Barriers and challenges of the current transition.

 

As Section 2 showed, while the world has seen remarkable progress in renewable energydeployment in certain sectors and regions over thepast decade, far less progress has been made in other aspects of the just energy transition. Consequently, we remain far off track from meeting the overall global 1.5°C-aligned energy-transition goals agreed to at COP28 (Table 2).xiv This section explores some of the key challenges, risks, and barriers that must be addressed to accelerate the just energy transition globally.

 i) Mobilizing adequate, accessible, and affordable finance for developing countries to accelerate their energy transitions: Most of the additional energy demand over the next few years and decades is poised to come from EMDEs, driven by rapid economic development, urbanization, and population growth. However, progress on the clean energy transition has thus far largely been concentrated in advanced economies and China. Of the 4,448 GW of global total renewable capacity installed by the end of 2024, 41% was in China and 39% in OECD countries. The remaining 20% was concentrated within a handful of countries, with Brazil and India accounting for almost half. In 2023, China, the EU, and the USA accounted for 95% of global EV sales.122 Since the Paris Agreement entered into force in 2016, less than one out of every five dollars invested in clean energy has gone to EMDEs outside China. In 2024, they received around USD 300 billion, or 15% of global clean energy spending (Figure 8). Africa, home to 20% of the world’s population and 85% of the global population without electricity access, received a mere 2% of the global total.31,86 Yet, according to IRENA’s new analysis for this report, Africa's renewable resource potential is ten times larger than the continent’s projected demand for electricity in 2040 under a 1.5°C-aligned scenario.xv On a per capita basis, the disparity in financial flow has been increasing over time: in 2016–2019, advanced economies attracted 14 times more clean energy investment than the 154 EMDEs excluding China; in 2020–2023, this had increased to 18 times.123 As of 2023, more than 30 developing countries have yet to register a single utility-sized international investment project in renewables.75 The IEA and the Independent High-Level Expert Group (IHLEG) on Climate Finance both estimate that clean energy-transition investments in EMDEs outside China would have to scale up to around USD 1.4–1.9 trillion a year by 2030, and to over USD 2 trillion a year by 2035, to keep 1.5°C in reach and deliver on the SDGs.124,125 Getting on track for net-zero emissions by 2050 will therefore require clean energy spending in EMDEs outside Analysis based on IRENA’s Global Atlas for Renewable Energy. China to increase by around five to seven times by 2030 from the USD 260 billion invested in 2022 — far beyond the capacity of public financing alone and thereby demanding an unprecedented mobilization of private capital. This represents a formidable investment imperative — and opportunity. Since the Addis Ababa Action Agenda in 2015, policymakers have been advocating for the use of public resources to leverage private investment through mechanisms like risk mitigation. However, these expectations have not been met — in quantity or quality. Because the private sector seeks risk-adjusted financial returns, it needs a clear financial case for investing in clean energy technologies. However, as discussed below, the cost of capital for clean energy projects remains disproportionately high in EMDEs outside China due to real and perceived market risks. Furthermore, it is critical that public resources do not undermine energy-transition and climate policy goals: countries should redirect the lending policies of national, regional, and multilateral development banks and DFIs, as well as investments by state-owned enterprises, accordingly. In particular, DFIs should lead the financing of energy-transition projects where upfront costs are high and returns may be slow to materialize, such as grid infrastructure expansion and modernization projects.

policy goals: countries should redirect the lending policies of national, regional, and multilateral development banks and DFIs, as well as investments by state-owned enterprises, accordingly. In particular, DFIs should lead the financing of energy-transition projects where upfront costs are high and returns may be slow to materialize, such as grid infrastructure expansion and modernization projects. Currency risks and debt vulnerabilities have also been identified as key barriers to sustainable infrastructure investments in developing countries, which are facing the worst debt crisis since records began, with debt service absorbing an average of 38% of budget revenue, rising to 54% in Africa.At the same time, investments in developing local clean energy supply chains, which are crucial for increasing supply chain diversification and resilience, minimizing reliance on imports, and maximizing socio-economic benefits, are increasingly concentrated in a small number of countries. For instance, China accounted for 88% of global investments in the solar PV supply chain between 2018 and 2023. The USA and Europe accounted for 2% each, while the remainder was shared between Southeast Asian economies (4%), India (1%), and the rest of the world (3%). As further detailed below, such barriers would need to be addressed to scale up clean energy finance and investments for developing countries: on the demand side, the lack of policy and regulatory frameworks and project pipeline readiness to attract clean energy investments; on the intermediation side, insufficient and inefficient use of blended finance and other risk mitigation instruments to lower clean energy financing costs; and on the supply side, the lack of domestic financial markets for clean energy.

i) Structural increases in electricity demand: 

• In recent years, advanced economies have seen a surge in electricity demand from bitcoin mining, which has intensified with the rapid development of AI and the proliferation of energy-intensive data centres. A typical AIfocused data centre today consumes as much electricity as 100,000 households, but the largest currently under construction will consume 20 times as much. Data centres accounted for around 1.5% of the world’s electricity consumption in 2024, or 415 TWh. This figure is set to more than double by 2030 to around 945 TWh, which is roughly equivalent to Japan’s total annual electricity consumption today. So far, both natural gas and renewables have been the main sources of electricity supply for data centres. IMF simulations show that renewable energy expansion has the potential to mitigate the impact of increased energy demand on energy prices while reducing AI-related GHG emissions. At the same time, digital technologies including AI have the potential to help speed up the energy transition as electricity networks become more decentralized and digitalized. For example, AI can help improve the forecasting and integration of variable renewable energy generation and electricity-access mapping. 

• Extreme heat in urban centres drove up demand for cooling in 2024, accounting for almost all of the 1.4% increase in fossil fuelbased electricity generation from the previous year. Cooling is a double burden on the climate: air conditioners and refrigerators create indirect emissions from electricity consumption and direct emissions from the release of refrigerant gases, the majority of which are much more potent global warming pollutants than CO2. Cooling currently accounts for almost 20% of global electricity use in buildings. Based on current policies, the global installed capacity of cooling equipment is set to almost triple between 2022 and 2050, reaching 58,000 GW in 2050. This would require an estimated 2,000–2,800 GW of additional electricity capacity under business-asusual energy efficiency assumptions.

iii) Vulnerabilities and risks in clean energy technology supply chains: 

• The geographic concentration of raw materials processing and manufacturing capacity for clean energy technology creates risks for the security and resilience of supply chains. Almost all of today’s global manufacturing capacity for solar PV is in the Indo-Pacific region, most notably in China. China currently holds at least 60% of the world’s manufacturing capacity for solar PV, wind systems, and batteries. Meanwhile, the production and processing of critical minerals is also highly concentrated geographically. Currently, the Democratic Republic of Congo supplies 70% of cobalt, China 60% of rare earth elements (REEs), and Indonesia 40% of nickel. Australia and Chile account for 55% and 25% of lithium mining respectively. China is responsiblefor the refining of 90% of REEs and 60–70% of lithium and cobalt.

• Furthermore, without proper governance, increasing demand for critical minerals risks perpetuating commodity dependence and exacerbating both geopolitical tensions and environmental and social challenges, including impacts on livelihoods, the environment, health, human security, and human rights — all of which can undermine the just energy transition. Demand for critical minerals is set to almost triple by 2030 as the world transitions from fossil fuels to renewable energy. A transition of this magnitude brings with it tremendous opportunities but also substantial challenges. At all scales, mining has too often been linked with human rights abuses, environmental degradation, and conflict. Resourcing the clean energy transition requires a new paradigm rooted in equity and justice.

iv) Weather and climate volatility: Centralized and decentralized renewable energy systems are increasingly exposed to climate risks: droughts reducing hydropower, shifting wind patterns, extreme heat impeding solar efficiency, and rising sea levels and coastal floods threatening energy infrastructure. As a result, these forms of power generation will require robust infrastructure frameworks to ensure these assets are able to withstand extreme weather conditions. This means designing technical specifications and construction practices that account for increasingly severe climate conditions and allowing project operators to monitor systems in real-time and respond pre-emptively. Integrating seasonal climate forecasts into energy planning will also be increasingly important to navigate the challenges of climate variability to secure a stable and resilient clean energy future.

v) Ensuring a just, orderly, and equitable global transition away from fossil fuels: The production and consumption of coal, oil, and gas need to decline rapidly and substantially to limit long-term warming to 1.5°C. The transition risk associated with stranded fossil fuel assets has been estimated in the billions to trillions of dollars, with different geographic distributions for coal versus oil and gas. However, the associated development ramifications for fossil fuel-producing low- and lower-middle income countries, as well as adequate international responses, remain underexplored. A growing body of research, rooted in the equity and climate justice movement, argues that a global equitable transition should recognize that countries’ circumstances differ widely depending on their financial and institutional capacity to transition, as well as their level of socioeconomic dependence on fossil fuels. Based on these principles, one might expect higher-income countries and those less dependent on the fossil fuel economy for social welfare and jobs to lead the transition, while lowercapacity countries will require finance and support to pursue alternative low-carbon and climateresilient economic development and just transitions. However, left to existing policies and market forces alone — without further international cooperation and without coordination of demandand supply-side policies — the transition risks being highly inequitable and disorderly.

 A lack of enabling energy infrastructure:  

• Parallel developments, investments, and governance in enabling infrastructure — especially in storage capacity; grid modernization, flexibility, and digitalization; and electrification of end-use sectors — will be vital for allowing renewable capacity installations to be integrated securely to displace fossil fuel-based power generation. While investment in renewable power has been increasing rapidly, global investment in grids has barely changed, remaining static at around USD 300 billion/year. Today, for every dollar spent on renewable power, only 60 cents are spent on grids and storage; this investment ratio needs to rebalance to 1:1. There are already signs of grids becoming a bottleneck for the energy transition. At least 3,000 GW of renewable power projects, of which 1,500 GW are in advanced stages, are waiting in grid connection queues. Greater attention must also be paid to addressing the flaws and limitations of existing governance systems for how grids are planned, built, and operated.

ii) Policy incoherence exists across multiple levels and dimensions: 

• Discordant policies and silos between ministries can impede and undermine progress. Across NDCs submitted as of August 2024, Parties have included quantifiable renewable energy targets, primarily for the power sector. These commitments combined are set to deliver less than half the required 1.5°C-aligned growth in renewable power by 2030. Many commitments remain conditional on international financial assistance, particularly among Least Developed Countries and SIDS. At the same time, among the top 20 largest fossil fuel-producing countries, nearly half of the NDCs and around one-third of long-term low-emissions development strategies (LT-LEDS) submitted as of March 2024 include plans to continue or increase fossil fuel production. As the UNEP Production Gap Report series has shown, government plans for coal, oil, and gas production under national energy strategies and outlooks assessed as of 2023 would lead to global levels of fossil fuel production in 2030 that are more than double those aligned with 1.5°C, with the production gap widening over time to 2050.

 • Global decarbonization incentives remain insufficient and skewed. Carbon pricing continues to be adopted by countries, having doubled in global GHG emissions coverage from 12% in 2015 to 25% in 2023, but the global average carbon price stands at only USD 5 per tonne of CO2e (USD/tCO2e), compared to the minimum of 85 USD/tCO2e needed to achieve 2°C, and even higher for 1.5°C. A mix of contextspecific policies, including carbon pricing, is needed to incentivize decarbonization.

 • Government subsidies for fossil fuels remain high. While various estimates differ in terms of the underlying scope and methodologies, subsidies typically reflect policies that reduce the cost of production or the price for consumers. For example, the IEA estimates that in 2023, governments spent USD 620 billion subsidizing fossil fuel consumption. This amount is significantly above the USD 70 billion that was spent on support for consumer-facing clean energy investments, including grants or rebates for EVs, efficiency improvements, or heat pumps. The IISD-OECD tracker estimates that subsidies for fossil fuel production and consumption amounted to USD 1.1 trillion in 2023. In an analysis by Black et al. (2023) that considers both the undercharging of energy supply costs (explicit subsidies) and the environmental costs and forgone consumption taxes (implicit subsidies), total fossil fuel subsidies are estimated at USD 7 trillion in 2022 (7.1% of global GDP), with implicit subsidies making up 82% of the total.151 

• At COP26 in 2021, 34 countries and five public finance institutions signed the Clean Energy Transition Partnership (CETP) Statement to end international public finance for unabated fossil fuel projects by the end of 2022 and instead prioritize the clean energy transition. Collectively, signatories still sent USD 5.2 billion to the fossil fuel sector in 2023, but this was nonetheless a reduction of up to twothirds from the 2019–2021 average. Meanwhile, support for clean energy has not scaled up significantly, with an increase of only 16% in this timeframe.

iii) A lack of or insufficient long-term strategies for net-zero energy systems: 

• Long-term, integrated national energy strategies are a vital planning tool for guiding the transition to a net-zero and increasingly renewables-based energy system, but few countries have developed them. More policy attention needs to be paid, for example, to designing what has been termed the “midtransition”, during which new, zero-carbonenergy systems are developed under existing fossil fuel-based system constraints.

 iv) A lack of focus on social justice and just energy-transition policies: 

• At the same time, a lack of policy attention to ensure a truly just energy transition — especially for affected fossil fuel workers and communities and the wider local economy — can cause political backlash and opposition to climate action. The IPCC AR6 underscored that “adaptation and mitigation actions that prioritize equity, social justice, climate justice, rights-based approaches, and inclusivity, lead to more sustainable outcomes, reduce trade-offs, support transformative change, and advance climate resilient development”. It will be vital to integrate just transition measures within energytransition planning, such as promoting decent work and equitable access to reskilling/upskilling opportunities for workers in the fossil fuel industry, financing the energy transition using progressive measures, and building social and political acceptance of new policies. Inclusive planning processes, including through social dialogue and meaningful public engagement, will be key to ensure public trust and support.

 • In some countries, other sectors will also be impacted. For example, in Nigeria the firewood and charcoal industry is completely informal but involves some 41 million workers and provides an estimated 530,000 full-time equivalent direct jobs, compared to 70,000 direct jobs in the oil and gas sector. A just energy transition in Nigeria thus requires a focus on charcoal- and woodproducing workers and households in addition to fossil fuel-based energy sector workers.

 v) A lack of enabling conditions to scale up clean energy financing for developing countries: 

• Improving domestic enabling conditions will be key for building investor confidence — by developing clear and stable policy and regulatory frameworks, creating robust net-zero roadmaps and investment strategies aligned with broader economic development goals, and improving project pipeline preparation and visibility. For example, national policies — including incentives for EV adoption to create domestic markets, tax breaks for charging stations, and production subsidies to incentivize investors — have been instrumental in mobilizing FDI for EVs in countries like Hungary, Indonesia, Mexico, and Thailand.

• Designing and implementing innovative financing, de-risking, and economic instruments will be crucial for lowering the cost of capital. The public sector can, for example, strategically provide concessional capital to mobilize private capital and mitigate certain risks that private sector capital cannot yet absorb. It can also improve debt structuring and management, and reform credit rating methodologies. Although the LCOEs for solar PV and onshore wind are now almost always cheaper than those for fossil fuels, high upfront cost of capital due to real and perceived risks — combined with limited fiscal space and lack of affordable finance — remain a major barrier for EMDEs outside China. For example, a 2023 survey by the IEA found that the cost of capital for utility-scale solar PV projects in EMDEs is well over twice as high as it is in advanced economies. A survey by IRENA found that in 2019–2021, average regional cost of capital for onshore wind was 3% in China, 3.3% in Western Europe, 5.1% in North America, 6.4% in Latin America, and 7.2% in other Asia-Pacific countries and Africa. For utility-scale solar PV, average regional cost of capital was 3.9% in China, 4% in Western Europe, 5.4% in North America, 6.1% in other Asia-Pacific countries, 6.6% in Latin America, 7.7% in Eastern Europe, and 8.7% in the Middle East and Africa.

 

vi) Trade policies and investment agreements can serve as barriers or enablers: 

• As noted by the IPCC AR6, many international investment agreements (IIAs) include InvestorState Dispute Settlement (ISDS) provisions that could be used by fossil fuel interests to challenge national legislation aimed at transitioning away from fossil fuels.Governments worldwide could face up to USD 340 billion in legal and financial risks for cancelling fossil fuel projects that are subject to treaties with ISDS clauses, with more than two-thirds of the estimated risk borne by developing countries. Fossil fuel-related disputes account for nearly 20% of all known ISDS cases, making the sector the most litigious within the ISDS system.167 This underscores the urgent need to reform the IIA regime to align with global climate and energytransition goals.

• Trade costs along solar and wind energy technology value chains remain high. Currently, developing countries’ average tariffs on such goods range from 2.5% in Asia and Oceania to 7.1% in Africa. Non-tariff border measures add additional costs of 0.4–0.7%. The rise in trade restrictions poses significant risks to renewable energy technologies and critical mineral markets. Under an illustrative model scenario, IMF simulations suggest that a disruption in the trade of critical minerals could lower investment in renewable energy and EVs by as much as 30% by 2030.

• Lowering tariffs on goods across renewable energy value chains and other supportive 

provisions in trade agreements can help to increase imports and green FDI into EMDEs. For example, Hasna et al. (2023) found that a one standard deviation reduction in tariffs on lowcarbon technologies (LCT) is associated with a 4% increase in the LCT-trade-to-GDP ratio and a 6% increase in LCT imports.An analysis of renewable energy policies worldwide by UNCTAD found that the use of auctions and tenders is gaining momentum across all countries.

 • South-South trade and regional integration can also help to strengthen developing countries’ participation in renewable energy value chains.

vii) Continued fossil fuel expansions and lock-in: 

The committed CO2 emissions from existing fossil fuel production and consumption infrastructure each exceed the remaining carbon budget for limiting warming to 1.5°C with a 50% likelihood, rendering any new fossil fuel projects incompatible with the 1.5°C goal and creating asset-stranding risks. Yet, on the consumption side, as of January 2025, the world has around 611 GW of coal-fired power capacity under development, and 800 GW of gas- and oilfired power capacity under development. In 2024, global coal power additions dropped to their lowest level in 20 years, but the world’s coal fleet still increased by 0.9%. Just ten countries now account for 96% of global coal power development, led by far by China, followed by India and Indonesia. On the production side, in 2024, a total of 895 licences were awarded for, and USD 22.9 billion of capital invested in, oil and gas exploration. The licences could lead to emissions of around 1.7 billion tonnes of CO2 if the reserves are burnt.

 viii) Lobbying, disinformation, greenwashing, and delaying tactics by fossil fuel interests and enablers: 

• Political action to mitigate climate change has been impeded at the national, regional, and international levels through direct lobbying by fossil fuel companies and through the funding of political actors that remains largely undisclosed. A growing body of academic research and investigative journalism has also documented how, for decades, vested interests have developed strategies to both directly discredit climate science and spread disinformation and misinformation that delay the need to reduce fossil fuel reliance, including false claims about renewable energy technologies to undermine support for them.

• To date, the oil and gas industry has done little to diversify their activities into clean energy. In 2022, the industry invested USD 20 billion — 2.5% of its total capital spending — on clean energyprojects, compared to the USD 800 billion annualinvestments in oil and gas supply.