Cecilia Tam on the IEA's 2026 World Energy Investment Report

How is the Iran conflict redrawing the energy map? Listen to Jason Mitchell discuss with Cecilia Tam, IEA Head of Energy Investment Unit, about why energy security has become one of the most powerful drivers of the clean energy transition; how electrification, grids, nuclear, emerging-market investment, and AI-driven power demand are reshaping the global energy system, and what it’ll take to convert record clean energy spending into a true transition away from fossil fuels.

Recording date: 12 June 2026

Cecilia Tam

Cecilia Tam is Head of the Energy Investment Unit at the International Energy Agency (IEA), where she leads analysis of global energy investment trends and financing for clean energy transitions. She has held several senior leadership roles across the IEA, including Head of the Energy Demand Unit and Special Advisor to the Executive Director. She has led the OECD Clean Energy Finance and Investment Mobilisation Programme, working to expand financing for energy transitions in emerging economies. Cecilia has also overseen the development of the IEA’s Energy Technology Roadmaps Programme and has extensive experience in energy policy and investment.

Episode Transcript

Note: This transcription was generated using a combination of speech recognition software and human transcribers and may contain errors. As a part of this process, this transcript has also been edited for clarity.

Jason Mitchell:

I'm Jason Mitchell, CIO for Responsible Investment at Man Group. You're listening to A Sustainable Future, a podcast about what we're doing today to build a more sustainable world tomorrow. Hi everyone. Welcome back to the podcast. And I hope everyone is staying well. The IEA's World Energy Investment Report has basically become one of the most important annual go-to publications for anyone trying to understand where capital's actually flowing in the energy system. That's also to say that this year's report happens to land at a moment that is frankly full of optimism and of contradictions. Here's what I mean.

On the surface, the picture looks pretty encouraging. Global energy investment last year hit a record $3.3 trillion, of which clean energy accounted for two thirds of that. Solar alone is now the single largest item in the global energy investment picture, at roughly $450 billion. An actual project financing for low emissions power was up more than 50% last year, regardless of whether that was under the label of the Net-Zero Banking Alliance or not.

But if you dig beneath those headlines, the story's a little more complicated. Gas supply investment is at a 10-year high, with a five to seven year lead time for gas turbines. Coal investment is running at its highest level since 2012. And over 600 gigawatts of renewables are stuck waiting for grid connections.

The question I keep coming back to is this. Are we really in an energy transition or is this still fundamentally a story about energy addition where we're building clean on top of fossil rather than actually replacing it?

It's why it's great to have Cecilia Tam from the IEA on the podcast. We talk about why energy security has become one of the most powerful drivers of the clean energy transition. How electrification, grids, nuclear, emerging market investment and AI-driven power demand are reshaping the global energy system. And what it'll take to convert record clean energy spending into a true transition away from fossil fuels.

We also talk about the argument that the Middle East conflict is actually reinforcing the electrification thesis instead of derailing it. The parallel here is obvious, it's the 1970s twin oil shocks, which produced some pretty lasting structural changes.

Cecilia is head of the Energy Investment Unit at the International Energy Agency, where she leads analysis of global energy investment trends and financing for clean energy transitions. She's held several senior leadership roles across the IEA, including head of the Energy Demand Unit and special advisor to the executive director. She led the OECD Clean Energy Finance and Investment Mobilisation Programme, working to expand financing for energy transitions in emerging economies. She's also overseeing the development of the IEA's Energy Technology Roadmaps Programme and has extensive experience in energy policy and investment.

Welcome to the podcast, Cecilia Tam, it's great to have you here and thank you for taking the time today.

Cecilia Tam:

Thanks very much, Jason. Really looking forward to the discussion.

Jason Mitchell:

This has been several months in the making, so really looking forward to this. So let's jump in. So Cecilia, I wanted to start out by framing some of the key messages from the IEA's World Energy Investment Report, which was obviously released late last month, in late May. The report specifically makes the argument that the Middle East conflict right now is bringing the age of electricity more clearly into view. Let's start by lifting, I guess, the text off the paper and contextualising some of that. How does a crisis in a major oil producing region end up reinforcing rather than derailing the electrification thesis?

Cecilia Tam:

What we're seeing is, and it's something that's being accelerated, we had already highlighted that the world was already entering this age of electrification, if you track all of the capital flows into the energy sector, we've seen year-on-year the amount going into the electricity sector rising extremely sharply. If you look 10 years ago, in 2015, when we first started tracking all of the capital flows into the energy sector, over a third was going into electricity directly, as well as for electrification. In 2026, we anticipate that to be close to 60%. And the crisis really just accelerates this desire for more domestic sources of energy and investing. And this is where electricity, which is growing extremely rapidly, really stands out as a strong beneficiary of concerns linked to energy security and fossil fuel import dependency.

Jason Mitchell:

It's interesting. I mean, there's a pretty powerful parallel, obviously, to the 1970s where we saw very similar twin oil shocks. As the report says, the most secure unit of energy is the one that never needs to be imported or combusted. In fact, the 1970s ended up producing some of the most lasting, I guess, structural changes, like the creation of the IEA itself, fuel efficiency standards and France's nuclear build out. So when you look at the policy responses so far that you've seen from around the world, are you seeing a similar kind of structural lasting change that followed the 1970s or are governments still mostly in short-term crisis response mode?

Cecilia Tam:

I would say that, we need to remind ourselves that this current crisis is the second major global energy crisis we've had in a five-year time span. And some of the measures that were implemented after the 2022 crisis as a result of Russia's war with Ukraine really just led to a huge acceleration on investments into renewables, for nuclear, for efficiency. A lot of these structural changes that we saw are basically being accelerated even further today. And a lot of the investments that are really being driven by energy security concerns are investments that have been further amplified as a result of this current crisis. And countries, particularly fossil fuel import-dependent countries, are doubling down on energy efficiency policies, this continued acceleration into electrification, spurring investments into electric vehicles, heat pumps, efficient cooling systems, et cetera.

Jason Mitchell:

Maybe say more about that. What examples would you talk to?

Cecilia Tam:

If we look at what's happening in terms of spending on electrification, we see that not just in advanced economies, which was the story a few years ago, but major emerging and developing economies are pushing and supporting more adoption of electric vehicles. We have countries, for example, such as Vietnam, Ethiopia, where you have very strong policy support to encourage consumers to adopt or choose electric vehicles over internal combustion cars because of import dependency and the impact that has on current account balances of these countries.

On top of that, we've seen very stringent policies, particularly in Southeast Asia, to control overall energy consumption because of their fossil fuel dependence on oil and gas coming out of the Strait of Hormuz. And this region in particular has been extremely hard hit by the current crisis.

Jason Mitchell:

Wow. Really interesting. Thanks for that context. It's sort of interesting, I think when I stepped back, I found a certain degree of, I don't know if you'd agree with me, but a certain degree of irony in the report. In essence, fossil fuel crisis should be clean energy's moment. But obviously higher borrowing costs tend to hit capital intensive renewables harder than, let's say, oil and gas companies, which can self-fund from cash flows. Are we in a situation where the very crisis that makes the strategic case for clean energy simultaneously makes it, I guess, harder to finance?

Cecilia Tam:

Yeah, it's a very good point. I mean, I think the higher energy prices, concerns with the impact on overall inflation, the anticipation is that we're concerned about what potentially rising interest rates will do to the ability of countries to continue financing different low carbon energy sources. And so while, particularly in emerging and developing countries, where the cost of capital is typically already twice as high as in advanced economies and in China, the capital intensive nature of different low carbon energy sources will have significant implications on financing costs and affordability. But I think what we need to also keep in mind is that we've had huge cost reductions as well over the course of the last decade or more that has enabled a higher adoption rate for many of these low carbon technologies.

Jason Mitchell:

Yeah, it's a really important point to make. I definitely want to come back to that. But I think when I look across the report, I mean, one of the headline points it makes is this ratio of clean to fossil fuel investment, which runs roughly at two to one now. But beneath that ratio, gas and coal supply investment have, look, let's be honest, they've both surged. Gas is at a 10-year high, while coal is running at its highest level since 2012. How do you reconcile all of this? I mean, to what degree is the two to one ratio masking a much more complicated picture, especially around energy security driven parallel fossil fuel build outs?

Cecilia Tam:

What's important to look at is the current crisis, this drive towards securing domestic energy security is leading to different strategies across different countries. So I think one common element that we see across all markets, and which is particularly strong in fossil fuel import dependent countries, particularly in Asia, is that we see huge increases in spending for renewables as well as for nuclear, for grids. So the story around electrification that we started with, that is incredibly strong.

We are also seeing record high spending on coal and on natural gas. Coal, particularly in Asia, really driven by China's concerns with addressing their own domestic energy security concerns, has led to big spending on coal supply, but also on coal-fired power plants. And I think what we need to continue to remember is that the world's thirst for energy is really very, very high. We're going to need a wide basket of different types of energy sources to meet that rapidly growing energy demand.

Now, while we do see clean energy, low carbon generation, electricity, energy efficiency leading the way, we are also seeing big spending also in gas. Part of that is linked to a big rollout of gas turbines, particularly to meet data centre power needs in the United States. But I think we also have to keep in mind when we're looking at some of the spending on LNG investments, that is coming from a number of different areas. You have Europe's need to diversify away from its gas reliance from Russia. But you also had a lot of that LNG spending targeting future energy and gas demand coming out of emerging and developing countries in Asia.

Now, if you look at what's happened with this current crisis, that part of the world has been particularly hit by the closure of the straits where a lot of that gas was coming from. And so what we're seeing is big reputational concerns linked to gas as a secure and predictable affordable energy carrier. So I think what we'll have to watch very closely is how some of these Asian markets look at gas in terms of longer term transition strategies.

Jason Mitchell:

Yeah. I was going to ask, regarding, I guess, the additions around fossil, specifically coal and gas, is that incremental swing capacity or is that an effort to add to the structural base load capacity going forward?

Cecilia Tam:

I would say it's a bit of both. And I think we need to break it down based on different countries and regions. So if we focus in on coal, coal demand is really coming out of China or being led by China. And there we see a lot of the coal power additions coming in because of concerns with energy security. At the same time, China's also adding incredible amounts of solar, wind, nuclear, and other renewables. And the capacity that we see being added in China for coal is really intended to meet and support balancing of power demand where there is fluctuations in renewable production.

So what we're tracking is that we are seeing significant declines in the capacity factors of how much that coal is actually used in China coming down. And being really used for balancing when there isn't adequate supply of solar and wind.

And then in other markets, gas was being invested quite heavily, a transition fuel, but I think with the rapid reductions in solar, battery, wind costs, many of these developing Asian regions are really looking more at solar as well as nuclear.

Jason Mitchell:

Interesting. Thanks for that. I guess, I want to come back to the cost point that you mentioned two or three questions before. But the report highlights that clean energy equipment costs, solar, batteries, EVs have fallen roughly, let's call it around 50%/60% over the past decade, I think it's about 60%. I have to think that's fundamentally changing the investment picture for emerging market economies. For instance, I read that Chinese solar exports to developing countries have now actually surpassed those two advanced economies. And the current crisis is one can only think only amplifying the incentive to electrify. Are we basically now past the point of no return for electrification, specifically in emerging markets and developing countries, or are there still structural barriers that could stall all this momentum even with equipment this cheap?

Cecilia Tam:

We're seeing some incredible stories coming out of the investment picture in emerging and developing countries. And a lot of that is really thanks to this continued reduction in the cost of many clean energy technologies, as you mentioned. Solar and batteries both have come down in costs by about three quarters.

I think if we wanted to illustrate this with an example, I think what we've seen on solar costs is a great illustration of that. So if we look at how much it cost to add a gigawatt of solar capacity in 2015, we were looking at about $3 billion in investment. In 2025, that same gigawatt of capacity now costs only $700 million. So if we compare how much the world spent on solar in 2015 with how much it was spending in 2026, we've added on an annual basis 10 times the amount of solar capacity over that decade. But it's only come in at a 2.4 time increase in overall spending.

And that really has meant that we can see these record-breaking import increases on solar imports from countries such as Africa and Southeast Asia being possible. Where let's say 10 years ago costs were still too high for many of these markets to adopt or deploy these technologies at scale. That's really all changing. In the first quarter of this year, we saw more than a doubling in the imports of cheap solar panels, primarily from China, into countries in Africa and developing Asia. And if you look at what type of power many of these emerging and developing countries are adding, an overwhelming share of that, in most cases above 75%, is actually coming from renewables.

Jason Mitchell:

Interesting. Wow. I wanted to press you on a point that Fatih Birol, the IEA's executive director, had said. He characterised the choice between energy security and the clean energy transition as, his quote, "an annoying question," insisting that we can do both. And look, I understand his point. But the reality is that fossil fuels still account for roughly around 80% of the primary energy mix. That share has barely moved in a decade despite record clean energy investment. Are we actually in an energy transition or is this still a story about energy addition where we're building clean on top of fossil fuel instead of actually replacing it?

Cecilia Tam:

Thanks for that question. I think we need to look at what these different indicators tell us. And when we're looking at the energy transition and trying to track developments there, I actually think it's better to look at final energy consumption versus primary energy mixes. And that's because you have huge conversion losses when we're looking at electricity and heat production. And we need to understand how we're using energy and what we're using it for.

And here, tracking developments in final energy mix is actually a more telling picture of that. And I think what's important to look at is how we've been meeting that growing energy demand and what is growing fastest. So what we can see is that demand for electricity, which has been growing at about 3% a year over the last couple of years, is growing more than twice as fast as fuels overall. And if you just look at the rate of growth for oil, that 3% growth in 2025 for electricity is much stronger than the less than 1%, actually 0.7%, growth in oil demand. So you are seeing major structural changes as a result of investments in energy security. Which in many cases, as our ED has highlighted, goes hand in hand with the investments into low carbon energy sources, really guiding that broader energy transition that we are seeing in the world.

Jason Mitchell:

The world is investing record amounts in clean energy. And as a side note, I think that's a really important, not so obvious note to make, just given the scepticism over the last several years about the politics of energy rather than the economics of energy.

But moving on, I guess, it's interesting that the IEA often warns that we're not investing enough in the places that matter the most, namely emerging and developing economies, like we just talked about. But is the constraint about a shortage of capital there or a shortage of investible opportunities? Of all the usual suspects in my mind, think cost of capital, the permitting, the grid infrastructure, or even the policy uncertainty. What single factor in your mind would unlock the most amount of investment if we were able to address it?

Cecilia Tam:

I would say that if I had to choose only one, I would really prioritise stronger policy and regulatory environments. Because when we look at how capital flows and where it flows to, it is really looking at the best risk adjusted returns. And policy predictability, transparency on revenues, off takers, this is really what I think is determining the attractiveness of projects, particularly in emerging and developing countries. There's a lot of need to improve policy certainty and regulatory transparency to get more capital going to where it's needed most, as you rightly point out, into emerging and developing countries. And unfortunately, many of these markets still don't have the policy certainty that we have in advanced economies or in China. And I think it's really this element that is keeping many of these markets from attracting the level of capital that they need for growing their energy markets and delivering on the broader energy transition.

Jason Mitchell:

Ever since the energy crisis and the Ukraine-Russia conflict back in, what was it, 2021, energy security has returned as, in my mind, the dominant investment theme. Even relative to, again, in my mind, price affordability and decarbonization. I don't know if you agree with that. But what does that mean? Do you think the focus on energy security is accelerating the transition? Is it slowing it or fundamentally changing what the transition looks like? Is there a risk that investments being justified today on security grounds, maybe it's LNG terminals, could ultimately end up being the stranded assets of tomorrow? That's one thing that I do worry about.

Cecilia Tam:

Yeah. I mean, I think this prioritisation on energy security, and I would completely agree with you, the investment decisions that we're seeing today, that we saw following the '22 energy crisis, is being led by concerns around energy security. And we are seeing that what countries are prioritising are really domestic investments. And this is where electrification wins out very strongly. And investments that we see around the world are really being driven by both this continued rapid growth in energy demand, coming from not just developing countries for economic development, but also new sources coming from data centre energy demand driving some of the gas demand and gas investments that we see going forward. You mentioned LNG as well. A lot of the decisions on expanding LNG terminals came as a result of the '22 crisis for Europe, for example, but also on strategies that countries had for broader transitions.

And as I mentioned earlier, I think gas in particular with this current crisis and the concerns around reliability, risks of overdependence on certain sources of gas, could lead to countries reconsidering the role of gas, particularly in developing Asia and their markets. But at the same time, if you look into the details of where that LNG capacity is being invested, we're also seeing significant investments being put in for diversification of LNG sources to really help reduce the current reliance on Middle East gas supply. And some of the larger sources of future LNG demand is really going to be coming out of North America, US, and Canada.

Jason Mitchell:

Interesting. I want to ask you a question that I've asked a lot of past guests on the podcast. Those include Dieter Helm, Alex Grant at Equinor, even Vaclav Smil, which is to say that, how do you read the politics of energy prices, especially relative to that old adage in energy markets, the cure to high prices is high prices? I guess, what I'm asking is, with the hindsight of two energy crisis in the past five, six years, do high prices drive decarbonization or are higher energy prices ultimately an obstacle to decarbonization? And in other words, do high prices cut both ways?

Cecilia Tam:

That's a great question. And I would say, if I had to choose one, I would say that high energy prices are a key catalyst for more spending on clean energy, both for innovation and R&D. Which, as we've seen, has really helped to drive down overall energy costs.

One analysis we did in this year's report was we looked at how much the current energy system that we are investing in this year would have cost if costs remained the same as they were in 2015. And if we were to build out the same energy system today or invest in the same energy sources today based on 2015 costs, we would have reported 2026 investments of nearly $6 trillion compared to the $3.4 trillion that we anticipate will be spent this year on different energy sources. And so high energy prices is a huge driver of spending for R&D, for innovation and all of these things have shown time and time again to lead to lower costs in the future.

Jason Mitchell:

If you were to take maybe a picture since February, since this most recent crisis, what's your gut impulse in terms of high prices driving either reinvestment into fossil or a diversification away from it? And I guess, to add to that, I realise that the hyperscaler data centre demand is a huge component. I guess, clearly it's helping that drive out, but if you had to control for that element, would the picture look different?

Cecilia Tam:

I think we need to look at what's happening on the demand side. Because it's really what consumers, what corporates are doing that will drive what we need to do on the supply side. And the way the markets have been reacting to the current energy crisis has been extremely favourable for both energy efficiency and for electrification. And we're seeing the current crisis really leading to bumper demand for electric vehicles, for investments into solar, as well as batteries as the world looks to reduce their reliance on import dependency on fossil fuels. That have had a lot and historically have had lots of peak pricing because of different energy crisis. And this is where we're actually seeing high energy prices really leading to more spending on electrification as well as on energy efficiency.

And if we look at our anticipated spending for fossil fuels, for oil, for gas this year, we actually revised down our spending forecasts for oil, particularly coming out of the Middle East because of the current crisis. In February, we are working at collecting all the latest announcements on spending for the energy sector. And despite higher prices that we've seen as a result of the crisis, we haven't seen announcements from oil and gas majors on bigger increases in spending for upstream oil, for example. All of the announcements that we've been tracking have seen the oil majors maintain their spending profiles based on the same environment at the start of the year, where oil was running at about $60 a barrel.

Jason Mitchell:

Wow. Really, really interesting. Let's maybe switch lanes and talk a little bit about the momentum behind nuclear, which has seen a huge tailwind. I'm talking about more than 80 billion investment, 78 gigawatts under construction. And I think more than 40 countries with supportive policies around it. All that said, let's be honest, the sector's had a very long history of over promising. Given the delivery risks the report flags, particularly around SMRs, how do you distinguish between the announcements that may or will materialise and those that won't? What could make this time genuinely different for nuclear?

Cecilia Tam:

I think what we see in the nuclear energy markets are a couple of things. And I think the biggest difference between what we're seeing this time around and previous periods where a nuclear revival was highly anticipated is really this development around SMRs. And the involvement of some of the big tech companies in supporting SMR demand into the future. With big tech companies, the demand coming out of AI for stable, low carbon energy sources really changing the picture in terms of having a part of the market that has the capacity to pay more for large amounts of low carbon energy or electricity. And this is where we're seeing potentially a big change in the picture going forward.

We still see that the nuclear build out will be led by spending on large reactors. And there have been very good examples. China for one is a very good example of where we have been able to build out nuclear on time and on budget, where they've taken large programmatic approaches to developing nuclear. The UAE and that project is also another good example of where nuclear has been able to deliver their anticipated and their expected rollout. So by building in series, and this is where SMR technologies do promise a lot of big potential benefits, is being able to learn from early additions in reactors, into adding more smaller reactors where we are being able to deliver on some of the predicted costs.

Now obviously for SMR technologies, we'll need to see in 2030 if these new reactor designs are able to be built and constructed on time and to budget as they're anticipated to promise. But if they are able to hit that, with this demand from AI and data centres, and that ability to pay more for dispatchable, predictable, low carbon power sources, that could really make a huge difference for that nuclear revival.

Jason Mitchell:

Yeah. I guess, by extension, do you have any views around fusion? I ask because I recently had a meeting with the vice chair of one of the US's largest banks who was pretty bullish about the funding potential for fusion.

Cecilia Tam:

I see a lot of interest and excitement on fusion technologies. I think the scale of investment necessary and the potential that it could offer in terms of low carbon energy sources does make it extremely interesting and exciting technology to track and watch out very carefully for. It's something that I think will still take significant amounts of time to mature. There's quite a lot of R&D spending on fusion technologies. When it will reach commercialisation? I still think we're probably at least 10 years or more away.

Jason Mitchell:

Got it. Fair point. I guess, the other side is grid investment. And much like nuclear, grid investment significantly increased. I think it's up 20% to 550 billion. And yet out of all that, 600 gigawatts of renewables are still stuck in connection queues. Is in fact the grid fundamentally the binding constraint on the energy transition? If that's the case, are we investing fast enough to clear this bottleneck or is the queue actually growing faster than the spend?

Cecilia Tam:

Markets around the world have been paying greater attention to some of the bottlenecks that we're seeing because of the need to more rapidly expand transmission and distribution networks. And already starting last year, we were seeing significant increases in spending for grids. Now, unfortunately, part of that is also as a result of supply chain bottlenecks, which have led to big increases in the cost of expanding networks. The cost of cables, the cost of transformers have increased by about 70%. So while we are seeing big increases in spending for transmission infrastructure, the speed of network expansion does still need to be accelerated. And here we'll need to continue to expand manufacturing and supply chains for grids. But also to facilitate some of the policy permitting, land access bottlenecks that are also keeping grids from expanding as rapidly as they need to be. So it is an area that we continue to watch very carefully. But we are seeing very encouraging signs in terms of some of the policy changes and some of the big increases in spending on grids as well.

Jason Mitchell:

You highlight the fact that, at least in that report, that data centre investment hit I think close to 600 billion in 2025. That figure surpasses global oil supply spending. But the AI boom is also driving a threefold increase in US gas power investment. And pushing global gas turbine orders to 25 year high or even higher. In a lot of cases, hyperscalers and data centres are simply bypassing grid queues by building captive gas plants. How do you reconcile that with the same company's net-zero commitments? Is the AI demand shock accelerating the energy transition or is it creating a new category of fossil fuel lock-in? I think this is a big issue that many sustainable investors worry about, the implications of all this AI build out.

Cecilia Tam:

Yeah. I think that's something that we're also watching very carefully. And really what we're seeing in terms of the impact that this rapid growth in power demand coming from AI and data centres is really driving big increases in spending in the energy sector. Now, the tech company's preference is to buy low carbon, grid connected, renewable power. And they are the single largest corporate buyer of renewables. But the sheer growth in demand coming out of AI usage is much faster than a network can and the power systems can deliver through grid connected power. And this has resulted in, as you mentioned, big spending on captive gas turbines on data centres there.

Now, if we look last year, about a hundred billion is being spent in the energy sector to meet data centre power demand. This exceeds all of the investment that we saw across the energy sector in Africa. And it's an interesting point about whether this ends up being a possible fossil fuel lock-in in the future. I think when data centres can source more grid power through renewables, that will be their first preference. These turbines are in there. Our expectation is that they will be likely shifted to different parts of the power sector. And we'll need to follow very closely what does happen to these gas turbines when more renewables, nuclear, other low carbon energy sources are coming into the network. And whether we do see this new category of lock-in. I think that's something very important to actually try to clarify with some of the AI companies, what their expectations for those turbines are when they can replace it with grid sourced renewables or nuclear, which is their first preference.

Jason Mitchell:

Yeah, I totally agree. It's just this question of swing capacity versus base load. I totally agree, it would be great to get clarity on that. But I guess, there's another interesting point in the finance chapter of the report. Basically, banks are exiting climate pledges and sustainability-linked bonds or contracting. But actual project financing for low emissions power increased I think more than 50% last year. It didn't seem to matter whether a bank was in the Net-Zero Banking Alliance or not. So what's your takeaway? Essentially what I'm asking is, are ESG labels like transition bonds ultimately a lot less relevant than we assumed provided the underlying project economics are strong enough?

Cecilia Tam:

That's a great question. We've been watching very closely what's been happening in the markets around climate pledges of banks and other asset owners. And I think a lot of that was the result of concerns around potential legal ramifications of some of these targets. It wasn't really an indication of the banks or the asset owners interest in supporting clean energy investments. We're still seeing very strong demand and preference for clean energy projects over fossil fuel projects. In terms of whether transition labels are a big driver for demand, I think what is the key determinant is really, as you mentioned, the underlying economics of projects. But these labels, these disclosure requirements are quite critical in understanding issuers' commitment towards broader energy transitions.

And what we see amongst capital providers is that they're looking not only for strong economics, but also clear commitments from issuers, from projects on a good transition path for different energy projects that they're evaluating. And what we see, tracking some of the developments in private markets, is that we saw approximately four times more capital flowing into clean energy related projects than we did for fossil fuels. So that does really point to a much stronger demand coming out of the financial sector for transition or clean energy projects than for fossil fuels. And different commitments and labels still can help, but the economic drivers are really the strongest levers of the determinants of what investors are investing in.

Jason Mitchell:

Interesting. Yeah. Last question. I do want to stay on this general theme because it's fascinating to me. But I found one of the most interesting points in the report is that I think it's around 70% of the growth in clean energy investment has come from fossil fuel importing countries. Driven more by things like energy security, industrial strategy, and generally the desire to reduce import dependence rather than climate policy. So if the investment case for clean energy now stands on, you could say its own commercial and strategic merits, independent of climate commitments, is that ultimately more durable than a policy-driven transition? Or does it mean capital will flow to where the strategic need is greatest rather than where the climate need is greatest?

Cecilia Tam:

That's really a great question. Now, I think policy is really what helps to create markets. And if we look over time at how policy, for example, after the crisis in the '70s, helped to create and drive markets for energy efficiency through more stringent regulation on vehicle and fuel standards, it's clear that a policy is the first point of call in terms of helping to create those markets and allow the commercialisation of technologies to gain on their own merits. Through big cost reductions that we see with the private sector corporates reacting to the demand that ultimately is created through those policy directions.

And we see that policy is reacting and driven by concerns of energy security through industrial policies that governments are putting forth to prioritise domestic resources of energy. And so I think policy is a critical driver of markets. And we really do need to see policy helping to set market direction. But ultimately it's markets, it's corporations that are there to deliver on some of the technology developments and help to deliver some of the cost reductions that are going to be necessary to scale new technologies.

And if you look at what's happened in the broader energy sector, this is really what's happened with policy direction. Early public support for energy R&D really helping to set the tone, set the direction that the markets will be taking up afterwards through their spending and development of new technologies. And that's where early policy signals really help to create markets that enable the private sector to really take over and bring technologies to market.

Jason Mitchell:

Great, great. That's an amazing way to end. It's been fascinating to talk about why energy security has become one of the most powerful drivers of the clean energy transition. How electrification, grids, nuclear, emerging markets, investment in AI-driven power demand are reshaping the global energy system. And what it'll take to convert record clean energy spending into a true transition away from fossil fuels. So I'd really like to thank you for your time and insights.

I'm Jason Mitchell, CIO of Responsible Investment at Man Group, here today with Cecilia Tam, head of the Energy Investment Unit at the International Energy Agency. Many thanks for joining us on A Sustainable Future. And I hope you'll join us on our next podcast episode.

Cecilia, thank you so much for your time today. This has been super, super interesting.

Cecilia Tam:

Thanks very much, Jason. It was great speaking with you.