The current energy transition trajectory is masking a decline in equity and inclusiveness.

To achieve an effective energy transition, countries must balance their energy system across the equitable, secure and sustainable dimensions, and make progress on all (Figure 7). In the last decade, 83% of the countries tracked by the ETI have improved their energy system performance, an indication of their strong energy system growth. Global average system performance scores have steadily increased from 59.5 to 63.0. Improvement patterns differ across dimensions however, as countries face competing priorities, economic uncertainties and geopolitical challenges.

Figure 7: System performance dimension scores, 2014 and 2023

The global average score for sustainable in 2023 remains the lowest among the three dimensions. Secure has progressed the most, narrowly outperforming sustainable, and to the detriment of the equitable dimension, which has slowed overall. Urgent and accelerated measures are needed to continue the noticeable effect on the sustainable dimension to ensure a balanced energy system. Progress within sustainable is noticeably lacking within the fossil fuel-exporting nations. Countries’ evolution on these dimensions over the past decade is further explored below.

The imperative of equitable energy transition stems from the critical role played by the energy sector in driving socio-economic growth. While the energy transition has the potential to create economic opportunities, it could bring high costs and inequalities if not managed properly, particularly for the world’s most vulnerable populations. This requires leaders to make difficult choices, particularly in emerging and developing economies, to support economic growth that maximizes social welfare while ensuring access to abundant and diverse forms of energy at affordable prices.

The ETI’s equitable dimension tracks the access, affordability and economic development of the energy sector. Globally since 2014, the score for equitable dimension has seen a 4% increase, with a recent 3% increase from 2021 to 2022 and a 4% decline from 2022-2023 following market signals, as shown in Figure 8. Oman, Canada, the United States and Sweden are leading in 2023, while countries in Sub-Saharan Africa, including the Democratic Republic of Congo, Zambia, Tanzania and Senegal, rank in the lowest quartile. While global average scores on energy access and economic development have seen gains since 2014, those for energy affordability have substantially declined (5%), owing to the ongoing energy crisis and unprecedented shock to energy prices and household expenditures. These trends however, vary by country depending on the stage of economic development.

Figure 8: ETI equitable dimension trend, 2014-2023

Global demand and prices for electricity and oil surpassed pre-pandemic levels in 2021 because of the strong correlation between economic growth and energy consumption. Natural gas prices also climbed to their highest in a decade in Europe, the United States and major Asian markets, owing to a combination of demand- and supply-side factors. These imbalances carried over to 2022 with energy prices sustaining record-high levels due to the Russia- Ukraine war. As the global energy crisis persists, the surge in energy prices continues to fuel inflationary pressures that deter investments in countries already dealing with high interest rates and greater volatility. As a result, energy access investments dwindle while affordability of energy services also becomes severely constrained, adding to concerns of the equity and justice of the energy transition.

Estimates suggest that around 75 million people who gained access to electricity recently will likely lose the ability to pay for it, and 100 million people may go back to using traditional biomass for cooking.⁸ ETI trends show that while the rate of access to electricity in rural areas as well as access to clean cooking fuels has slowed in the past three years, electricity prices remain high across several regions, including advanced economies, emerging and developing Europe, and the Middle East, North Africa and Pakistan. This implies a different set of affordability challenges, however, than those in Sub-Saharan Africa. To alleviate the effects of high electricity prices, many countries introduced legislation and measures such as the regulation of wholesale and retail prices; revenue caps on renewables, nuclear and coal plants; reductions in energy taxes; and energy subsidies. While these market interventions can help mitigate the effects of the energy crisis, minimizing uncertainty in the investment landscape is required to ensure that these measures do not deter much-needed investment.

ETI trends further show that following an initial decline in the last few years, energy subsidies have been reintroduced rapidly and at much higher levels. Fossil fuel consumption subsidies worldwide soared in 2022; oil subsidies increased by approximately 85%, and natural gas and electricity consumption subsidies more than doubled.⁹ Even though these subsidies are meant to protect consumers from volatile energy prices, they create an additional burden on governments amid tightening fiscal space and spending pressures on other priorities and reduce incentives for consumers to adapt energy consumption to price levels. In the face of persisting price pressures and crisis conditions, these measures require significant cumulative resources, which poses serious risks for the energy sector particularly in emerging and developing economies.

The risk now is a harmful subsidy race where advanced economies with greater fiscal power might emerge as winners, and emerging and developing economies with scarcer fiscal resources would find it difficult to compete with them for investments. This could also hinder the transfer of technology to these nations, ultimately raising the cost of the energy transition.¹⁰ For countries that are unable to make those commitments, this raises the question of how to make the energy transition inclusive. If the goal is to protect consumers from price shock and to correct market failures, a coordinated approach is required, allowing subsidies to be targeted to meet the needs of the poorest and most vulnerable nations and households, and to ensure a level playing field.

Energy security is “a primary concern for governments and economic players across the globe, and a dimension whose impacts multiply across supply chains, countries and international systems. People, companies and nations depend on secure and uninterrupted access to energy at affordable prices”.¹¹ The ETI’s secure dimension tracks energy supply, reliability and resilience. On a global scale, the secure dimension scores have shown the most progress over the past decade, although they still lag the equitable and sustainable dimensions. Figure 9 shows the dimension score over time. Advanced economies, such as United States, Australia and Estonia, score highly due to mature energy infrastructure, and many are able to withstand potential disruptions to gas supply chains. Malaysia scores highly due to supply diversity and reliability. Major fuel exporters, such as Saudi Arabia, UAE and Azerbaijan, also score highly due to their gas reserves.

Figure 9: ETI secure dimension trend, 2014-2023

Diversification is critical for a secure and economic energy system as it reduces dependency, enhances resilience, manages economic risks, fosters innovation and competitiveness, and supports sustainability goals. Countries with energy security challenges have typically failed to diversify either their domestic energy mix or their energy import partners, or both; some of the results have been seen in recent months in Europe. The ETI shows that out of 29 advanced economies, eight have fuel import dependency on just three trade partners for over 70% of their net energy imports. Seven of these eight countries are in Europe.

Three levels are needed for impactful diversification: in the energy mix, electricity supply and consumption. Their importance is recognized by several of the United Nation’s Sustainable Development Goals directly or indirectly relating to electricity and energy diversification and consumption. Trends from the ETI show that energy diversification is more advanced than electricity diversification, with progress being uneven; while the electricity mix is progressing, the energy mix remains stable. Some countries that have successfully diversified their energy and electricity mixes may now focus on improving quality and reliability and reducing energy costs. Many countries in the Sub-Saharan Africa and the Middle East, North Africa and Pakistan regions, however, may need to first address energy access challenges before tackling grid infrastructure improvements and subsequent diversification efforts. Policies also have an important role in driving innovation and expansion and in shaping energy systems to accommodate new technologies. The 2022 energy crisis incentivized renewable energy over gas in the medium term. More incentives may be needed to shift energy demand permanently towards clean energy and to accelerate electrification.

Energy systems need to “withstand operational disturbances, such as grid outages, planned maintenance, extreme weather events or financial shocks (e.g. price volatility). Stability enhancements which strengthen the reliability and resilience of the system have never been more important or more challenging”.¹² Force majeure events, including cold snaps in New York,¹³ heatwaves in Japan,¹⁴ and earthquakes in Turkey¹⁵ and Syria, have shown countries that grid operations need to be able to recover quickly in the event of tail-risk scenarios. As energy systems become more interconnected and reliant on advanced technologies, such as smart grids, supervisory control and data acquisition systems, and other digital infrastructure, they can become vulnerable to cyberthreats. Thus, cybersecurity measures and robust defences need to be prioritized to mitigate these risks as grids advance. The growing share of electricity in final demand due to electrification, coupled with the rising unpredictability and frequency of extreme weather events, compounds the risks and vulnerabilities of energy grids in the ongoing energy transition.

Maintaining global trust will be important in the future for ensuring stable energy supply and demand at national and international levels. Countries must have confidence in each other’s ability to honour their energy commitments, as any disruption in the global market could have severe consequences for economic and social stability. Interconnectors, both within countries and across international borders, play a vital role in facilitating this trust by enabling the efficient transmission and sharing of electricity, diversifying energy sources and promoting cooperation in the face of geopolitical risks. The increasing activism of geopolitics, including the complex relationships between the Organization of the Petroleum Exporting Countries, China, the United States and Europe, further emphasizes the importance of interconnectors and ongoing cooperation in ensuring a sustainable energy future.

The ETI bases the sustainable dimension on a combination of energy efficiency, decarbonization and progress towards clean energy systems. In the past decade, this dimension has seen a 7% growth (Figure 10) in the global scores, with Costa Rica, Paraguay and Albania leading the charts for 2023. Paraguay’s use of hydropower in its energy mix has enabled it to maintain low-carbon intensity in its economy and effectively manage air pollution, providing it with one of the cleanest energy mixes in South America. The countries from the Middle East, North Africa and Pakistan region rank in the lowest quartiles on the sustainable dimension, despite their above-average performances on the equitable and secure dimensions. They can embrace sustainability by switching to low-carbon sources of energy, eliminating water scarcity and improving household waste management. This can happen with the public and private sectors collaborating to make the switch to a more sustainable way of life. The global sustainable scores, however, need to improve further to accelerate the transition, since improvement on this dimension has a direct effect on net-zero goals.

Figure 10: ETI sustainable dimension trend, 2014-2023

Transitioning towards sustainable energy systems is a complex process requiring careful policy planning and implementation. A central theme is that no one-size-fits-all policy package exists for sustainable energy transitions, as each country’s objectives and constraints will shape its policy approach. Yet around the world, many countries are undergoing or planning transitions towards sustainable energy systems through a combination of policy measures, technological advances and changes in consumer behaviour.

A few examples:

- Energy efficiency: According to the International Energy Agency (IEA), “Since 2020, governments worldwide have helped mobilise around USD 1 trillion for energy efficiency-related actions such as building retrofits, public transport and infrastructure projects, and electric vehicle support. This amounts to approximately USD 250 billion a year being deployed from 2020 to 2023, equivalent to two-thirds of total clean energy recovery spending.”¹⁷ For example, also according to the IEA, “under its recovery and resilience plan, Spain intends to invest EUR 3.4 billion in half a million energy renovation actions through tax incentives and the creation of ‘one-stop’ renovation offices”.¹⁸

- Technological advances: Achieving net-zero emissions requires the immediate and widespread deployment of clean and efficient energy technologies. Major economies are integrating their climate, energy security and industrial policies into broader strategies. Examples include the US Inflation Reduction Act, the Fit for 55 package and REPowerEU plan in the EU, Japan’s Green Transformation programme, India’s Production Linked Incentive schemes and China's latest Five-Year Plan.

- Behavioural changes: Such changes, or the daily alterations that diminish wasteful or excessive energy consumption, are important to reach net-zero emissions by 2050. At the 26th Conference of the Parties (COP26), Indian Prime Minister Narendra Modi unveiled Mission LiFE (Lifestyle for Environment), a programme that aims to prioritize individual behaviour in the global climate action discourse by shifting away from the current “use-and-dispose” economic model towards a circular economy characterized by conscious and deliberate utilization.¹⁹ This move should be welcome for a highly populous country such as India, where behavioural changes can have a substantial effect.

Despite some of the progressive initiatives, the sustainable energy system remains vulnerable at large. In 2022, the Russia-Ukraine war led to a global energy crisis with skyrocketing prices and supply disruptions. As a result, countries resorted to coal to fulfil energy demands. The world’s coal consumption reached a new high, surpassing 8 billion tonnes in a single year for the first time and eclipsed the previous record set in 2013. The bright side is that governments, banks, investors and mining firms continue to show a reluctance to invest in coal, particularly thermal coal. No clear indications exist of a reversal in investment trends outside of China and India, where domestic production has been raised to decrease external dependence.²⁰ In addition, the policy responses overall in many regions to the global energy crisis, such as those taken in major economies (e.g. EU, United States and Japan), are likely to accelerate clean energy developments further.

While global commitments and actions to advance the sustainable energy transition have increased recently, they still fail to attain the required level to limit the rise in global temperatures to 1.5°C and avoid the more severe consequences of climate change. Several sustainable indicators have been analysed to evaluate how far countries are from the ideal targets (Figure 11).

Figure 11: Country density based on the 2030 targets derived from the IEA Net Zero by 2050 scenarios

To curtail global warming further to 1.5°C, global GHG emissions must be cut by 45% within eight years and continue to decline rapidly after 2030 to avoid exceeding the remaining atmospheric carbon budget. The triple planetary crisis of climate change, pollution and biodiversity loss requires widespread implementation of renewable energy technologies, electric vehicles and energy-efficient retrofits for buildings. Cross-cutting systemic transformations of food systems and the financial system are also necessary to reduce emissions beyond current mitigation pledges.

The need now is to continue accelerating the overhaul of global energy systems and to set milestones for various sectors and technologies. Solutions include:

Table 2: A closer look at the progress of sustainable dimension indicators over the past three years

Progress on the sustainable dimension varies depending on the indicator considered. This chart outlines five indicators using a three-year compound annual growth rate. It helps to identify individual leaders as well as country focus areas and gaps. The order is consistent with the 2023 ranks.

As mentioned in Fostering Effective Energy Transition 2020 Edition, “the energy system’s ability to deliver on the imperatives … depends on the presence of an enabling environment for the energy transition, measured in the ETI framework by the transition readiness sub-index. Energy transition readiness is captured by the stability of the policy environment and the level of political commitment, the investment climate and access to capital, the level of consumer engagement, the development and adoption of new technologies, etc. Some of these factors are beyond the scope of the energy system”, such as skills or quality of transport infrastructure, “but nevertheless determine the effectiveness and future trajectory of energy transition in a country. ”²¹

Similar to the progress achieved on global system performance imperatives, transition readiness enablers sustained a growing global average performance over the past 10 years (Figure 12). The direct enablers have been fuelling countries’ transition readiness and showcase the effect of recent global focus on the policy and investment transition choke points. On the other hand, human capital and innovation transition enablers did not make substantial progress over the same period, underscoring the importance of paying more attention to these blind spots to unlock further transition momentum. In addition to a set of leading advanced European economies, South Korea, China and Japan are among the leading 20 countries regarding the enabling transition environment in 2023.

Figure 12: ETI transition readiness trend, 2014-2023

Financial investment in clean energy continues to be a key enabler for transitioning economies. It nurtures other enablers of transition, such as technology development and deployment, while actively facilitating the scale-up of renewables capacity and associated infrastructure. Despite the progress achieved, investments in clean energy supply remain a challenge. Only six countries managed to direct more than 1% of their GDP in 2022 towards investments in renewables. China had the largest share of GDP investments, investing more than 1.5% of GDP in renewables, followed by Viet Nam, Azerbaijan, and Bosnia and Herzegovina.

Country commitments to their transition targets that were set as part of the Paris Agreement have been translating into transition strategies. The level of granularity and maturity of these strategies varies significantly. As of 2023, only 17 out of 120 countries have managed to reflect their net-zero targets into their respective laws, in a manner that targets all GHG emissions and delivers in 2050 or earlier.

An effective country policy for energy transition provides the necessary framework to accelerate the transition to a cleaner energy system and address the associated challenges of equity and security. While most countries have a strong enabling policy environment regarding energy access, that environment is not as strong for policies that enable scaling of renewable capacity or inducing energy efficiency. Aside from a set of leading advanced European economies, South Korea, India, Mexico and Hungary have recently exhibited a strong enabling regulatory environment to accelerate a balanced transition.

Advanced solutions – including hydrogen, sustainable aviation fuels, advanced nuclear, storage, carbon and demand management – harness, manage and use clean energy across the energy system. As key enablers of the energy transition, they help address the intermittency of renewable energy, enable electrification of transport and industry, improve system efficiency, decarbonize hard-to-abate sectors and eliminate CO2 from the atmosphere.

The IEA estimates that around $2.8 trillion will be invested in energy in 2023. More than $1.7 trillion is going to clean energy, including renewable power, nuclear, grids, storage, low-emission fuels, efficiency improvements and end-use renewables and electrification. For every $1 spent on fossil fuels, $1.7 is now spent on clean energy. Five years ago this ratio was 1:1.

Figure 13: The price of solar modules declined by 99.6% since 1976

Like wind and solar, the giga scale and industrialization of advanced solutions have the potential to drive down costs – thus, there is a need to exponentially accelerate the speed and scale of their deployment. For example, to be on the path to net zero by 2050, the energy system needs to see battery storage capacity grow 15 times²² and carbon capture, usage and storage 40 times²³ by 2030. Similarly, the clean hydrogen market is expected to grow from $0.5 billion to $120 billion²⁴ and advanced biofuels from $3 billion to $180 billion.²⁵

Deployment at this scale needs to be backed by significant capital. The IEA notes that $0.9 trillion needs to be invested by 2030 to modernize electricity networks and build public electric vehicle charging stations, hydrogen refuelling stations, direct air capture and CO2 pipelines, storage facilities, and import and export terminals. Further, $1.7 trillion needs to be invested annually in low-carbon technologies in end-use sectors.²⁶ Most of this investment will need to come from the private sector, supported by public policies that create incentives and set appropriate regulatory frameworks.

A growing number of investors from both specialized and larger infrastructure funds are actively seeking opportunities in the sector. Moreover, governments provide strong support through policies aiming to multiply clean energy investments. Innovative capital market instruments, such as green bonds, open additional avenues to increase funding. The green bonds market experienced spectacular growth from $36 billion worth of issuances to $270 billion in 2020.²⁷ Subsequently, an increasing number of projects are being announced and deployed. The IEA has observed that, “announced [electric vehicle] battery production capacity for 2030 is only 15% lower than the level of battery demand underpinning the IEA’s Net Zero Emissions Scenario” and “cumulative output of electrolyser manufacturing capacity could reach 380 GW by 2030, which is still little more than half of 2030 needs” in that scenario.²⁸

However, it is often difficult for investors to find opportunities that match their profile in terms of scale and maturity. The risk appetite of financial institutions is not always tailored to support advanced solutions. This is a challenge in emerging markets and developing economies, causing them to receive a small fraction of investments. In addition, sovereign and currency risks, the lack of standards and regulations, and slow permitting processes remain significant barriers to clean energy investments in these economies.

Achieving the needed pace and scale of growth and investments requires innovators, large energy producers and users, and investors to form partnerships and play their part. To aid in this process, the World Economic Forum is producing the “Handbook for Exponential Deployment of Advanced Energy”, which will include a set of strategic recommendations for these key stakeholders to expand and accelerate the deployment of advanced energy solutions. This initiative, led by the Forum’s Advanced Energy Solutions community, engages leaders in frontier, fast-growing segments of the energy system and seeks to help eradicate the green premium and maximize co-benefits.