The key task for governments is to make clean energy technologies more accessible to those who would otherwise struggle with upfront costs, according to a new special report from the IEA.
Accelerating the transition to clean energy technologies improves energy affordability and can ease pressure on the cost of living more broadly, according to a new special report from the IEA released today.
The report Strategies for affordable and fair transitions to clean energy, shows how putting the world on track to meet net-zero emissions by 2050 will require additional investment, but also reduce the operating costs of the global energy system by more than half over the next decade, compared to a path based on the current 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 that rely on conventional fuels such as coal, natural gas and oil. Solar PV and wind are the cheapest options for the new generation. Even if electric vehicles, including two- and three-wheelers, have a higher initial cost, 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 initial investment. This is especially the case in emerging and developing economies where investments in clean energy are lagging 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 existing fuels, making investments in the clean energy transition more challenging. Governments worldwide collectively spent about $620 billion on subsidizing fossil fuel use in 2023 – far more than the $70 billion spent on supporting consumer-oriented clean energy investments, according to the IEA report.
The benefits of a faster energy transition and the growing share of renewable energy sources – such as solar and wind energy, which have lower operating costs than fossil fuel alternatives – would trickle down to consumers. Retail electricity prices tend to be less volatile than oil product prices, making costs more predictable. Yet today, about half of total consumer energy expenditure goes to oil products, and another third to electricity. In rapid transitions, electricity prices become the most important benchmark for consumers and households. Oil products are largely being replaced by electricity, as electric vehicles, heat pumps and electric motors account for a greater share of demand for transport, buildings and industry. By 2035, electricity will overtake oil as the leading fuel source in final consumption.
“The data makes it clear that the faster you continue the clean energy transition, the more cost-effective it will be for governments, businesses and households,” said IEA Executive Director. Fatih Birol. “If policymakers and industry leaders delay action and spending today, we will all have to pay more tomorrow. The unique 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 government subsidies and emergency aid were priced in. This is 20% more than the average over the past five years, with high prices hitting the most vulnerable hardest, in both developing and advanced economies.
The report finds that incentives and more support, especially targeted at poorer households, can improve the uptake of clean energy technologies. This would allow all consumers, especially those who are less well off, to fully benefit from the benefits of these technologies and the cost savings, while also supporting efforts to achieve international energy and climate goals.
The report sets out a range of actions, based on proven policies from countries around the world, that governments can implement to make clean technologies more accessible to all. These include delivering energy efficiency renovation programs to low-income households; requiring utilities to finance more efficient heating and cooling packages; making highly efficient devices more readily available; providing affordable clean transportation options, including increased support for public transportation and used electric vehicle markets; replacing fossil fuel subsidies with targeted cash transfers for the most vulnerable; and using the revenues from carbon prices to address potential social inequalities that may emerge during energy transitions.
Policy intervention will be critical to address the deep 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 inequality faces the nearly 750 million people in emerging and developing 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 homes and transport, even though they use less than half as much energy as the richest 10%.
The report warns that the risk of price shocks will not disappear with clean energy transitions and that governments must continue to be vigilant about emerging risks that could affect energy security and affordability. Geopolitical tensions and upheavals remain key potential drivers of volatility, both in traditional fuels and, more indirectly, in clean energy supply chains. The shift towards a more electrified energy system also brings a new set of dangers that are more local and regional in nature, especially if investments in networks, flexibility and demand response lag behind. Energy systems are vulnerable to an increase in extreme weather conditions and cyber attacks, making adequate investments in resilience and digital security crucial.