Clean energy technologies market to exceed $2 trillion by 2035: IEA report

A transformative shift towards a clean energy economy is underway across the world, set to grow in scale over the next decade. As countries strive to secure their energy needs and economic interests, cost-effective clean energy technologies present an opportunity to redefine the global energy ecosystem.

A recent report by the International Energy Agency (IEA) provided an extensive analysis of the intersecting issues of energy policy, industrial manufacturing and trade. Energy Technology Perspectives 2024 report, released October 2024, examined current and future trends at both global and country-specific levels, focusing on major and emerging economies.

Emerging trends in clean technology markets, investments

The adoption of green technologies such as solar photovoltaic (PV), wind, electric vehicles (EV), batteries, electrolytes and heat pumps has been growing over the years, the report found. Since 2015, the market size for these technologies has nearly quadrupled, reaching $700 billion in 2023. This increase has been primarily driven by the deployment of EVs, solar PV and wind.  

Projections suggest that current policies could expand the clean technology market to over $2 trillion by 2035, a figure comparable to the average value of the global crude oil market in recent years. Overall, international clean technology trade is expected to reach $575 billion by 2035.

Global investment in manufacturing clean energy technologies has also risen, increasing from $160 billion in 2022 to $235 billion in 2023 — amounting to around 3 per cent of global gross domestic product (GDP) growth. Solar PV and battery manufacturing accounted for 80 per cent of this investment, while 15 per cent went towards EV plants.

Geographically, China remains the largest manufacturer of clean energy technologies, responsible for 40-98 per cent of global manufacturing capacity across the six technologies analysed by IEA. Based on current policies and announced projects, the report stipulated that China, the European Union and the United States will account for over 80 per cent of production capacity until 2030, the same as they do now. 

National policies’ impact on energy transition

Cost competitiveness is a key driver of investments in clean technology  manufacturing, the report highlighted.

For example, compared with China, the average costs of producing solar modules, wind turbines and batteries are up to 40 per cent higher in the US, 45 per cent higher in the European Union and 25 per cent higher in India. 

However, costs are not the only factor in driving investments — factors like policy support, access to domestic and international markets, industrial skills and knowledge and infrastructure also play a crucial roles.

In the European Union, the Net Zero Industry Act (NZIA) aims to strengthen the bloc’s Net-Zero technology manufacturing ecosystem. While some NZIA targets for technologies like wind components and heat pumps are achievable, the transition for Europe’s automotive sector poses greater challenges, according to the report.

In 2023, imports from China accounted for around 20 per cent of total EV sales in Europe. A successful NZIA implementation could stabilise the share of imports by 2035, rather than increasing it.

In the US, key Biden-era climate legislation, such as the Inflation Reduction Act and the Bipartisan Infrastructure Law, have already mobilised $230 billion in clean technology manufacturing investment through 2030. 

Under existing policies, the US could meet its domestic demand for key clean technologies (including solar PV and polysilicon) by 2035. While these laws are now threatened by the incoming presidency of Donald Trump, it remains to be seen if the new administration will entirely dismantle these policies and shift towards short-term fossil fuel profits. 

China’s push for dominating the clean technology space over recent decades has positioned it as the leading exporter — its  clean technology exports are projected to surpass $340 billion by 2035. This is equivalent to the combined projected oil revenues of Saudi Arabia and the United Arab Emirates in 2024. Despite China currently having the highest fossil fuel imports in the world, its clean technology exports are expected to cut down the country’s net imports by 70 percent between now and 2035. 

India’s current policies mean that the country would remain a net importer of clean technologies in 2035, with modest growth in the production and exports of solar PV modules, EVs and batteries. However, accelerating the energy transition could help India pivot to being a net exporter of clean technologies by 2035. The country’s net exports could reach  $30 billion by 2035 after meeting its domestic demand, IEA projected.

Implications for trade and industrial policy

The report emphasised the importance of balancing industrial policies and trade measures for a successful clean energy transition. For instance, the average tariffs on renewable energy systems and components are twice as high as the tariffs on fossil fuels. Trade measures can, therefore, have a significant impact on the cost of clean technologies and, consequently, the pace of the energy transition. 

In this context, well-designed industrial policies can help address the current gaps in competitiveness and innovation. Industrial policies with specific, measurable and time-bound goals can help achieve energy security and climate goals, which means that such policies will need to be monitored and course-corrected as necessary. 

Therefore, the IEA stressed that trade and industrial policies have to be designed carefully and opined that broad-based protectionist measures or blanket financial support will be unlikely to make for a successful strategy in this regard.