emission fuels and technologies that could benefit from the skills and resources of the oil and gas industry. These include hydrogen and hydrogen-based fuels; carbon capture, utilisation and storage (CCUS); offshore wind; liquid biofuels; biomethane; and geothermal energy. Oil and gas companies are already partners in a large share of planned hydrogen projects that use CCUS and electrolysis. The oil and gas industry are involved in 90% of CCUS capacity in operation around the world. CCUS and direct air capture are important technologies for achieving net zero emissions, especially to tackle or offset emissions in hard‑to-abate sectors. For the moment, only around 2% of offshore wind capacity in operation was developed by oil and gas companies. Plans are expanding, however, and the technology frontier for offshore wind – including floating turbines in deeper waters – moves this sector closer to areas of oil and gas company strength. In addition, industry skills and infrastructure, including existing retail networks and refineries, give the industry advantages in areas like electric vehicle charging and plastic recycling.

Companies that have announced a target to diversify their activities into clean energy account for just under one-fifth of current oil and gas production. The oil and gas industry invested around USD 20 billion in clean energy in 2023, some 2.5% of its total capital spending. For producers that choose to diversify and are looking to align with the aims of the Paris Agreement, the IEA’s bottom-up analysis of cash flows in the 1.5°C scenario suggests that a reasonable ambition is for 50% of capital expenditures to go towards clean energy projects by 2030, on top of the investment needed to reduce direct (scope 1) and indirect (scope 2) emissions. Not all oil and gas companies have to diversify into clean energy, but the alternative is to wind down traditional operations over time. Some companies may take the view that their specialisation is in oil and natural gas and decide that – rather than risking money on unfamiliar business areas – others are better placed to allocate this capital. But aligning their strategies with net zero transitions would then require them to scale back oil and gas activities while investing in emissions reductions.

Electricity security is a cross-sectoral matter and benefits from diversification

Secure power systems require secure fuel supplies to be able to feed the generation fleet. In many countries, gas-fired power plants are playing the critical role in covering peak demand periods and providing the flexibility to accommodate larger shares of wind and solar generation. As the world recovers from the COVID-19 pandemic and has to deal with the impacts of the Russian invasion of Ukraine, global gas markets have become very tight. This has had significant spillover effects on electricity systems dependent on gas. In many emerging economies, notably in Asia Pacific and Latin America, liquefied natural gas (LNG) supplies are the main source of flexible gas supply in the absence of pipelines and underground gas storage, which brings additional costs and supply risks. Coal-fired power generation is still the backbone of power supply in many Asian countries.

Energy system integration requires stronger co-ordination across sectors and among stakeholders, both in planning and operations. Power system planning needs to identify the investment required to ensure security of supply in the decades ahead. Integrated and co-ordinated planning frameworks should cover generation, transmission and distribution networks, demand, the electrification of end uses and dependencies on other sectors. Such frameworks are essential to identify appropriate options for the future power system, in the light of demand and technology uncertainty, and can help identify the need for interconnections at the national, regional and international level. Despite the progress in decentralisation, secure interconnected power systems are the backbone of energy security. In Europe and the United States, regional trade is a key source of flexibility, and the Association of Southeast Asian Nations (ASEAN) countries work to improve energy system interconnectivity and energy trade.

Regular adequacy studies and reviews of their underlying assumptions are key to ensure that all relevant outage risks are captured correctly and to inform policymaking. Probabilistic adequacy assessments give greater insight for systems with a high share of renewables as they allow many uncertainties to be evaluated together. Planning studies should include “low-probability high-impact” scenarios, including those related to extreme weather events and cybersecurity threats. Recent extreme weather events across the globe highlight the energy security risks that climate change brings.

Power systems are digitalising, bringing benefits at all levels, from the management of generation and grids to the rise of new capabilities and services from a wider set of resources. However, digitalisation comes with increased cybersecurity risks. A successful cyberattack could trigger the loss of control over devices and processes, in turn causing physical damage and widespread service disruption to electricity systems. A wealth of cyber risk management tools and frameworks have been deployed and policymakers play a central role in selecting and implementing them.

Whether physical or cyber, not all events can be prevented at reasonable costs, requiring a cost-benefit analysis. Policy setting and planning can be seen as an iterative process: the policy goals are key inputs to planning and, in turn, the planning exercises provide essential information on the options and corresponding costs to meet the policy objectives. The selected trajectory must strike a balance between the deployment of (costly) preventive measures and the consequences of various incidents occurring, ranging from expected outages to rare events. In their effort to strive for affordable and secure power, policymakers should aim for a higher resilience, that is the ability of the system to absorb, accommodate and recover from short-term shocks (supply crisis, cyberattack or extreme weather events) and long-term, more gradual changes (adaptation to evolving needs and weather patterns).

Risk-preparedness plans help identify cost-effective resilience measures. For instance, greater diversity in the resource mix can ensure resilience against social, geopolitical, market, technical and environmental risks. With a deeper understanding of the risks, governments and regulators are equipped to design appropriate incentives for utilities to invest in a resilient power system in a timely manner.

Prioritising energy efficiency

Energy efficiency (i.e. using less energy for the same result) is central to achieving affordable clean energy transition that ensures equitable social development and economic growth. Decisive, ambitious and transformative action on energy efficiency is needed to improve the resilience, security and reliability of our energy systems, and improve access to sustainable and affordable energy services.

Without the efficiency improvements made since 2000, the world would be using 13% more energy today and energy-related carbon emissions would be 14% higher. Over half of the energy savings achieved can be attributed to efficiency measures in the industrial sector, about a third to efficiency in buildings and appliances, and a tenth to transport efficiency. These efficiency improvements have lowered energy bills for households and businesses, enhanced competitiveness and supported job creation.

Efficiency progress is also enhancing energy security and access to affordable, reliable energy. By cutting down overall energy demand, efficiency can significantly reduce overall reliance on fossil fuel imports, improve the balance of payments and reduce the likelihood of supply disruption. Efficiency gains since 2000 avoided the need for over 11 EJ of fossil fuel imports into IEA countries and other major economies in 2017, equivalent to 20% more. Reduced oil imports into IEA countries alone saved more than USD 30 billion.

Looking towards a net zero emissions future by 2050, there is still significant untapped potential: doubling the current rate of energy intensity improvement from 2% to 4% per year until 2030 means avoiding 95 EJ per year of final energy consumption – equivalent to China’s current final energy demand. Achieving 95 EJ of annual energy savings by 2030 would also translate into significantly strengthened energy security, avoiding the demand for almost 30 million barrels of oil per day, about triple Russia’s average production in 2021, and 650 bcm of natural gas per year, around four times EU imports from Russia in 2021. Reductions in electricity demand can also avoid the need for investment in new generating capacity, as well as in the required transmission and distribution infrastructure and storage facilities.

In emerging economies, efficiency gains are particularly important to ensure the reliability and quality of energy supply services, to allow currently suppressed demand to come online without overstraining existing electricity networks, and to allow economic development. Achieving multiple benefits from action on energy efficiency is particularly important in the context of rising and fluctuating energy prices, which disproportionally hurt the most vulnerable segments of the population, and the economies of developing and emerging economies. People-centred and inclusive approaches and the prioritisation of energy efficiency are means to boost affordability and ensure that we are not reversing progress towards universal access to electricity.

Following the pathway set out in the IEA Net Zero Scenario, the global economy could grow by 40% by 2030 and support around 800 million more people with access to electricity, all with a 5% lower final energy demand. Compared to the IEA Stated Policies Scenario, energy efficiency and related measures in the Net Zero Scenario would reduce annual CO2 emissions by 5 Gt in 2030. Over 80% of these additional efficiency gains result in overall net cost savings to consumers, helping to lower energy bills and cushion the effects of price volatility.

Achieving 95 EJ of annual energy savings could contribute to lowering household energy bills by at least USD 650 billion per year by 2030. This calls for strong and early action on energy efficiency by 2030. Governments play an essential role in ensuring the necessary front-loading and prioritisation of energy efficiency action. Recognising the value of early action on energy efficiency as a means of cost-effectively accelerating progress towards net zero energy targets, and increasing energy security and resilience, over 40 governments at the 8th IEA Annual Global Conference on Energy Efficiency in June 2023 signed a joint statement calling on all governments and other actors to strengthen their action.

Recommendations from the Global Commission for Urgent Action on Energy Efficiency call for well‑designed and comprehensive policy packages with ambitious targets, clear implementation strategies and strong monitoring frameworks. These policy recommendations can be implemented quickly and in different contexts to boost efficiency improvements globally, improve energy security, offset increasing energy demand and curtail CO2 emissions growth. To maximise effectiveness in both the short and long term, existing best practice policies, cost-effective technologies and sustainable business models need to be scaled up quickly, drawing on knowledge of what has worked and what has not.

Governments have a significant role to play in this transition, not only in leading by example but also as significant final consumers of energy services. Governments can lead this process by implementing whole‑of‑government approaches that align priorities and actions, thereby capturing all the benefits of energy efficiency and achieving greater impacts. For example, due to its high importance for overall energy consumption and quality of life, energy-efficient cooling is driven by government national action plans in India and China.

The greatest efficiency gains are achieved by comprehensive policy packages that include a mix of regulation, information and incentives, while enabling innovation, investment and digitalisation. Using regulation such as minimum energy performance standards to exclude the worst-performing appliances, equipment, vehicles and buildings from the market and to drive up average efficiency levels has led to the greatest improvements in efficiency historically. This concerns cooling and lighting in particular (by 2050 around two-thirds of the world’s households could have an air conditioner, and China, India and Indonesia together account for half of the total number).

Regulation can be supported by bulk procurement programmes, such as the UJALA (Unnat Jyoti by Affordable LEDs for All) programme for 350 million LED bulbs in India, helping technologies become more affordable and accessible. These initiatives speed up the replacement of old inefficient technologies. Governments can lead by example through green procurement rules and specifications like those implemented in the European Union, which set minimum energy and environmental standards for buildings and government procurement. The US Federal Energy Management Program, as a further example, sets energy and water-reduction goals for federal agencies, and supports implementation by providing guidance, training and technical assistance. In Indonesia, government regulation 70/2009 requires all companies with an annual energy consumption exceeding 6 000 tonnes of oil equivalent to appoint an energy manager, develop an energy conservation plan, perform an energy audit and report energy consumption to the government. Discussions about lowering the industry threshold to 4 000 tonnes of oil equivalent and introducing sector specific thresholds are underway.

Conducting comprehensive stakeholder engagement and leveraging behavioural insights can ensure that efficiency programmes are based on the actual needs and behaviours of end users, and also appropriately consider vulnerable groups. Energy efficiency policies that incorporate behavioural insights in both the design and implementation stages have proven to be more effective, as seen in the strengthening of the EU appliance energy labels. Putting people at the core of these policy actions and making better information available with the right narratives can have far-reaching impacts on the public attitudes and beliefs that drive consumption and mobility patterns – and can catalyse the much-needed behaviour change. Furthermore, redesigning policies and products to make energy savings the default option simplifies consumer choices. For instance, India has mandated that the default set-point temperature of room air conditioners be set at 24°C, which still leaves consumers with the free choice of temperature but achieves savings by default – through many consumers simply never changing the settings.

Governments can also incentivise efficiency improvements through financial mechanisms such as direct stimulus funding, investment in public buildings, facilities and infrastructure, preferential finance, and market-based mechanisms.

Efficiency action can be rapidly scaled up by boosting demand for efficient products and services through a range of financial and non‑financial incentives, and by enabling greater levels of market activity through supply-side incentives such as finance or tax benefits for manufacturers. Standards and labelling, and dedicated end-user incentives for equipment replacement are effective examples. The replacement of 1 million inefficient refrigerators in Colombia, for instance, lowered energy bills for consumers, reduced the need for subsidies to low-income households and created 12 000 jobs.

Other options include enhancing industrial efficiency through targeted fiscal incentives or large‑scale programmes that can combine a range of policy measures. India’s Perform, Achieve, Trade (PAT) Scheme offers a market-based approach to driving energy efficiency investment. PAT is a multi-cycle programme to reduce specific energy consumption in the most energy-intensive industries by setting consumption targets and enabling businesses who beat their target to trade the Energy Saving Certificates (ESCerts) that they are issued with.

Implementation of energy efficiency policies and programmes needs to take place at all levels of society, and at national and sub-national levels, to maximise impact. For example, to enhance energy efficiency in buildings, local governments in Mexico and India developed the implementation action required to achieve national standards.

Energy efficiency can rapidly create sustainable employment and support long-term economic growth. Job creation potential exists in construction and manufacturing, with key opportunities in building retrofits and technology replacement programmes. Drawing from international experience, the Make in India and Made in China programmes focus on creating high-quality manufacturing jobs through training and capacity building, while at the same time improving appliance efficiency and therefore making them more affordable for end users.

International collaboration can assist governments to implement energy efficiency policy more rapidly and effectively. The broad exchange of best practices allows countries to share and learn about successful and unsuccessful approaches to instilling energy efficiency in their economies. Of note is the IEA’s Energy Efficiency Hub, a platform for global collaboration on energy efficiency.

Mobilising finance for clean energy deployment will be key to advancing the clean transition and ensuring energy security

According to the IEA’s World Energy Investments 2024, global energy investment is set to exceed USD 3 trillion for the first time in 2024, with USD 2 trillion going to clean energy technologies and infrastructure. Investment in clean energy has accelerated since 2020, and spending on renewable power, grids and storage is now higher than total spending on oil, gas and coal combined.

The annual World Energy Investment report has consistently warned of energy investment flow imbalances, particularly insufficient clean energy investments in emerging market and developing economies (EMDE) outside China. There are tentative signs of a pick-up in these investments: in the IEA’s assessment, clean energy investments are set to approach USD 320 billion in 2024, up by more 50% since 2020 in EMDE outside China parts of the world. This implies similar growth to the one seen in advanced economies (+50%), although below investment growth in China (+75%). The gains primarily come from higher investments in renewable power, now representing half of all power sector investments in these economies. Progress in India, Brazil and parts of Southeast Asia and Africa reflects new policy initiatives, well-managed public tenders, and improved grid infrastructure. Africa’s clean energy investments in 2024, at over USD 40 billion, are nearly double those in 2020. Yet much more needs to be done. In most cases, this growth comes from a very low base and many of the least-developed economies are being left behind (several face acute problems servicing high levels of debt).

In 2024, the share of global clean energy investment in EMDE outside China is expected to remain around 15% of the total. Both in terms of volume and share, this is far below the amounts that are required to ensure full access to modern energy and to meet rising energy demand in a sustainable way. Power sector investment in solar PV technology is projected to exceed USD 500 billion in 2024, surpassing all other generation sources combined. Though growth may moderate slightly in 2024 due to falling PV module prices, solar remains central to the power sector’s transformation. In 2023, each US dollar invested in wind and solar PV yielded 2.5 times more energy output than a dollar spent on the same technologies a decade before.

In 2015, the ratio of clean power to unabated fossil fuel power investments was roughly 2:1. In 2024, this ratio is set to reach 10:1. The rise in solar and wind deployment has driven wholesale prices of electricity down in some countries, occasionally below zero, particularly during peak periods of wind and solar generation. This lowers the potential for spot market earnings for producers and highlights the need for complementary investments in flexibility and storage capacity. Investments in nuclear power are expected to have picked up in 2024, with its share (9%) in low-carbon power investments rising after two consecutive years of decline. Total investment in nuclear is projected to have reached USD 80 billion in 2024, nearly double the 2018 level, which was the lowest point in a decade. Grids have become a bottleneck for energy transitions, but investment is rising. After stagnating around USD 300 billion per year since 2015, spending is expected to have hit USD 400 billion in 2024, driven by new policies and funding in Europe, the United States, China and parts of Latin America. Advanced economies and China account for 80% of global grid spending. Investment in Latin America has almost doubled since 2021, notably in Colombia, Chile, and Brazil, where spending doubled in 2023 alone.

However, investment remains worryingly low elsewhere. Investments in battery storage are ramping up and are set to have exceeded USD 50 billion in 2024. But spending is highly concentrated. In 2023, for every dollar invested in battery storage in advanced economies and China, only one cent was invested in other EMDE. Investment in energy efficiency and electrification in buildings and industry has been quite resilient, despite the economic headwinds. But most of the dynamism in the end-use sectors is coming from transport, where investment is set to reach new highs in 2024 (+8% compared to 2023), driven by strong electric vehicle (EV) sales.

The rise in clean energy spending is underpinned by emissions reduction goals, technological gains, energy security imperatives (particularly in the European Union), and an additional strategic element: major economies are deploying new industrial strategies to spur clean energy manufacturing and establish stronger market positions. Such policies can bring local benefits, although gaining a cost-competitive foothold in sectors with ample global capacity like solar PV can be challenging. Policymakers need to balance the costs and benefits of these programmes so that they increase the resilience of clean energy supply chains while maintaining gains from trade. In the United States, investment in clean energy increases to an estimated more than USD 300 billion in 2024, 1.6 times the 2020 level and well ahead of the amount invested in fossil fuels. The European Union spends USD 370 billion on clean energy today, while China is set to spend almost USD 680 billion in 2024, supported by its large domestic market and rapid growth in the so-called “new three” industries: solar cells, lithium battery production and EV manufacturing.

How critical minerals can unlock a cleaner and more secure energy future?

An energy system powered by clean energy technologies differs profoundly from one fuelled by traditional hydrocarbon resources. Critical minerals such as copper, lithium, nickel, cobalt and rare earth elements are essential components in many of today’s rapidly growing clean energy technologies – from wind turbines and electricity networks to electric vehicles (see Special focus 2). Demand for these minerals is growing quickly as clean energy transitions gather pace.

IEA Global Critical Minerals Outlook 2024 report finds that, on a path to 1.5°C climate target, demand for critical minerals quadruples by 2040. Solar PV plants, wind farms and electric vehicles generally require more critical minerals to build than their fossil fuel-based counterparts. A typical electric car requires six times the mineral inputs of a conventional car and an offshore wind plant requires 13 times more mineral resources than a similarly sized gas-fired plant. Since 2010, the average amount of mineral resources needed for a new unit of power generation capacity has increased by 50% as the share of renewables in new investment has risen.

Demand for critical minerals experienced strong growth in 2023, with lithium demand rising by 30%, while demand for nickel, cobalt, graphite and rare earth elements all saw increases ranging from 8% to 15%. Clean energy applications have become the main driver of demand growth for a range of critical minerals. EVs consolidated their position as the largest consuming segment for lithium, and increased their share considerably in the demand for nickel, cobalt and graphite.

Availability of critical minerals are one of key determinants of the speed of energy transitions, as well as crucial element to enable stable operations of manufacturing sectors. IEA is now working on how IEA member countries can share their policy measures and best practices for ensuring critical mineral supply security and also on analysis on critical minerals market developments to help ensure market transparency.

As further detailed in Special Focus 2 of this report, critical mineral supply remains however highly concentrated and there has been limited progress in terms of diversification over the past three years. Concentration of supply has even intensified in some cases. China is by far dominant in extraction of graphite (70%) and rare earth elements (69%). China’s share is close to 100% in processing of the two, and key in processing cobalt (74%), lithium (65%), and copper (45%).

The geographical concentration of mining operations is set to rise further or remain high throughout to 2040. These high levels of supply concentration represent a risk for the speed of energy transitions, as it makes supply chains and routes more vulnerable to disruption, whether from extreme weather, trade disputes or geopolitics.

The “N-1” analysis is a typical measure of the resilience of any system and reveals significant vulnerabilities. If the largest supplier and its demand is excluded, then available “N-1” supply of all key energy transition minerals would fall significantly below material requirements. The situation is most pronounced for graphite where the available “N-1” supply covers only 10% of the N-1 material requirements – significantly below the minimum non-single-origin threshold of 35% proposed in the EU Critical Raw Materials Act. This indicates that without urgent efforts to expedite the development of projects, achieving announced diversification goals will be highly challenging.

Lower prices have been good news for consumers and for affordability, bringing clean technology costs back on a downward trajectory, including the 14% reduction in battery prices in 2023. However, falling prices also make spending to ensure reliable and diversified supply less appealing to investors. This price effect has had the biggest consequences in new and emerging resource-holders; in the case of nickel, three-quarters of operating or potential projects that are at risk are outside the top three producers.

The IEA Global Critical Minerals Outlook includes a new risk assessment framework for key energy transition minerals, across four major dimensions – supply risks, geopolitical risks, barriers to respond to supply disruptions, and exposure to environmental, social and governance (ESG) and climate risks. Most minerals are exposed to high environmental risks. For example, today’s refining operations occur in places where grids tend to have a higher carbon intensity, relying mostly on coal-based electricity. Meeting energy security and decarbonisation needs

Repurposing energy infrastructure for lower-carbon fuels

In the current context of high price volatility in global energy markets, governments are reducing their exposure to and dependency on fossil fuels by diversifying supply routes and sources, and by enabling the use of low-carbon fuels in existing energy infrastructure. Sourcing low-carbon fuels from several locations and from various technologies increases security of supply and protects against shocks in demand and supply. Creating new infrastructure requires high levels of investment and brings the risk of delay from the need to obtain different permits and approvals. The repurposing of existing infrastructure offers the prospect of accelerating the transition. For instance, existing thermal assets can provide the flexibility that variable renewable energy sources call for, complementing other sources, such as transmission, storage and demand response, while securing emission reduction benefits if they are run on lower-carbon fuels.

Low-carbon gases (including biomethane, low-emission hydrogen, synthetic methane and methane subject to CCUS) are set to play a key role in decarbonisation pathways. In the IEA Net Zero Scenario, low-carbon gases account for close to 75% of total gaseous fuels in total final energy consumption in 2050, and for the majority of gaseous fuels consumed in the power sector. In turn, low-carbon gases keep the share of gaseous fuels in total final energy consumption close to today’s levels and play a key role in the hard-to-abate sectors, including industry, long-haul transport and seasonal energy storage. In the power sector, low-carbon gases are set to provide flexible back-up supply in a system dominated by variable renewable sources of electricity supply.

The existing gas infrastructure can fast-track the deployment of low-carbon gases, by providing network access, reducing transport costs and ultimately facilitating their integration into the broader energy system. At the upstream level, natural gas and condensate fields, depleted gas reservoirs and their related above‑ground infrastructure could be used for CO2 storage, enabling the deployment of CCUS-based solutions as in the production of hydrogen from methane. The vast system of gas transmission and distribution pipelines can be repurposed to carry low-carbon gases.

Biomethane and synthetic methane are perfectly interchangeable with conventional methane due to their almost identical chemical and physical properties. Nevertheless, they will require the development of standards to ensure uniform gas quality across interconnected gas systems and diminish any risk of deviating from them. Biomethane is mainly fed into distribution networks due to the decentralised nature of its production. In the longer term, the high penetration of biomethane at the distribution level will necessitate closer integration between transmission and distribution networks. Bidirectional compressor stations would enable reverse flows from distribution to the transmission network, facilitate daily balancing and provide access to biomethane for seasonal gas storage sites (which are most often connected to the transmission system).

In the case of low-emission hydrogen, blending can provide a temporary solution until dedicated hydrogen transport systems are developed. Depending on the characteristics of the gas transmission system, hydrogen can be blended at rates of 2-10% H2 by volume without substantial retrofitting of the pipeline system. The hydrogen tolerance of polymer-based distribution networks is typically greater, potentially allowing blending of up to 20% with minimal or possibly no modifications to the grid infrastructure. Natural gas pipelines can also be repurposed to serve as hydrogen distribution. Pipeline repurposing can be substantially less costly and the lead times much shorter compared to new-build hydrogen networks.

The decommissioning of existing infrastructure can cause economic disruption for local communities that are dependent on it for employment and revenues. Leveraging existing strengths to identity new uses for existing infrastructure during the transition can bring many benefits. Notably, repurposing or converting existing infrastructure allows for the preservation of large parts of the value of the infrastructure, while retaining jobs and tax bases in communities where the infrastructure is located. For instance, a number of current oil and gas producing countries are currently developing or looking to develop CCUS, hydrogen and offshore wind energy industries, using existing skillsets and knowledge bases from oil/gas production, including offshore. Policymakers should assess the opportunities for scaling up the deployment of low-carbon fuels using today’s energy infrastructure before giving the owner consent to reclaim or demolish existing infrastructure along the entire value chain. Such a forward-looking and people-centred approach to existing energy infrastructure could lead to substantial cost savings and improve the resilience of the energy system.

Repurposing coal infrastructure also can accelerate just and secure energy transitions. The most interesting asset in the coal value chain is generally the coal power plant and its associate infrastructure, in particular the connection with the electricity transmission grid. There is currently over 2 000 GW of coal power generation capacity that could be converted into low-carbon assets in different ways, providing adequacy, flexibility and stability to the electricity grid. The first option is to retrofit the plants with CCUS. Another option is to use low carbon fuels, such as sustainable biomass, or ammonia produced from renewable hydrogen or fossil fuels in combination with CCUS. Conversion to biomass has already been done in some plants around the world, and the project of ammonia co-firing is making good progress such as the Gresik Thermal power plant in Indonesia. In addition, technological development of co-firing high shares of ammonia and ammonia single-fuel firing is progressing as well. Biomass has an additional advantage in that, when combined with CCUS, it can turn coal power plants, currently the largest source of CO2 emissions, into a source of negative emissions. Other possibilities like conversion to a nuclear facility, thermal storage or a combination of the two should not be overlooked. The conversion or retrofitting of existing coal power plants offers many advantages, in particular the prospect of faster permitting processes and use of an existing electricity grid connection, two important bottlenecks identified in clean energy transitions.

Conclusions

Key recommendations to help buttress energy security in the transition, when the clean energy and fossil fuel systems co-exist and are both required to deliver reliable energy services are:

• Synchronise scaling up a range of clean energy technologies with scaling back of fossil fuels. Investing in clean energy is key to avoid future crises while reducing emissions. In the Net Zero Emissions by 2050 (NZE) Scenario, around USD 9 is spent on clean energy by 2030 for every USD 1 spent on fossil fuels. Cutting investment in fossil fuels ahead of scaling up investment in clean energy would lead to energy price escalations, and undermine people’s support to energy transitions.

• Tackle the demand side and prioritise energy efficiency. The energy crisis highlights the crucial role of energy efficiency and behavioural measures in helping to avoid mismatches between demand and supply. Since 2000, efficiency measures have reduced unit energy consumption significantly, but the pace of improvement has slowed in recent years. Policies that accelerate the rate of retrofits are crucial as over half of the buildings that will be in use in 2050 have already been built.

• Collaborate to bring down the cost of capital in emerging market and developing economies. The cost of capital for a solar photovoltaics (PV) plant in 2021 in key emerging economies was between two- and three-times higher than in advanced economies and China. Tackling related risks and lowering the cost of capital in emerging and developing economies by 200 basis points reduces the cumulative financing costs of getting to net zero emissions by USD 15 trillion through to 2050.

• Manage the retirement and use existing infrastructure carefully.  Some parts of the existing fossil fuel infrastructure perform functions that will remain critical for some time, even in rapid energy transitions. They include gas-fired plants for electricity security – in the European Union peak requirements for natural gas rise to 2030 even as overall demand goes down by 50% – or refineries to fuel the residual internal combustion engine car fleet. Unplanned or premature retirement of this infrastructure can have negative consequences for energy security.

• Tackle the specific risks facing producer economies. Diversification will be crucial to mitigate risks. Some countries are investing part of their current windfall oil and gas profits in renewables and low-emissions hydrogen. Potential export earnings from hydrogen are no substitute for those from oil and gas, but low‑cost renewables and carbon capture, storage and utilisation (CCUS) can provide a durable source of economic advantage by attracting investment in energy-intensive sectors.

• Invest in flexibility to strengthen electricity security. Reliable electricity is central to transitions as its share in final consumption rises from 20% today 50% in the IEA’s Net Zero Scenario. Increasing variability in electricity supply and demand means that the requirement for flexibility quadruples by mid-century in both scenarios. Battery storage and demand‑side response become increasingly important, each providing a quarter of the flexibility needs in 2050.

• Ensure diverse and resilient clean energy supply chains. Critical minerals demand for clean energy technologies is set to quadruple by 2050, with annual revenues reaching USD 400 billion. High and volatile critical mineral prices and highly concentrated supply chains could delay energy transitions or make them more costly. Minimising this risk requires action to scale up and diversify supplies alongside recycling and other measures to moderate demand growth.

• Foster the climate resilience of energy infrastructure. The growing frequency and intensity of extreme weather events presents major risks to the security of energy supplies. IEA analysis of the risks facing four illustrative assets shows that the potential financial impact from flooding could amount to 1.2% of their total asset value in 2050, and in one case would be four-times higher than this without flood defences in place. Governments need to anticipate the risks and ensure that energy systems have the ability to absorb and recover from adverse climate impacts.

• Provide strategic direction and address market failures, but do not dismantle markets. Governments need to take the lead in ensuring secure energy transitions by tackling market distortions as well as correcting for market failures. However, transitions are unlikely to be efficient if they are managed on a top-down basis alone. Governments need to harness the vast resources of markets and incentivise private actors to play their part. Some 70% of the investments required in transitions need to come from private sources.  

References

[1] IEA (2022), World Energy Outlook 2022, OECD Publishing, Paris, https://doi.org/10.1787/3a469970-en.

[2] OECD/NEA (2010), The Security of Energy Supply and the Contribution of Nuclear Energy, Nuclear Development, OECD Publishing, Paris, https://doi.org/10.1787/9789264096356-en.

Notes

← 1.  Since 2018, the annual revenues generated by the oil and gas industry have averaged close to USD 3.5 trillion. Around half of this went to governments, while 40% went back into investment and 10% was returned to shareholders or used to pay down debt.

← 2.  Two key characteristics determine the impact of different greenhouse gases on the climate: the length of time they remain in the atmosphere and their ability to absorb energy. Methane has a much shorter atmospheric lifetime than carbon dioxide (CO2) – around 12 years compared with centuries – but absorbs much more energy while it exists in the atmosphere. There are various ways to combine these factors to estimate the effect on global warming and express a tonne of a methane in CO2 equivalent terms (CO2‑eq). The most common is the global warming potential (GWP), although different conversion factors can be applied. Some consider the impact of methane over a 20-year timeframe (GWP20), with one tonne of methane equivalent to 82-87 tonnes of CO2. Others look at its impact over a 100-year timeframe (GWP100), with one tonne of methane equivalent to around 30 tonnes of CO2. Alternative metrics, such as the Global Temperature Potential, can be used to more closely link methane emissions to the temperature increase expected in a future year.