Global Context
Global Context of Climate Change
Economic Overview
90%of solar PV manufacturing is concentrated in only 5 countriesRenewables and Global Trade
In 2023, renewable energy globally was on a path of recovery and progress, set against persistent challenges and disparities among technologies and regions. The energy crisis of the previous year continued to abate, with the world witnessing a remarkable boom in solar photovoltaics (PV) and a significant surge in energy investments. 1 Global additions to renewable power capacity increased an estimated 36% in 2023 to reach around 473 gigawatts (GW), a new record for the 22nd consecutive year. 2 Solar PV drove the increase and accounted for three-quarters of all the renewable power capacity additions in 2023. 3
The progress in renewable power additions was global but varied across regions and technologies. In the United States, the only growth relative to 2022 was in solar PV, with its total installed capacity increasing more than 50% to nearly 33 GW, whereas wind power additions fell to their lowest level since 2014. 4 In the European Union (EU), solar PV capacity additions increased from 41 GW in 2022 to 56 GW in 2023, and wind power additions totalled 17 GW in 2023, up slightly from 2022. 5
China continued to dominate the renewable energy sector, commissioning an amount of solar PV capacity in 2023 alone that was equivalent to the total global solar PV additions in 2022. 6 China also operated around 30 GW of offshore wind power by the end of 2023, roughly half the global capacity. 7 These developments were counterbalanced by China's strong increase in energy production and consumption overall, including of fossil fuels. In 2023, the country approved 114 GW of coal power capacity, up 10% from 2022. 8 In total, China approved 218 GW of new coal power plants in the two-year period from 2022 to 2023, more than the total installed power capacity of Brazil. 9
The renewables sector also faced ongoing challenges in 2023. Geopolitical conflicts in Europe, the Middle East and elsewhere continued to disrupt supply chains and international transport, impacting energy markets. Global energy-related greenhouse gas emissions increased 1.1% to a record 37.5 billion tonnes of carbon dioxide (CO2), with emissions from coal contributing nearly two-thirds of the increase. 10 The Earth's average surface temperature was reportedly around 1.2 degrees Celsius (°C) higher than in the pre-industrial era, and extreme weather events, including record temperatures and heatwaves, became more frequent. 11 The year 2023 also was defined by growing protectionism, especially in the renewable energy sector. The EU and the United States took steps to reduce their strong reliance on China for minerals and for renewable energy components and technologies. 12
In many countries, concerns about energy security have accelerated the transition to renewables and energy efficiency; however, some other countries have opted to embrace fossil fuels for energy supply assurance. 13 Global investment in both fossil gas and coal infrastructure remains substantial. 14 Many developing countries have prioritised short-term economic growth over long-term energy transition. 15
Opposition to renewables has continued to challenge the sector's development, despite advancements in technology and growing awareness of environmental concerns. 16 Progress in renewable energy deployment, policy and investment worldwide remains unevenly distributed geographically, and this disparity highlights the enduring issue of energy inequality. 17 With roughly half of the world's population expected to face elections in 2024, the outcomes of these contests will be crucial to renewable energy developments, either enabling positive progress or putting a halt to some of the policy momentum. 18
The global energy sector is navigating a complex macro-economic environment. 19 Although average inflation worldwide declined in 2023 – falling from a projected 8.7% in 2022 to around 6.9% – it was still well above the 2020 level of 3.2%. 20 Energy prices continued to shape the global economic landscape. In many countries, wholesale electricity prices remained high despite a notable drop in the prices of energy commodities such as fossil gas and coal in the first half of 2023. 21
Global investment in renewables grew 8% during the year to reach USD 622.5, up from USD 576 billion in 2022. 22 However, the renewables sector, once propelled by falling costs, low interest rates, and political support, is now contending with supply chain issues and operating in a context of rising interest rates that have inflated prices and tested the commitment of consumers and governments, despite unprecedented investment and progress in recent years. 23 As a consequence of this financial shift, some of the more costly renewable energy projects have been cancelled or delayed. 24
The solar PV industry experienced a year of low profitability and valuation. In the United States, the stock prices of major solar companies were down 37-46% in 2023 due mainly to high interest rates, rising material costs, delays in permitting, excess inventory and slowed revenue growth. 25 For the offshore wind market, issues related to supply chain delays and rising demand – as well as higher raw material costs, shipping costs, interest rates and inflation – led to projects not being delivered in time or in some cases being shelved. 26
A renewable energy auction in the United Kingdom in the summer of 2023 failed to attract any bids from developers, and wind energy projects in the Netherlands, Norway and the United States also experienced extensive delays and price renegotiation. 27 After reporting a loss of USD 5 billion (EUR 4.6 billion) for the year, due mainly to quality problems at its Spain-based wind unit, Siemens Energy received loan guarantees from the German government and several banks for around EUR 12 billion (USD 13 billion). 28
The rising cost of capital i is especially concerning for emerging markets, where high interest rates are pushing countries towards a debt crisis. 29 As the cost of financing becomes more burdensome, countries are increasingly getting stuck in a vicious circle known as the climate debt trap ii and must urgently tackle rising debt. 30 Central bank rate hikes, aimed at controlling inflation, have increased borrowing costs, hindering the financing of capital-intensive renewable energy projects globally. 31
The adverse context of higher interest rates worldwide has exacerbated the financial challenges for developing countries, which play a crucial role in addressing global climate change but now face greater investment hurdles. 32 Efforts to restructure international finance have gained attention, including through the Bridgetown Initiative iii . There is a need for both enhanced short-term liquidity mechanisms and long-term sustainable development funding to better manage the immediate impacts of crises and drive more robust reform of the global financial architecture. 33
Global renewable energy trade is increasingly marked by protectionism, as governments impose restrictions to bolster domestic industries. This includes the deployment of incentives and policies favourable to local manufacturing and local incentives, driven by initiatives such as the EU's Carbon Border Adjustment Mechanism and the US Inflation Reduction Act (see Snapshot: United States.) 34
Globally, the trade landscape is increasingly shaped by “friend-shoring”, or the practice of relocating supply chains to, and sourcing inputs from, countries that are considered political and economic allies. 35 This trend is a response to the supply chain disruptions experienced in recent years, as well as a strategic move to align with countries that share similar commitments to climate and sustainability goals and to addressing concerns about human rights abuses. 36
China continued to dominate renewable energy manufacturing in 2023, particularly for solar PV, and was also a major supplier and manufacturer of critical minerals. 37 The country hosts more than 80% of the world's solar panel manufacturing capacity and is home to ten leading suppliers of solar PV manufacturing equipment. 38 Although China's dominance in the solar industry has been key to reducing costs globally, this high geographic concentration of supply chain activities presents risks. 39
Both the EU and the United States have expressed concerns about their over-reliance on Chinese renewable energy products: for example, China supplies more than 95% of the solar panels and parts installed in the EU. 40 The key aims of the EU's Net-Zero Industry Act and the Carbon Border Adjustment Mechanism are to incentivise local renewable energy manufacturing and impose a cost on carbon emissions for imported goods, thereby creating a financial incentive for non-EU countries to align with the region's climate goals. 41 The influx of inexpensive Chinese solar panels in Europe has boosted solar installations but also threatened local manufacturers with potential collapse, prompting the EU to consider protective measures. 42
China's growing dominance in the renewable energy component industry has influenced trade policy in the United States, which has increasingly turned to the EU, India, Cambodia, Malaysia, Thailand and Viet Nam to import solar panels (in addition to boosting domestic solar manufacturing capacity). 43 US support for India's solar industry may have unintentionally enabled the entry into the United States of illegal Chinese solar components (banned due to forced labour issues) through Indian-assembled products. 44 The move towards friend-shoring and on-shoring iv is, in part, a reaction to these challenges, offering a way to strengthen supply chains and diversify the supply of renewable products. 45
Critical minerals are essential raw materials used for manufacturing renewable energy technologies, electric vehicles and electricity networks. 46 In 2023, growth in the renewables sector drove surging interest in critical minerals – including a tripling in lithium demand, a 70% increase in cobalt demand and a 40% increase in nickel demand – as clean energy applications consume growing shares. 47 The market value of key energy transition minerals doubled in 2023 to USD 320 billion. 48 Despite overall price drops in 2023, many minerals remain costly for achieving energy transition goals. 49 Investment in critical minerals exploration and extraction has risen, with companies in China doubling their spending in 2022, and exploration activities booming across Africa, Australia, Brazil and Canada. 50 Investment in critical minerals increased 30% in 2022, with exploration spending rising 20%. 51