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The impact of the Covid-19 crisis on clean energy progress

10 key emerging themes

The Covid-19 pandemic is having a major impact on energy systems around the world, curbing investments and threatening to slow the expansion of key clean energy technologies.

Before the crisis, progress on clean energy technologies had been promising, but uneven. The IEA’s annual Tracking Clean Energy Progress report shows that only 6 out of 46 technologies and sectors were “on track” to meet long-term sustainability goals in 2019. Those six included electric vehicles, rail transport, and lighting. Another 24 showed some progress, but not enough to meet long-term goals, while the remaining 16 were woefully “off track.”

Global carbon emissions will fall this year as a result of the major disruptions to travel, trade and economic activity brought about by the pandemic. But that’s no reason to celebrate, since it comes on the back of an international health crisis and widespread economic trauma. What happens next is crucial for our energy future. Achieving a robust economic recovery without the same kind of rebound in emissions that followed the 2008 global financial crisis will require governments to take the lead in pursuing structural reductions in emissions through smart, sustained and ambitious policies to accelerate the development and deployment of a full range of clean energy solutions.

Looking at all the data so far on how the Covid-19 crisis is impacting clean energy transitions, 10 key themes emerge – and this article examines each of them. (We will continue to review additional data as it becomes available and provide a major update in the autumn that will more comprehensively analyse all relevant data from the first half of 2020.)

But the IEA is not only providing timely data and identifying emerging trends, we are also developing real-world solutions. The IEA has been at the forefront of calling on policy makers to make sure that the once-in-a-generation stimulus packages they will be drawing up to revive their economies also drive stronger development and deployment of clean energy technologies. To help guide these difficult decisions that are likely to shape countries’ infrastructure for decades, we will soon be releasing the World Energy Outlook Special Report on Sustainable Recovery, which will provide clear recommendations on how governments can put energy and sustainability issues at the heart of stimulus plans to create jobs and build more modern, resilient and clean energy systems. Recognising the critical importance of innovation to clean energy progress, we will publish in early July an Energy Technology Perspectives Special Report on Clean Energy Innovation, which will analyse the early-stage technologies where investment today can do the most to reshape the future.

The IEA has made clear that tackling the world’s climate challenge and accelerating clean energy transitions calls for a grand coalition encompassing everyone who is genuinely committed to reducing emissions. This coalition needs to span governments, industry, investors and civil society to share innovative ideas and best practices, and inspire one another with greater ambition. To this end, the IEA Clean Energy Transitions Summit on 9 July will help governments identify the best approaches for creating jobs, putting emissions into structural decline and increasing energy sector resilience.

One report or summit alone will not bring about the sustained acceleration in clean energy progress that is needed to put the world on a sustainable path. Achieving a definitive peak in carbon emissions and the scaling up of a full range of clean energy technologies will require timely data; actionable analysis; and ambitious, real-world solutions from governments, companies and consumers – day in and day out – for years to come. The IEA remains committed to doing our part to help shape a secure and sustainable energy future for all.


Annual change in global energy-related CO2 emissions, 1900-2020

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CO2 emissions: Short-term shock does not guarantee sustained decline

The global pandemic has imposed unprecedented constraints on social and economic activity – particularly on mobility – with severe impacts on energy use. Global energy demand is expected to contract by 6% in 2020, the largest drop in more than 70 years.

Global CO2 emissions are expected to decline 8% in 2020, falling to their lowest level since 2010. This drop in emissions is no cause for celebration, since it is the result of a global health crisis, surging unemployment and tremendous economic hardship. Even the flattening of CO2 emissions during the robust economic growth of 2019 was far from the annual 6% reduction required in the IEA’s Sustainable Development Scenario (SDS), which is fully aligned with climate goals of the Paris Agreement.

Furthermore, after past economic downturns, emissions recovered rapidly as economies regained their footing. While the current crisis may have accelerated some structural changes – such as the decline of coal in Europe – the temporary drop in energy use resulting from mass restrictions on movement is far from sufficient. Smart and ambitious government policies will be needed to bring about the kind of sustained structural adjustments needed across a full range of sectors to achieve long-term climate goals.


Renewable electricity capacity additions, 2007-2021, updated IEA forecast

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Renewables have been resilient so far, but government support remains key

Renewable power sources have so far demonstrated resilience in the face of the Covid-19 crisis. The share of renewables in global electricity supply reached nearly 28% in the first quarter of 2020, up from 26% during the same period in 2019.

Despite this resilience, renewables’ growth is expected to slow down in 2020. The world is set to add only 167 gigawatts (GW) of renewable power capacity this year – 13% less than in 2019. This decline reflects delays in construction due to supply chain disruptions, lockdown measures and social distancing guidelines, as well as emerging financing challenges. The majority of delayed utility-scale projects are expected to come online in 2021, but installations of rooftop solar PV for businesses and households may continue to be depressed in the medium term without strong government support.

Beyond electricity, renewables have been less resilient. Transport biofuel production is expected to contract by 13% in 2020 – its first drop in two decades. Renewable heat consumption is also likely to decline in 2020, mainly due to lower activity in the industrial sector. Adding to these difficulties, low oil and gas prices are making biofuels and renewable heat technologies less cost-competitive.

Governments have an unprecedented opportunity to accelerate clean energy transitions by making investment in renewables a key part of stimulus packages to reinvigorate their economies. Investing in renewables, whose costs continue to fall rapidly, can stimulate job creation and economic development while reducing emissions and fostering further innovation.


Average annual change in primary energy intensity, historically and in the IEA Sustainable Development Scenario, reflecting weather adjustment for 2018 and 2019

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Stimulus plans could provide the boost that energy efficiency urgently needs

Prior to the Covid-19 crisis, global progress on energy efficiency had been well below the over 3% annual improvement needed in the IEA’s Sustainable Development Scenario. Primary energy intensity – an important indicator of efficiency – improved by only around 1.6% in 2019.

Furthermore, spending on energy efficiency is dropping sharply amid the Covid-19 crisis. Investments in efficiency and end-use applications are expected to fall 10-15% in 2020 as vehicle sales and construction activity slacken and purchases of more efficient appliances and equipment decrease.

In this environment, policies to incentivise building, technology and infrastructure upgrades across different parts of the economy are crucial and can benefit efficiency, jobs and economies. Maintaining and strengthening standards for appliances, building equipment and vehicles will be important over the long term to sustain jobs and efficiency improvements.

Recommendations by the Global Commission for Urgent Action on Energy Efficiency will be released in late June 2020 to stimulate greater efficiency action, investment and jobs in the context of the economic recovery from the Covid-19 crisis and beyond.


Global generation shares from coal and low-carbon sources, 1971-2020

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Low-carbon electricity has overtaken coal but still needs to expand dramatically

After overtaking coal in the power mix for the first time in 2019, low-carbon sources of electricity are expected to extend their lead to around 6 percentage points this year.

Renewables have increased their share of the power mix in many markets during lockdowns because of low operating costs and priority access to networks. Along with long-term contracts, this has helped support revenues for renewable power. However, investment in new renewables capacity overall has not been immune during the crisis and is expected to fall by 10% this year.

There are also worrying trends elsewherealready cause for concern last year and are set to decline in 2020 due to the pandemic’s impact on development schedules. Approvals for new hydropower projects declined to their lowest level of the decade in 2019; investment in battery storage is levelling off; and an ongoing downward trend in spending on electricity grids, which are vital for smoothly integrating variable renewables like wind and solar, is set to deepen further this year.


Global electric car sales by key markets, 2010-2020

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Electric cars are outpacing rivals but still depend on government leadership

Although there has been an unprecedented drop in global car sales in the first four months of 2020, early data indicate that the upward trend for global electric car sales will continue. Global electric car sales in 2020 could slightly exceed the 2019 total to reach more than 2.3 million, obtaining a record share of more than 3% of the overall car market. This would bring the total number of electric cars on the road worldwide to about 10 million, or around 1% of the global car stock.

Nevertheless, much more progress is needed to accelerate the adoption of electric cars. Government responses to the Covid-19 crisis will determine what happens to electric car markets in 2020 and beyond. Sales could decline if governments weaken fuel economy standards or zero-emission vehicle mandates. On the other hand, governments can seize the opportunity to promote electric vehicles, through steps such as linking bailouts for the auto industry to subsidies for electric vehicle purchases. Targeted and direct support measures, including for recharging infrastructure, could also help boost sales.


Change in global CO2 emissions and final energy consumption by fuel in the “home-working” scenario

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Smart policies can promote positive aspects of behavioural changes

Government lockdowns have prompted changes in behaviour. More people are teleworking, business and leisure travel has been sharply reduced, and consumers have shifted more of their purchases online. These changes may have long-term impacts on clean energy progress, depending on whether positive aspects associated with the behaviours can be sustained after the crisis ends.

Commercial aviation has been hit particularly hard by plummeting demand. The number of passengers on commercial flights in 2020 is expected to be 35% to 65% lower than in 2019, but it remains too early to tell whether air travel will eventually rebound to pre-crisis levels.

In cities, commuters may reduce their use of public transport – opting instead for private cars, two- and three-wheelers, and bicycles. Some policies have proven they can help incentivise a shift to more sustainable transport modes and technologies. These include direct investments in cycling and public transport infrastructure; changes in traffic regulations to increase safety; financial incentives such as scrappage schemes to encourage upgrades to more efficient vehicles; public information campaigns; and pricing policies such as congestion charges.

With a possible crisis-induced increase in teleworking, policies to improve residential building efficiency could help limit the increase in energy use from home heating and cooling. Over the longer-term, some frequent teleworkers may prefer to move away from city centres, which could exacerbate urban sprawl in the absence of sound policy and planning. Integrated transport plans could help curb transport energy use, while stronger building codes could prevent a spike in energy use from new lower-density developments.


Investment pipeline for large-scale CCUS facilities, 2013-2020

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Hard-to-abate sectors risk becoming even harder to abate

Hard-to-abate sectors such as heavy industry, shipping and aviation were already finding it difficult to achieve deep emissions reductions due to a lack of sufficiently advanced technology mitigation options that can be easily scaled up. The Covid-19 crisis may make progress even more challenging in at least some of these sectors.

The current crisis could pose a particular risk for emission reductions in heavy industries, which have tighter margins and fewer scalable technologies available to abate emissions, as attention primarily focuses on reviving production and keeping companies afloat. Given long investment cycles in heavy industry, there is considerable risk of locking in the use of emissions-intensive production equipment if investments during the recovery period do not prioritise low-emissions technologies and improved performance of existing assets. Financial strains could also result in delays or cancellations of demonstration projects for fledgling industrial technologies that produce almost no emissions. This would threaten vital efforts to achieve long-term emissions reductions in heavy industry.

Stimulus packages and other relief efforts for heavy industry will therefore be extremely important and should be contingent on reducing emissions from production processes. Key areas that have the short-term potential to both create jobs and cut emissions – and would therefore be ideal candidates for stimulus – include energy efficiency, electrification, material recycling, and ready-to-go infrastructure and demonstration projects related to hydrogen and carbon capture, utilisation and storage (CCUS).

CCUS applications had gained considerable momentum prior to the crisis, including as a key option for reducing emissions in various hard-to-abate industries. Numerous new projects have been announced since 2018, mainly in the United States and Europe where new incentives are available. These projects have the potential to more than double the current global CO2 capture rate of almost 40 million tonnes per year.

Whether planned CCUS investments can withstand the current economic downturn will depend on several factors. These include the resilience of governments’ climate policies and ambitions; the extent to which CCUS is included in sustainable economic recovery plans; and whether CCUS is affected by the capital spending cuts announced by major oil and gas companies. Uncertainty over CCUS progress in the short term, however, is tempered by recent government and industry announcements of new projects and funding.

The lockdown has also affected global trade, dealing a blow to shipping, which is the primary way to carry goods worldwide. Lower shipping activity has spurred declines in maritime fuel prices, which risks delaying the sector’s transition to cleaner energy. Policy makers can help by designing recovery packages to accelerate the deployment of low-carbon technologies and fuels.


Global electrolysis capacity becoming operational annually, 2014-2021, historical and announced

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A possible breakout moment for emerging technologies like storage and hydrogen

Both energy storage and hydrogen – critical emerging technologies for unlocking emissions reductions across energy systems – could become key beneficiaries of stimulus plans, much as solar PV and wind benefitted from boosts during recovery packages after the 2008 financial crisis. For storage and hydrogen to achieve this breakout potential, governments will need foresight, rigorous planning and coordinated support.

Energy storage was losing momentum going into the Covid 19 crisis. Last year, annual installations of energy storage technologies declined – their first drop in nearly a decade. Wavering policy support in key markets and uncertainties around battery safety impacted growth, with grid-scale installations falling by 20%. The Covid-19 crisis is likely to compound these effects, as batteries have a particularly complex supply chain that includes cells, modules, packs and installers. Recovery plans and associated policies could counteract this recent dip in progress and provide a much needed boost so storage can better serve its critical energy integration role.

Low-carbon forms of hydrogen had gained unprecedented momentum before the coronavirus outbreak. The coming years were expected to set new records for the deployment of hydrogen-producing electrolysers. In addition, several projects to produce hydrogen from fossil fuels with CCUS are under development or have announced plans to start operating in the early 2020s. These projects and other future developments, however, may be at risk due to the global economic downturn, supply chain disruptions and lower capital spending by companies, which may also prioritise other business areas. These factors could hamper the demonstration of key end-use technologies necessary for the use of hydrogen in sector integration.


Global investment in clean energy and efficiency and share in total investment, 2015-2020

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Clean energy investments, while relatively resilient, still need a dramatic increase

Investment in clean energy technologies, at around USD 600 billion per year, has been stuck at around one-third of total energy investment in recent years. In 2020, it will jump towards 40%, but only because fossil fuel investments are falling dramatically. In absolute terms, clean energy investment levels fall far short of what is required to put the world on a more sustainable pathway. In the IEA’s Sustainable Development Scenario, spending on renewable power and energy efficiency needs to more than double by the late 2020s.

Despite uncertainties associated with the current crisis, there are opportunities to mobilise much greater levels of capital towards clean energy. For policy makers, a focus on value-for-money, relatively quick delivery and environmental gains should favour cleaner generation technologies, especially in the electricity sector where solar PV and wind are among the cheapest options for new generation and have relatively short investment cycles. Falling costs have translated into a steady increase in actual deployment for key electrification and flexible technologies such as electric vehicles and battery storage.

There is evidence that such investments also make good sense for financial investors – renewable power companies in advanced economies have delivered higher equity returns over the past decade than those in fossil fuel supply, and have so far better weathered the storm in 2020. The growing push for sustainable finance, notably from institutional investors, is a natural fit for assets with reliable revenue potential such as renewables and networks. The extent to which energy and sustainability concerns are integrated into recovery strategies will have a strong influence on opportunities for newer sources of low-cost clean energy finance to enter the mix.


Spending on energy R&D by national governments and the European Union, 2014-2019

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Achieving net-zero emissions will require a step change in innovation

Public spending on low-carbon energy research, development and demonstration (RD&D) worldwide increased 6% to USD 25 billion in 2019, driven by Europe, the United States and China. At 80%, low-carbon technologies are attracting a rising share of total public energy R&D. Corporate R&D spending rose 3% to USD 90 billion in 2019, with an estimated 60% of it devoted to developing low-carbon technologies. At USD 4 billion, venture capital investments in early-stage disruptive technologies became increasingly diversified in terms of sectors and geography in 2019. Storage and hydrogen experienced notable increases.

Publicly funded energy R&D may come under significant pressure as a result of the Covid-19 crisis, especially in emerging markets that are expected to account for much of energy demand growth in the future. Public programmes are critical for supporting creative science and high-risk demonstration projects – and for setting the direction of technological change. But they cannot do it all alone. Corporate investments impose market discipline on the winnowing of new ideas and the honing of technologies for deployment. Emerging evidence indicates that start-ups and innovative small and medium-sized enterprises (SMEs) will face fundraising and liquidity challenges in 2020 – and that private R&D and capital budgets will be cut.

Counter-cyclical government responses could mitigate the impacts of the Covid-19 crisis on energy innovation, stimulate economic recovery and accelerate progress in key technology areas. These areas will be explored further in the IEA’s Special Report on Clean Energy Innovation, which will be released on 2 July.


CCUS: Samantha McCulloch

Communications & Digital: Jad Mouawad, Jethro Mullen, Jon Custer, Rob Stone

Energy Efficiency: Brian Motherway, Jeremy Sung, Kathleen Gaffney

Energy Technology Policy: Araceli Fernandez Pales, Jacob Teter, Jose Bermudez Menendez, Peter Levi, Raimund Malischek, Tiffany Vass, Timur Gül

Renewable Energy: Heymi Bahar, Pharoah Le Feuvre

Strategic Initiatives: Jean-Baptiste Le Marois, Luis Munuera

World Energy Outlook: Davide D’Ambrosio, Michael Waldron, Simon Bennett

Editor: Kristine Douaud