Low-carbon energy sources need $10.5trn investment, warns IEA

Global policies key to beat climate change, says IEA

The world's energy systems will need an extra $10.5 trillion (£6.3trn) in investment between now and 2030 to reduce dependence on fossil fuels and avoid "irreparable damage to the planet", the International Energy Agency (IEA) warned yesterday.

In the run-up to next month's climate summit in Copenhagen, the IEA's annual global outlook outlined parallel forecasts – one based on the current trajectory of global energy consumption, the other a lower-carbon model requiring major international policy co-ordination.

"The outlook provides both a caution and grounds for optimism," said Nobuo Tanaka, executive director of the IEA. "Caution, because a continuation of current trends in energy use puts the world on track for a rise in temperature of up to 6C and poses serious threats to global energy security. Optimism, because there are cost-effective solutions."

Recession has severely dampened demand for energy, but while energy use will fall in this year for the first time since 1981, demand is still set to rise by 1.5 per cent every year until 2030.

Without intervention, fossil fuels will remain the primary energy source and emissions will also rise by 1.5 per cent per year, pushing up global temperatures and leading "almost certainly to massive climatic change and irreparable damage to the planet", the IEA fears. The price of oil will be back up to $100 a barrel by 2020 and $115 by 2030.

Recession has also sent investment in energy plunging. The IEA estimates that upstream oil and gas investment budgets fell by 19 per cent, or more than $90bn, this year. End users are also spending less upgrading to energy-efficient appliances and vehicles.

The danger is that once economies recover and energy demand rebounds, insufficient supplies will be available. "The financial crisis has cast a shadow over whether all energy investment needed to meet growing energy needs can be mobilised," the IEA says.

Some $26trn in investment will be required to meet projected energy demand through to 2030, more than half of it in developing economies.

All is not lost, however. According to the IEA's second scenario, "radical and co-ordinated policy action across all regions" can keep emissions of harmful carbon dioxide into the atmosphere below a safe threshold.

The biggest tranche of savings will come from energy efficiency, particularly in buildings, industry and transport. But demand will still rise by 20 per cent and the extra $10.5trn cost of re-setting the balance towards renewable sources will take the total investment needed to $36.5trn.

The IEA estimates that $197bn per year will be needed by fast-growing, developing countries by 2020 to avoid older, dirty technology – nearly twice the €100bn (£89.7bn) figure put forward by EU leaders last month. The Clean Development Mechanism, under which carbon credits can be earned by investing in poorer countries, will also need to be massively expanded and upgraded to cope with a much more central role, the IEA says.