A slump in demand for electricity and an increase in generation efficiency has been enough to arrest rising atmospheric carbon-dioxide levels, but not enough to meet the long term aim of reducing global warming according to the International Energy Agency.

In its inaugural World Energy Investment report, the IEA found global power generation had reduced its carbon footprint by 20 per cent over the past two years, falling to 420 kilograms of carbon dioxide per megawatt hour in 2015.

“While this decline has been a factor in the stagnation of global CO2 emissions over the past two years, the current pace of decarbonisation of power generation remains insufficient to meet the climate goal of keeping average temperature increases below 2 degrees Celsius, necessitating stronger policy support,” the IEA said.

The United Nations Convention on Climate Change in Paris last year set a target of holding the global average temperature to well below 2 degrees Celsius above pre-industrial levels.

The IEA – a Paris based advisor to the OECD on energy policy – noted a major shift in investment towards low-carbon sources of power generation is underway, even as the overall global investment in energy dropped.

“Global energy investment driven down by oil collapse”

Global energy investment fell 8 per cent from 2014 levels to $US1.8 trillion ($2.4 trillion), largely due to a 25 per cent plunge in capital spending in upstream oil and gas.

However, oil and gas still dominated the investment landscape, accounting for 45 per cent of spending.

Investment in the electricity sector rose to a record $US690 billion ($920 billion), or over 37 per cent of the total, despite a marked slowdown in demand growth.

Renewables, primarily in wind, solar PV and hydropower, took a smaller 16 per cent – or $US290 billion ($390 billion) – slice of the investment pie, but their importance is growing rapidly.

“New low-carbon generation – renewables and nuclear – from capacity coming online in 2015 exceeds the entire growth of global power demand in that year,” the IEA found.

The amount spent on renewables was kept in check to a degree by technological progress and economies of scale driving down their cost.

“Energy demand has peaked in developed nations”

The report found household energy demand in OECD countries has peaked and is now in decline, with gas demand across Europe dropping to levels of 20 years ago.

“The fall in household energy use is largely the result of improvements in energy-efficient appliances and air-conditioning and heating systems, as well as better insulation of buildings,” the IEA said.

Nuclear power experienced something of a comeback in 2015, with investment reaching its highest level for two decades in 2015, largely due to the expansion in China, where new nuclear capacity is reducing the need for coal-fired generation.

“But low wholesale prices, weak carbon price signals and project management problems continue to hinder nuclear investment in Europe and North America, sometimes making even lifetime extension investment uneconomical,” the IEA noted.

“Cost and falling demand threatening LNG future”

There was a significant warning to Australia’s LNG producers that higher fuel transportation costs and infrastructure bottlenecks are limiting the competitiveness of gas-fired power generation compared to that of coal in Asia.

In most importing countries, LNG infrastructure to a gas-fired power plant requires twice as much investment as the plant itself.

“Coal-to-power supply chains are considerably less capital intensive.”

Between 2005 and 2016, cumulative investment in LNG liquefaction plants worldwide amounted to $US260 billion ($350 billion) with Australia alone accounted for about 45 per cent of this, with Qatar and the United States investing another 20 per cent.

However, the Qatari projects built in the early 2000s benefited from their location in already industrialised areas with access to established infrastructure, relatively low-cost materials and equipment, and very competitive labour costs.

The cost of those projects averaged $US450-500 per tonne in 2015 prices.

In contrast, average Australian plant costs have been around $US2,000-2,500 per tonne.

“The rapidly emerging oversupply of LNG and lower gas prices has undermined the prospects for new LNG projects,” the IEA said.

“Gas markets might remain well supplied for a considerably longer period than oil markets, in view of recent changes in supply-and demand-side investments.

“The outlook for gas demand has been affected by strong investment in alternatives to gas-fired power generation.

“Demand for gas has also been dampened by policies to enhance electricity efficiency and other energy-efficient demand-side technologies.”

However, despite energy markets being generally well supplied and prices continued to fall, the IEA warned against complacency about energy security given the rapid reversal in spending in LNG and the on-going difficulty of integrating wind and solar power into electricity grids.