Society may finally be turning a corner. 

Important countries have made bold new commitments to cutting greenhouse emissions, and are putting serious money into their plans. Clean energy and clean cars are growing fast. Global trade arrangements are being revised for the era of green energy. Batteries for electric cars are suddenly a top American trade goal. Getting gas boilers out of buildings has become a national-security priority across Europe. Producing clean hydrogen is now a strategic imperative in many countries. As the shift toward clean energy accelerates, nations are scrambling to keep up.

In short, after decades on the fringes, the energy transition has finally moved to the centre of global politics. These developments have all snapped into focus in the past year, but they were a long time coming.

By some measures it took well over a century to get here, for it was in 1856 that an amateur scientist named Eunice Foote first pointed out the role of carbon dioxide in heating the world.¹ In 1896, Svante Arrhenius published detailed calculations of how much extra heat an increase in carbon dioxide could trap.² The idea that industrial activity was in fact raising the amount of carbon dioxide in the air was confirmed by the early 1960s,³ and an explicit warning of the consequences was put on the desk of an American president, Lyndon Johnson, in 1965.⁴ Throughout the latter decades of the 20^th century the warnings grew more and more urgent, until finally in 1992, the countries of the world signed a treaty agreeing to ward off ​“dangerous anthropogenic interference with the climate system.”⁵

To meet that urgent goal, they did close to nothing. The ensuing three decades were ones of failure, as emissions rose higher and higher. They are, indeed, still rising today — but we finally appear to be nearing the point where they will peak and begin to fall. That is likely because some of the clean-energy technologies we need are now growing at a rapid pace, and that pace accelerated sharply just in the past year.

True, it was not solely a commitment to battling climate change that did the trick — it was also the war between Ukraine and Russia, a war that precipitated the first truly global energy crisis, with soaring prices and fears of shortage. For many countries, escaping their addiction to Russian fossil fuels converges perfectly with their ambition to switch to clean energy. That has led to rapid shifts in policy that are helping to change the pace and outlook for the energy transition.

We will explore these shifts in detail in the body of this report, but a few examples give the flavour of the moment. Sales of heat pumps, a critical technology for eliminating emissions in buildings, jumped 53 percent in Germany last year, and by double-digit percentages across much of Europe. In America, heat pumps are outselling gas furnaces for the first time. Worldwide, solar panels are now being installed at approximately the rate needed if emissions are to be cut nearly to zero by mid-century. Sales of electric cars jumped 60 percent last year and, on that higher base, are expected to jump another 30 or 35 percent this year. A growing number of countries intend to ban the sale of new petrol engines by 2035 or thereabouts, and those plans look increasingly credible. Contrary to expectations of just a year ago, European countries have curtailed their dependence on Russian gas without suffering critical shortages or industrial collapse.

The biggest single shift in policy in the world last year was not a response to the Ukraine war, however: it was the fulfilment of a campaign promise that Joe Biden, the oldest president in American history, made to win over young voters. By the narrowest of majorities, Mr Biden won passage of the Inflation Reduction Act, which is primarily a climate law despite its name. The law will pour at least USD 391 billion, and possibly more than USD 1 trillion, into advancing clean energy, clean cars and related technologies in the United States.⁶ 

This law alarmed America’s European allies, since it could lure factories to American shores that might otherwise have gone to Europe. The European Union has loosened its rules to allow member countries to offer their own big subsidies to speed the energy transition. It is unclear as yet how bold the member states will be, but for certain technologies, such as clean hydrogen, big subsidies have already been proffered. 

To people who have long worked in the trenches, trying to alert the world’s citizens to the magnitude of the climate crisis, the new political commitments of the past year feel nearly miraculous. They keep alive, if barely, the hope that the most ambitious goal of the Paris Agreement on climate change, limiting global warming to 1.5 degrees Celsius, can still be met. 

However, nobody should make the mistake of thinking the energy transition will be smooth sailing from here. In fact, the clearest evidence that climate policy is getting real is that new fights about it are breaking out all over the world. 

The German governing coalition came under considerable strain this summer in a battle over exactly how hard to push on installation of residential heat pumps. The United States is seeing more and more local resistance to the installation of wind farms and solar panels, some of it — though certainly not all — dredged up by fake ​‘citizens’ groups created by fossil-fuel interests.⁷ After some American towns banned gas appliances, including cooking stoves, in new construction, Republican politicians whipped up a national panic that the authorities were going to rip them out of existing homes.⁸ Hobbled by inadequate planning rules, utilities the world over are dragging their feet on installing new power lines. That has produced backlogs and waiting lists for renewable developers wanting to connect to the grid, and these queues are growing quickly; they can stall projects for years.⁹ Shortages and soaring prices for certain critical minerals threaten to slow, if not derail, aspects of the energy transition, but proposals to dig new mines are encountering sharp opposition. A halting effort to speed up the transition in developing countries like Indonesia and Vietnam may already be falling apart. 

The biggest fight of all, however, is the intensifying struggle over industrial policy between China and the West. Both the United States and Europe will use their new industrial policies to try to take market share in clean energy technologies from China, and we expect China to open the purse strings and defend its markets in response. 

China has been focused for 30 years on winning the industries of the future; while the West dawdled, China built immense new factories and mines to produce solar panels, batteries for electric cars, the rare-earth magnets that make wind turbines work, and much more. That scale-up helped to drive costs of the new technologies down, but it had a dark side, including the use of forced labour in parts of the solar supply chain.¹⁰ The Ukraine war has ratcheted up these concerns, illustrating the perils of depending on a single authoritarian country for critical commodities or technologies.

The new policies that are pushing the energy transition forward therefore embody a paradox. If the goal were simply to move as fast as possible in the name of solving climate change, Western countries would likely go and buy the gear they need from China, where the metal refineries and the assembly lines already exist. They have chosen instead to try to recreate the supply chains and the factories that China already built, a decision that will surely cost time. New mines can take a decade or longer to open. New factories cannot be built overnight, even when public money is being spent on them.

The role of China in the energy transition is itself paradoxical. No country is spending more on clean energy; no country is moving faster on nuclear power; no other country can bring to bear the sheer industrial might of China to try to scale up solutions. Yet China is also building more coal-burning power plants than any country in the world, and the pace has accelerated sharply in the past couple of years as China copes with power shortages. Global emissions will likely reach their peak and begin to fall only when the Chinese finally stop doing that. Russia still has a market for its oil, and the funds to finance its war machine, because China is the top buyer. 

Exactly how far Western countries will go in trying to decouple their economies from China’s, and how much that will slow down their energy transitions compared to the maximum achievable pace, is largely unclear. Complete decoupling will almost certainly be impossible; activities like refining rare-earth metals are messy, and citizens of few Western countries will tolerate the imposition of factories such as those the Chinese people have been forced to accept.

But, to the extent the Western countries succeed in creating new jobs and new factories at home, the political benefits might ultimately prove to be worth the cost. The United States again provides a good example. Ideologically, many of Mr Biden’s Republican opponents oppose his push for clean energy, and in a budget stand-off this year, they took a run at trying to gut the Inflation Reduction Act. But they did not put up much of a fight, and the effort failed. It is not hard to see why.

Half the wind energy produced in America comes from four states in the middle of the country, all of them controlled by Republicans — and all home to farmers who are benefiting enormously from the presence of wind turbines on their land. Much the same is true for solar farms in the American Southeast. Mr Biden’s policies have precipitated a wave of announcements regarding new factories to build batteries and cars, and tens of thousands of new jobs are coming soon to Republican-controlled states as those factories go into operation. While Republican members of Congress may argue half-heartedly for gutting the climate law, Republican governors are tripping over themselves to take advantage of it. 

So the approach of the Biden administration, even if it may ultimately be slower than the crisis demands, could in the end produce durable political coalitions in favour of action. This is exactly what will be required in every country. The climate crisis may originate with physics, but solving it is a problem of politics and money. Coalitions in support of the clean-energy economy must be built. Labour must be brought on board. The malign political power of the fossil-fuel interests must be offset by a growing constituency in favour of clean energy. For the clean economy to win, the political cost of trying to undermine it must become too high.

The energy transition is still a long way from succeeding. If it ultimately does so, we suspect we will look back on 2022 as the year when a magic key was found to turn the lock of politics and open the door.