We are entering a new industrial age of clean energy technology manufacturing

As global leaders from governments, businesses, civil society and beyond gather in Davos next week for the World Economic Forum, there is a key issue they need to be thinking about as the world is grappling with both an energy crisis and the climate crisis. This is that the energy world is now entering a new industrial age – the age of clean technology manufacturing.

The global energy sector is set to transform in the coming decades from one based overwhelmingly on fossil fuels to one increasingly dominated by renewables and other clean energy technologies. The rapid growth of solar, wind, electric vehicles and electrolysers among a range of other technologies heralds the dawn of a new energy economy. This transition is in turn changing the industries that supply the materials and products underpinning the energy system. 

The implications of these changes will be profound – and governments around the world – from Asia to Europe to North America – are responding. They are stepping up efforts to expand their clean energy technology manufacturing with the overlapping aims of advancing net zero transitions, strengthening energy security and improving economic competitiveness. In this context, industrial strategies are essential to enable countries leverage their strengths and address areas where they are less competitive.

New markets and new jobs

At the International Energy Agency, we are dedicated to improving security, resilience and sustainability in the global energy system. Those interlinked priorities are at the heart of our new report, Energy Technology Perspectives 2023, the latest in the IEA’s technology flagship series. This edition serves as the world’s first global guidebook for the clean technology industry of tomorrow. Its analysis shows that clean energy transitions offer huge opportunities for growth and employment in new and expanding manufacturing industries. We’re talking about new markets worth hundreds of billions of dollars – as well as the creation of millions of new jobs. 

We are seeing this translate into real momentum already. As of today, there is a truly impressive number of announced projects worldwide for clean energy technology manufacturing – such as factories for making solar panels, EV batteries, heat pumps and electrolysers for hydrogen. If all these projects were built, then the investment flowing into manufacturing clean energy technologies would provide two-thirds of the investment needed in a pathway to net zero emissions. The current trends are moving us closer to meeting our international energy and climate goals – and more projects are being announced every single day.

Policies matter and there are big dividends for countries that get their clean energy industrial strategies right. What does that mean? Clean energy project developers and investors are watching closely for the policies that can give them a competitive edge. And these new clean technology manufacturing projects will stimulate economic growth and create jobs in the areas where they are built. The good news is that we are already seeing governments taking action and competing to be leaders in the new energy economy. The Inflation Reduction Act in the United States is a clear example of this – but there is also the Fit for 55 package and REPowerEU plan in the European Union, Japan’s Green Transformation programme, the PLI scheme in India that incentivises manufacturing of solar PV and batteries – and of course China’s well-established policies, including its latest 5-Year Plan.

Ensuring security of supply

But despite these positive signs, there are also challenges that need to be taken into account. Today’s clean energy supply chains have some potentially risky levels of geographic concentration – both for the manufacturing of technologies and for the materials they rely on. For example, in wind, batteries, solar, electrolysers and heat pumps, the three largest producer countries account for close to three-quarters or more of manufacturing capacity for each technology – with China dominant in all of them. In electric car batteries alone, China currently has 75% of global production capacity.

We’re all taught from a young age – don’t put all your eggs in one basket. And history has showed us often that when too much reliance is concentrated in one company, one country, one trade route – you risk paying a heavy price if there is disruption. In the past, the global energy sector has fallen prey to various forms of supply disruption from chokepoints, cartels, natural disasters, and geopolitics. We have recently seen the damage and disruption caused by Europe’s overreliance on Russia as a gas supplier.

This is why we must not allow the energy security and supply chain challenges of today’s fossil-fuel-based economy to be repeated in the clean energy economy. A clean energy future can and should be a more secure energy future for all of us. And getting clean energy industrial strategies right also means getting the standards right. We must not build the supply chains of a clean energy future on polluting practices, environmental harm, or at the expense of vulnerable people. High standards matter.

For most countries, it is not realistic to try to compete across all parts of clean energy technology supply chains. Many will need to identify their strengths and build on them – whether that’s a mineral resource, or low-cost clean energy supply, or developing a workforce with relevant skills, or synergies with their existing industries. Since no country will be in a position to do everything at once, international collaboration should be a key part of countries’ industrial strategies.

This includes strategic partnerships, open and fair trade, and foreign direct investment, for example. We may well see more strategic partnerships between countries – aimed at strengthening their clean energy supply chains – developing in the coming years. If they are designed well to benefit all parties involved, these partnerships can enable the countries to become greater than the sum of their parts. Healthy international trade of clean energy technologies is essential to help accelerate clean energy transitions and keep them affordable. Unfortunately, however, the trend currently seems to be moving in the other direction.

The story of the new industrial age of clean energy technology manufacturing is still being written – and supply chains will be a central part of it. Now is the time for countries to focus major efforts developing their industrial strategies and building sustainable, resilient and secure supply chains for clean energy technology manufacturing. This is essential for reaching international climate goals, ensuring energy security and competing economically. And even as countries expand their domestic capabilities and strengthen their places in the new global energy economy, there remain huge gains to be had from international cooperation as part of efforts to build a resilient foundation for the industries of tomorrow.