Energy transition and mitigation

The clean energy transition is the most consequential economic transformation now underway. Falling technology costs have made solar and wind among the cheapest sources of new electricity generation in most regions, while battery storage increasingly helps balance their variable output, with around 90% of global net power capacity additions in 2023 coming from solar and wind, against 6% from fossil fuels (BloombergNEF, 2024). Electrified technologies—including vehicles, heat pumps, and industrial process heating—are spreading rapidly across transport, construction, and industry. Clean-energy sectors already account for more than 10% of China’s GDP and roughly a quarter of its 2024 growth (CPI, 2025). 

Mitigation is not a trade-off between climate ambition and (socio)economic performance: it is the route to clean, secure, and affordable energy, modern industrial infrastructure, and a competitive position in the fastest-growing segments of the global economy. 

Mitigation involves the transformation of major emitting sectors 

Energy accounts for around 30% of greenhouse gas emissions. Delivering the energy transition requires redirecting investment toward four priorities

• Expansion of renewable and other low-emission power generation. 
• Expanding grids, transmission, distribution, and energy storage infrastructure. 
• Electrification and efficiency improvements across transport, buildings, and industry. 
• Targeted deployment of low-emission fuels such as green hydrogen and carbon capture for hard-to-abate sectors.

These need to be accompanied by an acceleration of the coal phase-out and targeted support to overcome barriers, including high capital costs, weak infrastructure, and skills, policy, and institutional gaps. The pace of coal phase-down and eventual phase-out varies with national commitments, energy security, infrastructure, financing conditions, and the scope for adjustment by affected workers and regions. 

Mitigation is anchored in the Paris Agreement 

In 2015, Parties committed to holding warming well below 2°C and pursue efforts toward 1.5°C through successive Nationally Determined Contributions and Long-Term Low-Emission Strategies. Current ambition still falls short: against the roughly 55% emissions reduction by 2035 required for 1.5°C alignment, even full Nationally Determined Contributions implementation puts the world on a 2.3°C–2.5°C trajectory (UNEP, 2025). Closing that gap requires a step-change in investment. Globally, investments of around US$4.8tn per year are needed for the energy transition by 2030, and US$5.3tn per year by 2035, representing the largest portion of total capital needed for climate action (Bhattacharya et al., 2024). 

The energy transition can support growth, macroeconomic stability, and the responsible management of the public finances 

For Ministries of Finance (MoFs), clean power, electrification, and energy efficiency can support productivity, new export industries, employment, and private investment. Gains are dependent on existing capabilities, access to technology, and finance, with particular upsides for emerging and developing market economies that can leapfrog outdated high-carbon systems (Bhattacharya et al., 2025). Fiscal effects arise through several channels: 

• Domestically produced renewables can reduce the exposure of budgets and households to fossil fuel price shocks, helping to protect purchasing power, business continuity, and the tax base. 
• Operating costs of some public services may fall (including pollution and health costs). 
• Energy transition planning can reduce the risk of exposure to stranded public assets, contingent liabilities in state-owned utilities, unmanaged adjustment costs for affected workers, communities and regions, and downward pressure on sovereign credit ratings. 

The energy transition can be a competitiveness lever, as countries that move early can capture the firms, jobs, and supply-chain positions emerging around batteries, grids, clean fuels, and processed critical minerals, and avoid the trade frictions, including CBAM and analogous instruments, that will increasingly price carbon-intensive exports out of major markets (see Box A.1, Part A, The role of Ministries of Finance in navigating the transition to a low-carbon, climate-resilient, and nature-positive economy)  

The energy transition reinforces, and is reinforced by, the other thematic priorities discussed in The Role of Ministries of Finance in Driving Climate Action: A Guide to Economic Transformation and Resilience. Reliable clean power underpins resilience to physical climate shocks, linking directly to the adaptation and resilience agenda. The pace of transition and the distribution of its gains and losses shape just transition outcomes, including employment creation, labor-market preparedness, enterprise adjustment, and regional diversification. The design of mineral extraction, hydropower, and bioenergy intersects directly with the nature and biodiversity agenda, with implications for biodiversity, water, and land use. 

The energy transition depends on financing, infrastructure, skills, and institutional conditions 

The main constraints vary across countries and technologies, and include: 

• Cost of capital. Investment in the energy transition has been uneven, with emerging market and developing economies other than China attracting only 17% of global clean energy investment in 2024 (IEA, 2025a). Wind and solar have low fuel costs but substantial upfront capital requirements, alongside operating and maintenance expenses. Levelized costs of electricity are sensitive to the cost of capital, and the same project can be far more expensive to finance in a developing economy than in an advanced economy; the cost of capital for renewables in emerging market and developing economies is still at least double advanced-economy levels (IEA, 2025b). Sovereign and currency risk also affect financing costs for investment outside the energy sector. 

• Energy storage and grids. Reliable power supply depends on investment in transmission, energy storage, and other ways to balance supply and demand such as demand-response systems and flexible generation, alongside price signals that support these investments. The IEA (2026) estimates that meeting forecast electricity demand entails a roughly 50% increase in the US$400bn annual global grid investment by 2030. More than 2,500 GW of renewable, large-load and storage projects are in grid connection queues worldwide. Higher prices and longer procurement times for cables and transformers can increase project costs and delay investment in transmission and distribution (IEA, 2026). 

• Lock-in and institutional barriers. Fossil-fuel subsidies and unclear procurement lock in incumbent high-carbon systems and their long-term transition risks (Bhattacharya et al., 2025). Underperforming utilities, policy uncertainty and institutional bottlenecks compound the problem, slowing deployment even where capital and technology are available. 

MoF instruments can affect financing terms, incentives, and fiscal risk. Options include guarantees and other risk-sharing arrangements, fiscal incentives, and support for complementary infrastructure. Their suitability depends on market arrangements, project revenues, and the fiscal exposure involved (see Function 2, Transforming economic incentives through carbon pricing, subsidy reform and other fiscal policy measures and Greening public investment management; and Function 3, Accessing deep pockets of private capital to finance the transition).