Designing stimulus packages for a cleaner energy future

Global energy-related CO2 emissions are expected to reduce by 8% in 2020, the largest contraction since the World War II. But that will not be anything to celebrate. What matters is putting emissions into structural decline. While renewable electricity should show stronger resilience compared to other fuels, new capacity growth is also expected to slow in 2020, after record deployment last year. Putting emissions into a structural decline needed renewables to grow much faster across all sectors even before the Covid-19 crisis. To regain and exceed the growth rates seen in the years before the pandemic, policy makers need to put clean energy – including renewables and energy efficiency – at the centre of recovery efforts.

Reflecting a rapidly changing public health crisis, initial government rescue packages have focused on sustaining livelihoods and minimising economic damage through immediate relief for individuals, families and businesses. In the current and next phases of easing lockdown restrictions, stimulus packages may focus on global economic recovery. Experience shows that the economic recovery after the last financial crisis resulted in significant growth in CO2 emissions: in 2010 global CO2 emissions saw the largest increase ever recorded – four times the drop in emissions the year before. To mitigate the increase in CO2 emissions in the recovery from the current crisis, governments should put clean energy transitions at the heart of their stimulus packages.

Governments should consider three main policy strategies:

  1. Ensuring policy predictability and reassuring investors about their energy and climate commitments by confirming ambitious targets and objectives, including providing visibility on forthcoming capacities to be auctioned in the power sector. This is key to enabling industry and businesses to plan in advance and establish smooth project pipelines.
  2. Reducing administrative barriers to renewable project development and corporate sourcing of renewable energy by streamlining permitting and other administrative procedures.
  3. Including renewables in stimulus packages. The priority should be on those sectors and project categories that offer early opportunities for job creation and economic recovery, take stock of the lessons of the past, and can lead to structural benefits in the form of highly efficient and resilient energy systems with lower associated GHG emissions. Expanding the scope of and budget for existing support schemes that have already worked offers an avenue to delivering quicker results. Priority areas for action could include:
  • Introducing specific financing measures and cost-effective incentives for renewable projects in upcoming stimulus packages by using proven support mechanisms, such as auctions, tax incentives that reduce investment risk in large-scale projects (e.g. solar or wind), and other targeted support schemes for small-scale projects.
  • Focusing on the labour-intensive building sector with specific additional measures, including specific economic incentives, building renovation plans and/or upgrading programmes for public buildings, which can support consumer and SME investment in the highly vulnerable distributed solar PV and renewable heat sectors. These incentives can also be combined easily with energy efficiency programmes.
  • Aligning short-term policy actions with new medium- and long-term visions for emission reductions, including investment in power network infrastructure and flexibility resources, enabling more rapid, secure and economically efficient deployment and integration of variable renewables.
  • Fostering investment and job creation in smart, digital and resilient energy infrastructure, connecting renewables with efficient services and mobility solutions.

While a detailed description of policy options for including renewables in post-Covid-19 economic stimulus packages is beyond the scope of this report, it will be the subject of a separate IEA article.