A new alliance is defining the energy transition
An unlikely partnership between policymakers and the private sector is now shaping the future of the energy transition. According to the latest data, it’s succeeding spectacularly, writes Frank Sweet, chief executive of our global Environment business.
Just a year ago, experts predicted that the world would exceed the critical 1.5C threshold for global warming— an outcome with catastrophic environmental consequences. Yet, in the past month, that prediction has shifted: the International Energy Agency (IEA) has found staying within 1.5C may in fact still be possible.
So then, what changed? According to the IEA, the answer is a significant growth in green investment and technologies.
An accelerating transition
In 2021, Bloomberg New Energy Foundation estimated that the world spent around $849 billion on the energy transition and green technologies. The following year, that figure grew by roughly 30 percent to a record $1.1 trillion. By the end of 2023, the IEA expects the world to spend $1.8 trillion on clean energy.
While the magnitude of this investment is certainly a success, it can overshadow an even deeper triumph — the alliance that has shaped it.
Even amidst today’s divisions, climate change has generated productive conversations between two parties often seen as at odds: the public and private sector. And that dialogue, thanks to the confluence of business and smart policy, is paying serious dividends.
Through extensive discussion with industry, governments have delivered spending that is not merely record breaking, but, more notably, accelerating the transition to clean energy by supercharging private investment.
High-impact public policy
Over the last several decades, government policy has driven roughly 60 percent of the decline in the cost of renewable energy — with an additional 30 percent coming from the government R&D funding in various nations. Government investment in the energy transition has proven so successful that ensuing private sector investment in renewables has dwarfed it by around two to one.
The global impact is remarkable. The costs of solar and onshore wind energy are now around half that of coal, and by 2025 renewable generation will likely exceed coal entirely. Every day, one billion dollars goes into solar investment alone, with low-emissions power comprising 90 percent of all investment in electricity generation this year.
In the U.S., numerous government policies, including the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, have catalyzed private sector activity in clean energy.
The Department of Energy recently reported that federal actions since 2020 have led to $160 billion worth of investments in clean energy manufacturing nationwide. Driven by strong government incentives, private sector titans like UPS and Amazon have ordered new fleets of thousands of EVs while major automakers plan to roll out nearly 30,000 charging stations in the U.S and Canada.
These outcomes all have one thing in common: they arose from governments engaging with industry to understand how public spending can deliver the most bang for the buck.
Initiatives like the federal government’s Energy Earthshots Initiative illustrate just how central collaboration has become in the fight on climate change. Launched by the Department of Energy, the program has linked policymakers with industry and academia to drive innovation and private sector investment in an array of green technologies — from carbon capture to floating offshore wind.
Connecting the public and private sectors
It’s critical that we see more collaboration. Though we’ve witnessed a significant declining trend in costs of renewable energy, those costs have recently begun to rise. More investment is needed: to stay on the path to net zero by 2050, spending must reach $4.5 trillion annually.
For the private sector to meet this demand, we need government policy to continue to unlock new investment opportunities — especially in developing and emerging markets. Moreover, regulatory stability will be important to ensure this investment is sustained.
Grid infrastructure, for instance, remains critically under-developed and ports struggle to cope with the latest offshore wind opportunities. New approaches to permitting are desperately needed to get these projects off the ground.
Future fuels like hydrogen and sustainable aviation fuel (SAF) demand even more investment and policy intervention. In 2021, around only one percent of hydrogen came from renewables while the 100 million liters of SAF produced in 2019 represent a fraction of the nearly 450 billion liters needed annually by 2050. New policies must incentivize innovation in production technologies to make this scale up possible.
While there’s clearly more challenges to discuss, the energy transition has shown that the divide between private and public sectors is overstated. In fact, the two are more interdependent than ever.
Today, industry is driving action on climate change — and that’s thanks to conversations between policymakers and private sector leaders. As we enter an era of extreme temperatures, two sectors long seen as separate have become perfect partners. For us to reach net zero, that partnership must continue.
Want to know where you stand on the energy transition? Read our latest Future of Infrastructure report for insights from industry leaders for practical, profitable, predictable and people-centric strategies to achieve net zero.