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Clean energy spending rises, but still not enough: IEA
Investment in clean energy will hit a record this year but fall short of what is needed to tackle the climate crisis, with coal spending rising, the International Energy Agency said Wednesday.
Global energy investment will rise by eight percent, to $2.4 trillion in 2022, mainly thanks to renewables, although soaring inflation and Russia’s invasion of Ukraine are weighing on costs, the IEA said in an annual report, AFP reported.
Investment in all sectors will increase but the fastest growth will come from electricity, mainly in renewables and grids, and energy efficiency.
Clean energy investment is “finally” starting to pick up and is expected to reach $1.4 trillion this year, accounting for almost three-quarters of the growth in overall spending in energy, the IEA said.
Since 2020, investment in clean energy has grown at an annual rate of 12 percent, “well short of what is required to hit international climate goals, but nonetheless an important step in the right direction,” according to the report.
This compares to an annual growth rate of just over two percent in the five years that followed the 2015 Paris Agreement.
Inflation has soared worldwide as Russia’s military operation in Ukraine has pushed energy prices higher.
The IEA said almost half of the additional $200 billion in capital investment in energy in 2022 “is likely to be eaten up by higher costs, rather than bringing additional energy supply capacity or savings.”
The costs are due to supply chain bottlenecks, tight markets for specialised labour and higher energy prices, it said.
The IEA also flagged a “warning sign”: Investment in coal supply rose by 10 percent in 2021, led by emerging economies in Asia, and is set for a similar increase this year.
While China has pledged to stop building coal-fired power plants abroad, a “significant amount” of new coal capacity is coming onto the Chinese domestic market, the agency said.
UK inflation hits 40-year record, highest in G7
Soaring food prices pushed British consumer price inflation to a 40-year high of 9.1% last month, the highest rate out of the Group of Seven countries and one which underlines the severity of the country’s cost-of-living crunch.
The reading was up from 9.0% in April and matched the consensus of a Reuters poll of economists. Records from the Office for National Statistics (ONS) show May’s inflation was the highest since March 1982 – and worse is likely to come, Reuters reported.
Sterling, one of the weakest currencies against the U.S. dollar this year, fell below $1.22, down 0.6% on the day, before later recovering.
Some investors judge Britain to be at risk of both persistently high inflation and recession, reflecting its large imported energy bill and ongoing Brexit-related friction which could further hurt trade ties with the European Union.
“With the economic outlook so unclear, no one knows how high inflation could go, and how long it will continue for – making fiscal and monetary policy judgements particularly tough,” said Jack Leslie, senior economist at the Resolution Foundation think tank.
Earlier on Wednesday the Resolution Foundation said the cost-of-living hit for households was being compounded by Brexit, with damaging long-term implications for productivity and wages.
Average pay is not keeping up with inflation and trade unions have warned of widespread strikes in the coming months. Railway staff have already staged mass walkouts this week.
Britain’s headline inflation rate in May was higher than in the United States, France, Germany and Italy. While Japan and Canada have yet to report consumer price data for May, neither are likely to come close.
The Bank of England said last week that inflation was likely to remain above 9% over the coming months before peaking at slightly above 11% in October, when regulated household energy bills are due to rise again.
Financial markets show interest rates in Britain are on course to rise above 3% around the turn of the year from 1.25% now, although most economists think waning economic growth means the BoE will raise rates by less than that.
Finance Minister Rishi Sunak said after the data that the British government was doing all it could to combat a surge in prices and the central bank would act “forcefully” to contain inflation.
Core issue
Prices for food and drinks rose by 8.7% in annual terms in May – the biggest jump since March 2009 and making this category the biggest driver of annual inflation last month.
Annual core inflation – which strips out food and energy prices to give an idea of domestically generated cost pressure – fell for the first time since September to 5.9% from 6.2%, a lower-than-expected reading.
Overall consumer prices rose by 0.7% in monthly terms in May, the ONS said, a little more than the 0.6% consensus.
Costs paid by British factories for materials and energy – a key determinant of prices later paid by consumers in shops – were 22.1% higher in May than a year earlier, the biggest increase since these records began in 1985, the ONS said.
Sri Lanka PM says economy ‘has collapsed’
Sri Lanka’s debt-laden economy has “collapsed” after months of shortages of food, fuel and electricity, its prime minister told lawmakers Wednesday, in comments underscoring the country’s dire situation as it seeks help from international lenders.
Prime Minister Ranil Wickremesinghe told Parliament the South Asian country is “facing a far more serious situation beyond the mere shortages of fuel, gas, electricity and food. Our economy has completely collapsed,” AP reported.
While Sri Lanka’s crisis is considered its worst in recent memory, Wickremesinghe’s assertion that the economy has collapsed did not cite any specific new developments. It appeared intended to emphasize to his critics and opposition lawmakers that he has inherited a difficult task that can’t be fixed quickly, as the economy founders under the weight of heavy debts, lost tourism revenue and other impacts from the pandemic, as well as surging costs for commodities.
Lawmakers of the country’s two main opposition parties are boycotting Parliament this week to protest against Wickremesinghe, who became prime minister just over a month ago and is also finance minister, for not having delivered on his pledges to turn the economy around.
Wickremesinghe said Sri Lanka is unable to purchase imported fuel, even for cash, due to heavy debts owed by its petroleum corporation.
He took office in May after days of violent protests over the country’s economic crisis forced his predecessor to step down. In his comments Wednesday, he blamed the previous government for failing to act in time to turn the situation around, as Sri Lanka’s foreign reserves dwindled.
“If steps had at least been taken to slow down the collapse of the economy at the beginning, we would not be facing this difficult situation today. But we lost out on this opportunity. We are now seeing signs of a possible fall to rock bottom,” he said.
Sri Lanka has been muddling through, mainly supported by $4b in credit lines from neighboring India. But Wickremesinghe said India would not be able to keep Sri Lanka afloat for too long.
It also has gotten pledges of $300 million-$600 million from the World Bank to buy medicine and other essential items.
Sri Lanka has already announced that it is suspending repayment of $7b in foreign debt due for repayment this year, pending the outcome of negotiations with the International Monetary Fund on a rescue package. It must pay $5b on average annually until 2026.
European Parliament backs carbon market reform
The European Parliament on Wednesday voted to adopt reforms to the EU’s carbon market, reversing its surprise rejection two weeks ago of an initial draft of a key part of the bloc’s climate plan.
The vote this time saw 439 MEPs in favour – with 157 against and 32 abstentions – of a parliamentary position to negotiate with EU member states for an enlargement of Europe’s Emissions Trading System (ETS) to include carbon from transport and construction, AFP reported.
The compromise also calls for a gradual phase-out of exemptions for industry over five years to 2032 in exchange for a carbon tax on imports at the EU’s borders.
US could face more inflation ‘surprises’: Fed’s Powell
The US economy faces an “uncertain” global environment and could face further inflation “surprises,” Federal Reserve Chair Jerome Powell said Wednesday.
“Inflation has obviously surprised to the upside over the past year, and further surprises could be in store,” Powell said in his semi-annual testimony to Congress, AFP reported.
He once again stressed that the Fed is committed to bringing down inflation – which has reached a 40-year high – with higher interest rates, but said the world’s largest economy “is very strong and well positioned to handle tighter monetary policy.”
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