by Dr Fatih Birol, Chief Economist, International Energy Agency
The global financial crisis and resulting recession has had a detrimental impact on investment activity in many industries, including energy. This analysis by the IEA assesses the impact of this fall in investment on various sectors as well as implications for energy security, climate change, energy poverty and policy responses. There are also worrying implications for fuel prices once demand recovers.
Key findings include:
- Both supply and demand side investments are being affected. Energy companies are drilling fewer oil and gas wells; businesses and households are spending less on energy-using appliances, equipment and vehicles, with important knock-on effects for efficiency of energy use. Furthermore, equipment manufacturers are expected to reduce investment in research, development and commercialisation of more energy-efficient technology.
- It is estimated that global upstream oil and gas investment budgets for 2009 have already been cut by around 21% compared with 2008 – a reduction of almost $100 billion. Power-sector investment is expected to be severely affected by financing difficulties, as well as by weak demand – global electricity consumption could drop by as much as 3.5% in 2009. For 2009 as a whole investment in renewables could drop by as much as 38%, although stimulus provided by government fiscal packages can probably offset a small proportion of this decline.
- There is a real danger that sustained lower investment in supply in the coming months and years, could lead to a shortage of capacity and another spike in energy prices in several years time. In the medium and longer-term, the crisis may lead to higher emissions, as weak fossil-energy prices and financing difficulties curb investment in clean energy technologies, increasing reliance on fossil-fuelled capacity. Cutbacks in energy investment will impede access by poor households to electricity and other forms of modern energy – a vital factor in pulling people out of poverty.
- These concerns justify government action to support investment in energy efficiency and clean energy and countries have moved to allocate economic stimulus funds in this direction. These moves are a positive step but much more needs to be done. Relative to their recent announcements, governments should be looking to increase the level of new funds they commit to energy efficiency and low-carbon energy policies by a factor of around four – and to continue at that level for the foreseeable future.