- In 2020, the capital investment in the renewable energy sector was at US$8.72 billion, outshining oil and gas for the first time
- Despite the damage caused to the climate, gas and oil are at the core of the energy sector, which is concerning
- The United Arab Emirates (UAE) topped in the Middle East, attracting foreign direct investment (FDI) in renewable energy close to US$2.4 billion in 2020
One of the conclusions of the 26th United Nations Climate Change Conference, which was held in Glasgow, Scotland, is that the climate change effect caused by fossil fuels on the earth might be irreversible by 2030.
The COP 26 conference emphasized the cutting down subsidies granted for coal and fossil fuels to low- and middle-income countries. However, there is no amicable consensus arrived on the above emphasis.
It appears that global financial firms are reluctant to curtail the direct and indirect financing of fossil fuels, and they failed to address the issue on the Finance Day of the United Nations Climate Change Conference.
African countries specifically are heavy on the matter as most of them still hold that their economies are supported significantly by coal and fossil fuels. The extraction of fossil fuels in the continent is still in high gear as countries such as Kenya, Zimbabwe, Uganda, and Mozambique, are discovering and exploiting new sources in 2022.
Read: Africa pursuing energy banking as investors withdraw fossil fuels funding
The International Energy Agency projects that Africa’s electricity demand will triple by 2040, with approximately half of the new capacity coming from renewable energy sources. Yet coal-powered plants, which generate forty-one per cent of the world’s electricity today, remain attractive because coal is relatively cheap, and their operation is not subject to the impulses of nature, unlike solar, wind, or hydropower.
Despite governments worldwide still being in a spilt as to addressing this timeless dependence on coal and gas, toddler steps are being witnessed in the foreign direct investment patterns towards the same, globally.
After nearly two centuries of exploiting extensive exploitation of coal and fossil fuel plants, the decade to 2030 has set the tone for sustainable and transformative revisions in the energy sector. This decade is witnessing significant growth in the adoption and usage of renewable energy, replacing the long overdependence on fossil fuels. In context, even the foreign direct investment in renewable energy grew at an exponentially promising growth rate globally.
In 2020, the capital investment in the renewable energy sector was at US$8.72 billion, outshining oil and gas for the first time. The foreign direct investment directed towards the renewable energy sector increased by 10 per cent from 2019.
As per the fDi Report 2021, coal, oil, and gas-dependent energy industries have sunk to enigmatic lows, with Foreign Direct Investment dropping by 61.2 per cent in this area, totalling US$44.8 billion. The fossil fuels sector saw its lowest investment in 2020 since 2003, a development that must have brought a sigh of relief to environments and scientists globally pushing the drive towards limiting climate change.
The increase in investment towards renewables in 2021 can be partly linked to the Paris Agreement, which holds the entire globe under one umbrella in a combined fight against climate change and global warming. The Member states have solidified their commitment to limit global warming, which is one of the most vital goals of the agreement.
The Paris Agreement is an international treaty bound by law on climate change. It was adopted by 196 Parties at COP 21 in Paris on December 12, 2015, its goal being to limit global warming to below 2, preferably to 1.5 degrees Celsius. Switching to renewable energy is one of the ways to meet this agreement.
The energy sector is the backbone of any country’s economic sustainability and development. Henceforth, the investment and innovation trends in this sector are paramount. Despite the damage caused to the climate, oil and gas are at the core of the energy sector, which is concerning.
The governments and energy sector players have recently comprehended the significance of the shift towards renewable energy sources, evidenced by the fDi Report 2021, which shows that in 2020, the FDI in the renewable energy sector has surpassed that in gas and oil.
The foreign direct investment projects indicated a similar trend towards the energy sector. The overall number of renewable energy projects in the world was five times higher than conventional energy projects based on fossil fuels. As per the fDi Report, 2021, the foreign direct investment projects in the conventional energy sector fell by 52 per cent.
Many governments and private energy players have pledged to decarbonize their economies in the past few years. Countries such as China, South Korea, India, Japan, the European Union, and others have announced their directed intention towards achieving net-zero emissions and have made substantial moves.
International oil corporations such as Shell, Total Energies, Chevron, BP, and others have also begun shifting towards renewable energy by investing heavily in this industry, despite sponsoring several coal and fossil fuel plants.
In 2020, the USA continued to be the magnet for foreign direct investment projects bagging the highest number of projects (64 projects).
Renewable energy became the principal source of power production in 2020 for the first time in the EU’s history, with foreign direct investment in renewable energy reaching a new high of 67 per cent.
The United Arab Emirates (UAE) topped in the Middle East, attracting foreign direct investment in renewable energy close to US$2.4 billion in 2020. The United Arab Emirates has also made commitments to decrease its carbon emission levels. The Middle East country uses the “Energy Strategy 2050” as a stepping stone to achieving the goal.
The Energy Strategy 2050 is a commitment of AED 600 billion which targets to increase the share of renewable energy in the total energy mix to 50 per cent, up from 25 per cent. The 50 Projects’ Initiative of the UAE will be a significant pillar in the Annual Investment Meeting (AIM), highlighting the Energy Strategy and showing the roadmap for the next 50 years.
Furthermore, the UAE will also be hosting the 28th United Nations Climate Change Conference in 2023 in its fight against climate change. The 27th United Nations Climate Change Conference will happen in Sharm El-Sheikh, Egypt.
Most countries worldwide are also witnessing a similar investment trend in the renewable energy sector.
In the entire sector of renewable resources, the majority stake of the foreign direct investment is captured by solar and wind energy. Ninety-one per cent of the world’s capital investment in renewable energy is done in solar and wind energy. In 2020, a total of US$28.5 billion and US$9.3 billion were invested in wind and solar power, respectively.
Despite the pressure exerted by the Coronavirus pandemic that created a health crisis worldwide, the upward trend of foreign direct investment in renewable energy has remained unshaken.
Read: Africa: Fossil Fuels Paradox: Good Intentions, Bad Energy
The strategies of the global leaders in supporting the curve of increasing reliance on renewable energy are here to stay. As a result, the world economy will witness a significant chunk of foreign direct investment going towards renewable energy in the years to come.
AIM 2022 Foreign Direct Investment Pillar.
Under the Patronage of His Highness Sheikh Mohammed bin Rashid Al Maktoum, the Vice-President and Prime Minister of the UAE and Ruler of Dubai, AIM outlines the Foreign Direct Investment among the six pillars to support all economic sectors by opening numerous doors of opportunities to the world as a dynamic roadmap to recovery.
The Annual Investment Meeting (AIM) FDI Pillar will foster investments towards the renewable energy sector. The Foreign Direct Investment pillar will aid investors to learn and discover more about the promising investment opportunities in various countries and regions of the world.
On the other hand, if you’re the representative of a country, city, or municipality, AIM is the right platform to attract a higher inflow of Foreign Direct Investments (FDIs). It would be best if you highlighted the investment destinations at your location.
Over the years, AIM has constantly stood out as the Middle East’s top investment platform. The meeting aims to create a regional and global economic transformation by providing investment opportunities, upholding solidarity, and developing solid economic relations among countries, investors, startups, small and medium enterprises (SMEs), and all other stakeholders in the global investment arena.
AIM 2022 comprises a broad array of features and activities that give real value to the owners and collaborators of Micro, Small, and Medium-sized Enterprises (MSMEs) interested in:
- Internationalization and digitalization.
- National SME Councils and Programs.
- SME Financing Institutions.
- Managers and public servants in charge of promoting entrepreneur support and foreign trade.
- Directors and members of Chambers.
- Federations of Commerce.
The United Arab Emirates is among the top countries globally, directing investments towards climate change-oriented large firms and SMEs.
Read: African NGOs call to stop growth of coal, oil and gas at African Union Summit