Demand for fossil fuels including coal, oil and natural gas are expected to peak this decade under today’s policy setting, according to the International Energy Agency’s (IEA) flagship World Energy Outlook (WEO) 2023 report, marking the first time the report has forecast this under its current policies scenario, as rapid growth in clean energy technologies and structural economic and geopolitical changes are set to dramatically change the energy system over the next few years.

The IEA’s WEO report examines and analyzes key ongoing energy market trends, and provides multi-decade forecasts for energy investment and development according to three scenarios: The Stated Policies Scenario (STEPS), based on existing government policies; The Announced Pledges Scenario (APS), which assumes that the aspirational targets set by governments are met, and; The Net Zero Emissions by 2050 Scenario (NZE), covering the necessary energy market transformation necessary to hit the global goal of achieving net zero emissions by 2050.

While the prior year’s WEO report found indications that responses to the Russia war in Ukraine was leading to fast-tracking investments towards energy independence and the clean energy transition, the new report indicates a further acceleration in clean energy investment and a move away from fossil fuels. In the current policies-based STEPS scenario, the IEA forecasts global energy investment to rise to $3.2 trillion by 2030, compared with $2.8 trillion in 2023, with clean energy investment reaching $2.1 trillion and accounting for all of the increase, while fossil fuel investment is anticipated for the first time to decline slightly to $1.1 trillion.

The report indicates a major shift in the global energy system in the STEPS scenario by the end of the decade, with clean energy technologies becoming significantly more prominent, including having nearly 10 times as many electric vehicles on the road globally, renewables share of the electricity mix rising to 50% from 30%, and electric heating systems such as heat pumps beginning to outsell fossil fuel boilers by 2030.

In addition to the geopolitical and economic changes, recent policy changes have also contributed to the increased clean energy outlook. For example, the U.S.’ Inflation Reduction Act has raised the IEA’s forecast for U.S. car registrations to be 50% electric by 2030, compared to its 12% forecast only two years ago.

Despite the improved clean energy outlook, however, the report notes that the STEPS scenario continues to fall far short of the changes necessary to achieve the goal of limiting global warming to 1.5 °C, instead leading to a temperature increase of 2.4 °C, down slightly from 2.5 °C under last year’s STEPS scenario. While the report the report note that a 1.5 °C path remains possible, it remains very difficult, with clean energy investment levels by 2030 under the NZE scenario required to reach $4.2 trillion, doubling in advanced economies and China, and reaching nearly five times current levels in emerging and developed economies.

One of the major variables influencing the energy system outlook explored by the report is the impact of ongoing and forecast changes in China. While China is responsible for nearly two thirds of the increase in global oil use over the past decade, and remains the dominant player in the coal market, the report examines the impact of a slowdown in the country’s physical infrastructure buildout, and reduced economic growth, lowering demand for energy intensive industries such as steel and cement. Alongside significant investment in clean energy capacity, these changes lead to projections of a peak in energy demand in China around mid-decade, and reductions in China’s fossil fuel demand and emissions.

The report also examines the possibility for solar energy to contribute much more significantly to the clean energy transition, noting that while global annual capacity for solar panels could reach 1,200 GW by 2030, only 500 GW is anticipated to be deployed under the STEPS scenario. According to the IEA analysis, increasing capacity utilization to only 70% of anticipated capacity would have major implications for the clean energy outlook, bringing deployment levels to those needed under the Net Zero scenario. Accommodating this level of solar deployment, however, would require significant investments in areas including grids and storage.

IEA Executive Director Fatih Birol said:

“The transition to clean energy is happening worldwide and it’s unstoppable. It’s not a question of ‘if’, it’s just a matter of ‘how soon’ – and the sooner the better for all of us. Governments, companies and investors need to get behind clean energy transitions rather than hindering them. There are immense benefits on offer, including new industrial opportunities and jobs, greater energy security, cleaner air, universal energy access and a safer climate for everyone. Taking into account the ongoing strains and volatility in traditional energy markets today, claims that oil and gas represent safe or secure choices for the world’s energy and climate future look weaker than ever.”

Click here to access the IEA’s World Energy Outlook 2023 report.