2025: A Pivotal Year for the Global Energy Transition
The year 2025 marks a critical juncture in the global shift towards cleaner energy sources. Driven by geopolitical factors, the imperative for secure energy and supply chains, and the pursuit of economic opportunities, the energy transition is gaining momentum. Building on the successes of 2024, which saw a slowdown in emissions growth and renewed investment in clean energy, this year promises to be a defining period. Four key trends are poised to shape the energy landscape in 2025: expanded clean energy investment, persistent fossil fuel use with opportunities for subsidy reform, intense competition in the clean energy technology market, and renewed commitments to climate action.
The Rise of Clean Energy Investment
The trend of clean energy investment outpacing fossil fuel investment, already established in recent years, is set to continue in 2025. This investment surge will extend beyond wind and solar power to encompass complementary renewable sources like hydro, energy storage, and potentially bioenergy. The nuclear power sector is also experiencing a revival, fueled by interest from Big Tech companies, with anticipated announcements regarding the restart of existing plants and the launch of Small Modular Reactor projects. The electric vehicle market is projected to maintain its robust growth, mirroring the over 20% increase in global sales observed in 2024. Furthermore, the green hydrogen market is poised for advancement, with increased procurement activity in Asia following Europe’s lead, and the commencement of construction on early-stage projects.
Fossil Fuels Persist, but Opportunities for Change Emerge
While clean energy gains traction, global energy demand continues to rise, driven by a 4% annual increase in electricity demand. This sustained growth fuels ongoing investments in fossil fuels, particularly in regions like the US, Norway, China, and India. The US and Norway are capitalizing on opportunities to supply liquefied natural gas (LNG) to Europe as the EU seeks to reduce its reliance on Russian gas. Meanwhile, China and India rely heavily on coal to meet their burgeoning electricity needs. Despite the growing awareness of the climate impact of gas, particularly methane leakage, gas-fired power plants are unlikely to be decommissioned in the near term. However, the current economic slowdown and potential oversupply are creating downward pressure on oil and gas prices, presenting a unique window to reduce substantial fossil fuel subsidies.
The Race to Dominate the Clean Energy Technology Market
The clean energy technology market is rapidly expanding, rivaling the size of the current crude oil market and, when including energy transition minerals, quadrupling it. This burgeoning market is attracting global interest, with countries beyond the traditional leaders – the US, China, and the EU – vying for a share. India and Southeast Asia are developing solar supply chains, Brazil is ramping up wind turbine manufacturing for export, the UAE and Egypt are investing in electrolyzer production, and resource-rich nations like Indonesia, Mongolia, the Democratic Republic of Congo, and Chile are increasing investments in mining and processing rare earth minerals. 2025 is likely to witness a surge in industrial and trade policies, the formation of new geopolitical partnerships, and significant corporate deals and investments aimed at capturing this lucrative market.
Renewed Climate Commitments and the Test of Global Resolve
With the global carbon budget rapidly depleting, further commitments to emissions reductions are crucial to limit global warming. The UAE, UK, and Brazil have already made pledges, paving the way for other nations to follow suit. The US has also committed, although its commitment’s implementation remains uncertain under the new administration. China’s cumulative historical emissions have recently surpassed those of the EU, increasing pressure on the nation to take further action despite its slowing economy. More Nationally Determined Contributions (NDCs) are anticipated by the February 2025 deadline, and the Brazilian presidency of COP30 will be instrumental in mobilizing global ambition. Early commitments from developed countries towards meeting the $300 billion annual climate finance goal would send a strong positive signal.
Navigating Geopolitical Complexities and Economic Headwinds
The global energy transition unfolds against a backdrop of geopolitical complexities and economic challenges. Trade wars, inflationary pressures, and potential setbacks in climate action pose risks to progress. However, history demonstrates the resilience of international cooperation in the face of such challenges. Despite past withdrawals from climate agreements by the US, other nations, including EU members, China, India, and Middle Eastern countries, have stepped up to exceed expectations and curb emissions growth.
2025: A Year of Promise and Potential
Despite the challenges, 2025 holds significant promise for accelerating the global energy transition. With relatively stable governments in place following recent elections, there is an opportunity for sustained policy implementation. The collective action demonstrated in the past, combined with favorable economic conditions and growing momentum, suggests that 2025 has the potential to be a year of heightened ambition and substantial progress towards a cleaner energy future. The convergence of clean energy investments, opportunities for fossil fuel subsidy reform, the dynamic clean technology market, and renewed climate commitments creates a fertile ground for transformative change.
