IEA (2020), Energy efficiency can boost economies quickly, with long-lasting benefits, IEA, Paris https://www.iea.org/commentaries/energy-efficiency-can-boost-economies-quickly-with-long-lasting-benefits
The coronavirus (COVID-19) pandemic has required governments to focus virtually all their efforts and resources on protecting the health and well-being of their citizens. Rightly so: health is the first and most immediate priority. At the same time, leaders are also facing the economic impact of the crisis and thinking ahead to strategies for stimulating their economies once the pandemic is brought under control and activity can ramp back up.
For these strategies, governments will be looking at the very immediate future: how to create jobs and boost economies now. There have been many calls to make clean energy technologies a key part of stimulus packages. This makes complete sense. Stimulus goals align very well with wider clean energy goals, and investment in all fields of clean energy can deliver great opportunities to increase employment and economic activity.
Energy efficiency offers many win-win opportunities – labour-intensive projects that start quickly and are rooted in local supply chains such as construction and manufacturing. Putting such projects in stimulus programmes can support existing workforces and create new jobs. Energy efficiency brings other major benefits: it improves the economic competitiveness of countries and businesses, makes energy more affordable for consumers – and, of course, reduces greenhouse gas emissions.
The buildings and construction sector – covering everything from houses and apartments to offices, hospitals and factories – represents a key opportunity to rapidly create new jobs and reinvigorate local businesses. This can take the form of incentives for new construction projects or upgrades of existing buildings. When homes are upgraded to higher efficiency standards, more than half of the total investment typically goes directly to labour.
Governments can lead the way in boosting energy efficiency investments by channelling them into public buildings, such as social housing, schools, healthcare facilities and government offices. Funding can be provided to build new schools or hospitals, or to upgrade existing homes to higher levels of efficiency, all creating far-reaching positive impacts. A number of stimulus programmes following the global financial crisis in 2008 did exactly this, including a US programme that created over 200,000 jobs.
Technology upgrades and infrastructure projects across different parts of the economy can also bring about rapid benefits. Appliance replacement programmes, like “cash for clunkers” initiatives, provide incentives from governments directly to consumers to replace old, poorly performing products with new, more efficient models. Well known examples include programmes to replace cars, refrigerators and other appliances. These need to take care to avoid unwanted environmental effects, and to avoid funding purchases that would have happened anyway.
Well-designed programmes can deliver strong growth in economic activity while also locking in efficiency gains for the future. In the same vein, investment in infrastructure is also an excellent way to spur spending and create jobs across a range of businesses. Smart grids, digital connectivity and even street-lighting upgrades can all build economic activity at local levels and support large numbers of jobs.
We have learned many lessons from previous stimulus programmes and other attempts to generate large-scale activity quickly.
Early action can create jobs quickly by focusing on what is already in place and ready to be scaled up. For example, if there are already grants or tax credits for upgrading buildings, these can be quickly scaled up using the same application processes, specifications and standards. The size of subsidies can be expanded and new technologies added to the list of eligible investments. A programme that gives grants to homes can add schools or leisure centres. Support measures for insulating buildings can be extended to cover solar panels and heat pumps. The organisations already involved in delivering such projects, such as construction companies or energy utilities, will be able to expand their activities at a faster rate than if governments try to create new supply chains overnight.
The issue of supply chains and capacity will be crucial. If new programmes quickly increase demand, can the market respond? Are good products available? Are installers ready to meet demand at sufficient levels of quality and safety? Governments in a hurry to generate activity can be tempted to lessen the focus on technical standards or required efficiency levels, but this can be a false economy in the longer term. Standardisation can help: off-the-shelf designs and contracts can simplify transactions, and lists of ‘approved’ solutions and technologies can reduce ambiguity and risk.
While the focus is rightly on short-term stimulus impacts, well-designed programmes will maximise the long-term benefits by raising efficiency standards and developing new markets. Building new infrastructure will enable further efficiency improvements by allowing recent, smarter technology to be deployed – and greater scale will bring costs down.
Whether governments invest in hospitals or schools, streetlights or smart grids, housing or infrastructure, stimulus programmes can incorporate ambitious, cost-effective energy efficiency elements for little additional effort or cost. An efficient home built today will produce less than half the emissions and energy bills that would be locked-in to an inefficient one for decades to come.
Unprecedented challenges call for unprecedented responses, and decisions must be made amid great uncertainty. Will behaviours and social norms permanently shift after the current phase of new ways of working and living? How will societies’ short-term focus affect longer-term imperatives? Recognising how many unknowns there are, this is a time to be ambitious and innovative, and to keep a firm eye on our clean energy and climate goals.
There is much to learn from previous experience, and many of the policy questions faced by governments are the same across the world. A collective effort to marry the pressing goals of stimulus with the longer-term aims of clean and efficient energy transitions can only bring benefits to all.