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This article is part of the series — Raisina Files 2025
Across the globe, energy transition policies are reshaping the role of fossil fuels in the energy mix and redefining the relationship between economic growth and carbon emissions. At the heart of the ongoing discussions are perspectives that see advantages in both, delaying the phase down of fossil fuels, and accelerating innovation leadership in clean energy technologies.
The European Union (EU), a leader in climate regulation, is implementing a carbon border adjustment mechanism (CBAM) to price and tax carbon emissions entering its borders. Meanwhile, in the United States (US), the Trump administration is advocating for fossil fuel, referring to it as “liquid gold.”[1] His “drill, baby, drill”[2] rhetoric has prompted other countries to consider how to balance their decarbonisation commitments with energy security, economic competitiveness, and development goals.
Despite different starting points, all countries today are aiming for the same core menu of energy transition solutions: energy efficiency first, then renewable electricity supply and energy end-use electrification, then indirect electrification for intensive energy loads by means of green hydrogen or its derivatives, and finally, carbon removal by both natural means (trees) and technology (carbon capture and storage).
Energy transition today is poised between these perspectives. On the one hand, oil, coal, and natural gas still provide around 80 percent of global primary energy.[3] On the other, of a total US$3 trillion of investments in energy in 2024, US$2 trillion flowed to clean energy technologies and infrastructure.[4]
Technological Factors
Solar and wind have emerged as powerful and cost-effective alternatives to fossil fuels in various economic sectors. However, their variable nature and intermittency requires that they are partnered with large grids that enable balancing, plus with power storage technologies. Battery energy storage systems (BESS) are crucial to enable energy demand peaks and supply surpluses to be managed for short timeframes. Longer-duration energy storage solutions include hydroelectric dams and various thermal technologies. Other clean energy technologies can provide steady (baseload) and/or dispatchable outputs, most notably nuclear power, geothermal power and heat, and run-of-river hydroelectricity.
Improving energy efficiency, decarbonising the electricity sector, and scaling electrification of key energy and use processes in building heating and cooling, passenger and short-haul transportation, and low-temperature industrial heat processes may be the lowest-hanging fruits in the energy transition landscape.
The transportation sector has been one of the biggest clean-tech growth areas with the rise of electric vehicles (EV). However, while EVs have won the technology race in short-haul and passenger transport, there is less certainty about which technologies will dominate in long-haul trucking, and the shipping and aviation sectors, where weight and distance require more energy-dense fuels.[a],[5]
Similarly, transitioning extremely high-temperature processes in parts of industry is challenging, typically where temperatures over 600 degrees centigrade are required.[6] Many industrial processes fall below this threshold, and can be supplied by geothermal, for example. For hard-to-electrify processes, however, there are limited commercialised and scalable technological alternatives whose associated capital costs are high.[7] For example, in the cement industry globally, nearly half of the emissions come from the decomposition of limestone to lime and CO2,[8] although there are credible technology roadmaps to achieve carbon-neutral cement production in Europe by 2050.[9] Alternative solutions for these use cases include carbon capture and storage (CCS), hydrogen, and sustainable biofuels, all of which have risen in prominence in policy debates in recent years. For example, where some processes continue to emit CO2, in G20 countries at least 95 percent of these emissions need to be captured by means of CCS by 2030.[10]
A number of these technologies are off-track to deliver in line with climate targets. The gap between current progress and the required deployment of low-carbon technologies is significant[11]—of the technologies that need to be deployed by 2050, the best results so far are mainly in less complex and more commercially viable applications, led by solar PV. In contrast, the CCS project pipeline may be higher on paper, but the majority of projects have not reached final investment decisions (FID), putting their realisation at risk.[12] In the case of hydrogen, to meet 2030 targets, clean hydrogen production must increase 25 times in Europe and almost 20 times in the US over the next five years.[13] Similarly, in sustainable aviation fuel (SAF), only around 25 percent of capacity envisaged until 2030 has reached FID in Europe, and in the US, 30 percent.[14]
On the other end of the spectrum, fossil fuel companies are leveraging technological innovations to reduce fugitive emissions and to improve energy efficiency. For example, advancements using satellites and Artificial Intelligence (AI)[15] are improving methane leak detection and resolution. The electrification of mining equipment, drilling fleets,[16] and fracking units is helping to curtail carbon emissions to a certain extent.
Figure 1: Global Power Capacity, by Technology (2015 - 2023)
Cumulative Installed Capacity (GW)
Source: IRENA Renewable Energy Statistics Data[17]
Political Considerations
The political momentum for climate action, carbon neutrality, and international cooperation on energy transitions has been unprecedented since the historic 2015 Paris Agreement, ratified by over 195 parties[18] and covering 90 percent of global emissions.[19] The 107 countries responsible for 82 percent of global greenhouse gas emissions (GHGs) have committed to net-zero either in law, in a policy document, or in an announcement by a head of government or senior government official.[20] This policy signalling has encouraged more than 9,000 companies, 1,000 cities, and 600 financial institutions to join the ‘Race to Zero’ pledge, with the aim of halving their global emissions by 2030.[21] These commitments, however, are being made according to different timeframes, depending on their stage of development and strength of policy and regulatory signalling.
The industrial policies of many countries today—such as the European Green Deal, the US Inflation Reduction Act, and India’s Atmanirbhar Bharat—are all aimed at spurring domestic manufacturing and establishing stronger market leadership in clean energy, and making energy transition technologies pillars of their economic agendas. Large-scale infrastructure initiatives like China’s Belt and Road Initiative also include energy projects in their portfolio of international investments—energy accounts for 46 percent of China’s investments in the MENAT region (Middle East and North Africa plus Turkey), exceeding US$126 billion between 2005 and 2022.[22]
It is therefore not surprising that many hydrocarbon-exporting countries, such as the Arab Gulf states which are heavily reliant on fossil exports for revenues, are looking to diversify and explore cleaner energy alternatives. The United Arab Emirates and Saudi Arabia, for example, have made notable domestic investments in renewable energy and hydrogen production,[23] and are emerging as capital providers of energy transitions in other geographies. Their aims include becoming more energy self-reliant, as well as managing their exposure to changes in global market demand for fossil fuels and/or the effects of carbon tariffs and sustainability regulations. Nonetheless, as of 2024, in the Middle East, only 20 cents are allocated towards clean energy investments for every 1 USD invested in fossil fuels.[24] Announced pledges indicate that by 2030, this ratio is expected to increase to 70 cents.[25] Globally, in order be on-track for net-zero emissions by 2050, annual investments in oil, coal and gas will have to fall more than half, from just over US$1 trillion in 2024 to below US$450 billion per year by 2030.[26]
Meanwhile, clean energy and climate security, risks, and geopolitics are rising issues for diplomacy between states. Bilateral and multilateral trade agreements contain important chapters on clean energy—for example, over the last half decade, India and the EU, and also India and the US have strengthened their bilateral cooperation on clean energy through various agreements, including initiatives on renewable energy, energy storage, and grid modernisation.[27] Most recently, the US-India partnership has expanded under Trump 2.0 to include a focus on oil and liquefied natural gas (LNG), reinforcing energy security while facilitating a transition towards lower-carbon fuels.[28]
Energy security is a pressing concern for many countries around the world, especially in the Global South. But energy security has different, interlinked, notions: the availability of energy supply, the cost of energy to consumers and to the economy as a whole, the resilience of energy systems against external shocks including extreme weather events caused by climate change, and issues of national security or dependency. The availability of affordable energy is a central issue: 685 million people worldwide still lack a reliable energy source,[29] undermining health, education, and economic development. Most of these populations rely on traditional biomass fuels, and “access” does not need to come from coal power—particularly in rural areas, it will be often faster and cheaper to achieve by means of solar micro-grids, CNG gas cooking systems, and waste-to-energy units.
The war in Ukraine, its impact on gas markets, and the use of energy sanctions by the EU and US demonstrate how rich countries can weaponise energy. This, in turn, strengthens the case for energy transitions. However, similar problems also emerge in the case of critical minerals and supply chains that are crucial for clean energy proliferation. The concentration of critical mineral resources in a few countries poses a serious threat to energy transitions worldwide. For instance, in early 2025, in a stand-off with the United States, China imposed a ban on exports of gallium and germanium metals that are needed for electronics and semiconductor manufacturing.[30]
Just and inclusive transition policies are another important political dimension of the energy transition. These strategies should support and retrain displaced fossil fuel workforces, equip the next generation of workers with clean energy skills, and protect vulnerable consumers— both energy-poor households and industries highly sensitive to energy prices—against price shocks caused by fossil fuel global market volatility as well as upfront investment costs of clean energy.
The current “mid-way” stage of the energy transition is therefore not simple. Fossil fuels remain a huge factor in global trade, geopolitics, and macroeconomics. Sometimes crisis circumstances are forcing countries to revise policy decisions—for example Germany’s decision in 2022 to temporarily suspend coal power plant closures in the wake of gas shortages.[31]
While many governments and policymakers are tempted to treat climate and energy transition goals as long-term problems which they can avoid tackling with bold decisions today, this tendency does not help businesses to plan ahead, often causing frustration that is sometimes publicly expressed and at others, privately communicated. Without appropriate policy signalling from governments, it is difficult for any business to be confident about the financing and value chains on which their transition strategies depend. This uncertainty delays investments and innovation moving from the brown to the green. The political landscape of energy transitions must therefore balance energy security, affordability, reliability, and industrial competitiveness alongside sustainability and clean energy transitions.
Financial Imperatives
Current investments in clean energy are twice as much as those in fossil fuels (see Figure 2).[32] Wind and solar PV yielded 2.5 times more energy output for each dollar invested than a dollar spent on the same technologies only a decade earlier.[33] The growth in clean energy investments can be attributed to strong policy signalling, technological advancements, increasing competitiveness of renewables, and energy security imperatives. At the same time, the uncertainty from fossil fuel investments is increasing owing to the financial risk of stranded assets.
Figure 2: Global Investments in Clean Energy and Fossil Fuels (2015-2024)
Investments in $ billions
Source: “Who is funding fossil fuel expansion?”; World Energy Investment 2024[34]
However, the lion’s share of these investments still resides in advanced economies (see Figure 3) with only 15 percent of global clean energy spending taking place in Emerging Markets and Developing Economies (EMDEs) outside China.[35] For instance, for every dollar invested in battery storage in advanced economies and China in 2023, only one percent was invested in other EMDEs.[36]
Figure 3: Annual Investments in Clean Energy, Select Countries and Regions (2019-2024)
billion USD (2023, MER)
Source: World Energy Investment 2024[37]
These patterns will not result in a global energy transition: the future emissions will mostly emanate from developing countries which are yet to fully industrialise and are facing rising energy demand. Ensuring that investment flows into these countries is essential. The fundamental problem is that developing countries are burdened with a higher cost of capital—typically, their financing costs at least twice that in advanced economies.[38]
It is well understood that this cost difference is owing to often misplaced sovereign and political risk assessments. Credit rating agencies are also following antiquated methodologies without adequately accounting for the changing realities of developing economies, or for the local conditions which local ratings agencies are better placed to understand and price. The lack of local currency lending for clean energy also pushes up borrowing costs for EMDEs, making hedging costs completely unaffordable and unviable, pushing least-developed countries towards unsustainable debt. Additionally, it is important to realise that the majority of the investments in EMDEs are made from a public source, either the government or state-owned enterprises, compared to just 15 percent in advanced economies.[39]
Financing costs also, tragically, reflect climate risks and the disproportionate impact of such risks in many developing countries. This leads to a premium on capital borrowed by the very countries most vulnerable to climate change and most urgently in need of access to clean energy investment. The type of finance available in EMDEs also reflects investment biases—debt financing is prominent in the power sector in Asia, while equity shares dominate the fuel supply, particularly in the Middle East and Eurasia.[40] In such scenarios, it becomes increasingly difficult for Global South countries to escape from dependencies on fossil fuels.
Global investments in energy transition technologies (see Figure 4) will have to be ramped up to meet global net-neutrality targets. By 2030, investments in renewable energy—power generation, grids, and storage—will have to double in order to triple renewable capacity as targeted.[41] Simultaneously, investments in low-emission fuels must grow tenfold, while the rate of energy efficiency improvements must double.[42] Between 2024-2030, annual investments in renewable power, grids and flexibility, energy efficiency and conservation must increase almost four times to US$4.5 trillion each year from US$1.29 trillion in order to meet the goals of the UAE Consensus.[b],[43]
While there is a business case for certain mature technologies, notably solar PV, for the immediate future—other clean energy technologies will have to rely on regulatory support and concessional financing mechanisms to ensure off-take and scale. Delivering an energy transition that meets global and national targets is not a chicken-and-egg problem— conscious and prudent investments in these crucial clean energy technologies will have to lead the way. If investments lag, innovation and manufacturing advancements will stagnate, derailing progress and jeopardising targets.
Figure 4: Global Investment in Energy Transition Technologies (2019-2023)
Global investment (USD billion, 2023)
Source: World Energy Transitions Outlook, 2024[44]
The energy transition is a highly complex endeavour that requires a just and pragmatic approach. While the proportion of fossil fuels in the energy mix will decline, they will not disappear entirely—even in net-zero scenarios, a portion of energy demand will still be met by fossil fuels. Demand for fossil fuel, including oil, natural gas and coal, is expected to plateau but will continue to account for anywhere between 40 and 60 percent of the total energy demand in 2050, down from 78 percent in 2023.[45] The duration of the plateau and the extent of dependence on fossil fuels will depend on a combination of factors—technological breakthroughs and scale up; geopolitical shifts; the clever design of policy incentives and regulations to support innovation and investment; energy security imperatives; financial innovation and market-based mechanisms; and international cooperation. Governments, the private sector, investors, and civil society must all work in close consort to overcome the technological constraints, political bottlenecks, and financial gaps as discussed in this article.
1. Inclusivity
Achieving climate action goals requires both an “all technologies on deck” approach as well as “all parties on deck” strategy. Investments in renewable energy sources, energy efficiency, sustainable fuels, and clean hydrogen will be critical to support maximum decarbonisation, along with CCUS and nuclear energy. Although the last two iterations of the Conference of the Parties (COPs) in the UAE (2004) and Azerbaijan (2005) faced a backlash for being hosted by major oil-producing countries, meaningful action on climate and energy transitions cannot be achieved in isolation. Instead, all countries, particularly those with deep pockets of fossil fuel revenues, must be mobilised.
2. Policy Certainty
Well-designed government policies are essential to ensure modern energy access to all, to give businesses confidence to invest, and to influence consumer perception and behaviour which will promote the uptake of rooftop solar installations and building efficiency upgrades, electric vehicle purchases, and circular economy practices of repair and recycling. Implementing carbon pricing, subsidies for renewables, tax credits, product mandates and stricter emissions regulations are all essential policy signalling mechanisms for both industry and investors. Furthermore, a skilled workforce will be key to the success of the energy transition. Throughout the economy, robust climate risk modelling should be undertaken, including both adaptation risks and policy risks.
3. Scaled-up Infrastructure and Financing
Scaling renewable and nuclear and grid infrastructure projects, along with expanding energy storage solutions is crucial. Development finance institutions and multilateral development banks need to move beyond discussions about blended finance to making actual de-risking investments in early-stage projects and to attracting private investment via guarantees and first-loss capital. While these efforts are underway, a massive degree of scaling up is needed. Transition finance mechanisms, supported by harmonised policies and credible standards, must scale up to enable high-emitting sectors to decarbonise. Rating metrices must also be reviewed, having so far disadvantaged developing countries with a premium on capital.
4. International Cooperation
An inclusive, cooperative and equitable approach will be essential to build consensus and momentum to collectively achieve the global climate goals. Platforms such as the G20, BRICS, the new collaborative efforts IMEC and I2U2c can be leveraged to reinforce as well as ringfence the energy transition agenda from geopolitical rifts as well as changes in government. The latter becomes particularly important in light of recent pronouncements by Trump[46] withdrawing the United States from the Paris Climate Agreement, and halting climate investments previously approved by his predecessor as part of the IRA. International agreements and partnerships must prioritise clean energy financing, carbon markets, and technology transfer to accelerate decarbonisation across regions, while fostering industrial partnerships and promoting harmonisation and inoperability of standards and investment methodologies.
Endnotes
[a] Diesel fuel contains 40 times as much energy as battery.
[b] The UAE Consensus calls on all UNFCC parties to triple renewable energy capacity and double the rate of energy efficiency improvement by 2030. See https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2024/Nov/ IRENA_World_energy_transitions_outlook_2024.pdf
[c] G20 is an international forum of 20 nations that seeks to find solutions to global economic and financial problems. See https://g20.org. BRICS, which stands for Brazil, Russia, India, China, and South Africa, (as well as 5 new members) is an informal group of emerging economies that focuses on economic development. See https://www.cfr.org/ backgrounder/what-brics-group-and-why-it-expanding. IMEC, which stands for India-Middle East-Europe Economic Corridor, is a proposed trade and connectivity initiative that aims to enhance economic integration in the area. See https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2052486. I2U2 is an intergovernmental strategic partnership of India, Israel, UAE, and USA, which focuses on economic cooperation in sectors such as water, energy, food security, health, technology, and space. See https://www.state.gov/i2u2
[1] Ed Pearcey, “‘Drill, Baby, Drill’: Trump Hails America’s ‘Liquid Gold’,” Power Technology, January 21, 2025, https://www.power-technology.com/news/drill-baby-drill-trump-hails-americas-liquid-gold/?cf-view
[2] Navin Singh Khadka, “How Trump’s ‘Drill, Baby, Drill’ Pledge is Affecting Other Countries,” BBC, February 18, 2025, https://www.bbc.com/news/articles/ce85709xdk4o
[3] Hannah Ritchie and Pablo Rosado, “Fossil Fuels,” Our World in Data, January 2024, https://ourworldindata.org/fossil-fuels#article-citation
[4] International Energy Agency (IEA), World Energy Investment 2024: Overview and Key Findings, June 2024, Paris, IEA, 2024, https://www.iea.org/reports/world-energy-investment-2024/overview-and-key-findings
[5] Gross, “Why are Fossil Fuels So Hard to Quit?”
[6] Joris van Niel et al., “Net-Zero Electrical Heat: A Turning Point in Feasibility,” McKinsey & Company, July 16, 2024, https://www.mckinsey.com/capabilities/sustainability/our-insights/net-zero-electrical-heat-aturning- point-in-feasibility
[7] Mannat Jaspal and Neha Khanna, A Roadmap for Green and Transition Finance in India, Observer Research Foundation and Climate Policy Initiative, September 2024, https://www.orfonline.org/public/uploads/posts/pdf/20240911145312.pdf
[8] Jaspal and Khanna, A Roadmap for Green and Transition Finance in India
[9] The European Cement Association, “CEMBUREAU’s Net Zero Roadmap,” CEMBUREAU, https://cembureau.eu/library/reports/cembureau-s-net-zero-roadmap/
[10] IRENA, World Energy Transitions Outlook 2024, November 2024, Abu Dhabi, IRENA, 2024, https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2024/Nov/IRENA_World_energy_ transitions_outlook_2024.pdf
[11] Diego Hernandez Diaz et al., “The Energy Transition: Where are We Really?” Mckinsey & Company, August 27, 2024, https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/the-energytransition- where-are-we-really#/
[12] Diaz et al., “The Energy Transition: Where are We Really?”
[13] Diaz et al., “The Energy Transition: Where are We Really?”
[14] Diaz et al., “The Energy Transition: Where are We Really?”
[15] Shell, “Reducing Methane Emissions,” https://www.shell.com/what-we-do/oil-and-natural-gas/flaring/_jcr_content/root/main/section/ call_to_action_copy/links/item0.stream/1717058731986/fff5cf570e2deae605c4888bd894629d48a25290/ methane-infographic-factsheet.pdf
[16] ExxonMobil, “2024 Advancing Climate Solutions Executive Summary”
[17] IRENA, “Renewable Energy Statistics 2024,” https://www.irena.org/Publications/2024/Jul/Renewable-energy-statistics-2024
[18] United Nations, “Climate Action: The Paris Agreement,” https://www.un.org/en/climatechange/paris-agreement
[19] “CAT Net Zero Target Evaluations,” Climate Action Tracker, December 14, 2023, https://climateactiontracker.org/global/cat-net-zero-target-evaluations/.
[20] United Nations, “For a Livable Climate: Net-Zero Commitments Must be Backed by Credible Action,” https://www.un.org/en/climatechange/net-zero-coalition
[21] United Nations, “For a Livable Climate: Net-Zero Commitments Must be Backed by Credible Action”
[22] Ariel Ezrahi, An Energy and Sustainability Road Map for the Middle East, Washington DC, Atlantic Council, 2024, https://www.atlanticcouncil.org/in-depth-research-reports/report/an-energy-andsustainability- road-map-for-the-middle-east/
[23] Ariel Ezrahi, An Energy and Sustainability Road Map for the Middle East
[24] International Energy Agency (IEA), World Energy Investment 2024: Middle East, June 2024, Paris, IEA, 2024, https://www.iea.org/reports/world-energy-investment-2024
[25] IEA, World Energy Investment 2024: Middle East
[26] International Energy Agency (IEA), World Energy Investment 2024: Overview and Key Findings, June 2024
[27] Ministry of External Affairs, https://www.mea.gov.in/bilateral-documents.htm?dtl/38322/
[28] Office of Communications, The White House, https://www.whitehouse.gov/remarks/2025/02/remarks-by-president-trump-and-prime-ministernarendra- modi-of-the-republic-of-india-in-joint-press-conference/
[29] “Bridging the Energy Gap Takes Center Stage at UN’s International Clean Energy Day Celebrations,” IRENA, January 24, 2025, https://www.irena.org/News/articles/2025/Jan/Bridging-the-Energy-Gap-Takes-Center-Stage-at-UNs- International-Clean-Energy-Day-Celebrations
[30] Mannat Jaspal, The Energy Quest: Elevating the Quad’s role in the Indo-Pacific, Observer Research Foundation and Australian National University, December 15, 2023, https://www.orfonline.org/research/the-energy-quest-elevating-the-quad-s-role-in-the-indo-pacific
[31] Darrell Proctor, “Germany Restarts Coal-Fired Generation to Support Winter Power Supply,” Powe, October 5, 2023, https://www.powermag.com/germany-restarts-coal-fired-generation-to-support-winter-powersupply/
[32] IEA, World Energy Investment 2024: Overview and Key Findings
[33] IEA, World Energy Investment 2024: Overview and Key Findings
[34] Holly Young, “Who is Funding Fossil Fuel Expansion?” Deutsche Welle, December 11, 2024, https://www.dw.com/en/who-is-funding-fossil-fuel-expansion/a-70666716; IEA, World Energy Investment 2024: Overview and Key Findings
[35] IEA, World Energy Investment 2024: Overview and Key Findings
[36] IEA, World Energy Investment 2024: Overview and Key Findings
[37] IEA, World Energy Investment 2024: Overview and Key Findings
[38] Michael Purton, “Clean Energy Investment is Set to Double that of Fossil Fuels – Here’s How Developing Nations Can Also Benefit,” World Economic Forum, August 28, 2024, https://www.weforum.org/stories/2024/08/clean-energy-investment-just-transition/
[39] IEA, World Energy Investment 2024: Overview and Key Findings
[40] Cecilia Tam et al., “Who is Investing in Energy Around the World, and Who is Financing It?” International Energy Agency, June 25, 2024, https://www.iea.org/commentaries/who-is-investing-in-energy-around-the-world-and-who-isfinancing- it
[41১] IEA, World Energy Investment 2024: Overview and Key Findings
[42] IEA, World Energy Investment 2024: Overview and Key Findings
[43] IRENA, World Energy Transitions Outlook 2024
[44] IRENA, World Energy Transitions Outlook 2024
[45] McKinsey & Company, G lobal Energy Perspective 2024, September 2024, New York, McKinsey & Company, 2024, https://www.mckinsey.com/industries/energy-and-materials/our-insights/global-energyperspective#/
[46] Simmone Shah, “Here Are All of Trump’s Major Moves to Dismantle Climate Action,” Time, February 18, 2025, https://time.com/7258269/trump-climate-policies-executive-orders/
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Mannat Jaspal is currently serving as a Director & Fellow - Climate and Energy, at the ORF Middle East, UAE. Her research delves into the ...
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