Sustainable Recovery

World Energy Outlook Special Report
River running through a forest

A sustainable recovery plan for the energy sector

Summary
  • We have designed a global sustainable recovery plan for the energy sector which has three goals: to maintain and create jobs, boost economic growth, and improve energy sustainability and resilience. This plan, which is specific, detailed and time-limited, was developed using the quantitative assessments of potential energy sector measures in Chapter 2. It takes account of the circumstances of individual countries, as well as existing energy project pipelines and current market conditions.
  • We estimate that the overall spending need for the plan is around $1 trillion per year over the next three years: this represents about 0.7% of global GDP today, and includes both public spending and private finance that would be mobilised by public policies. The public spending required would be equivalent to less than 10% of fiscal expenditure in recovery plans announced to date; after the 2008-09 financial crisis, green measures accounted for around 16% of total stimulus measures.
  • Our modelling indicates that this plan would create nearly 9 million new energy-related jobs in construction and manufacturing over the next three years: this compares with a figure of 6 million jobs at risk from the Covid-19 crisis in energy supply, efficiency, and vehicles. There would also be more than 0.5 million permanent jobs associated with operating and maintaining the assets constructed by the sustainable recovery plan.
  • Analysis done jointly with the International Monetary Fund indicates that this plan would also increase global GDP by 1.1% in each of the next three years, and would lead to global GDP being 3.5% higher in 2023 that it would have been without a spending stimulus.
  • A wide range of policies would be required to support the deployment of this plan with the aim of delivering shovel-ready clean energy projects that boost resilience; developing a strong pipeline of new projects; tailoring support for distressed industries; mobilising large levels of private finance; and strengthening international co-operation.
  • Energy systems would become more sustainable as a result of the plan. Globally, annual energy-related CO2 emissions would be nearly 3.5 Gt lower than they would have been otherwise, and methane emissions would be cut by 0.8 Gt CO2-eq. Air pollutant emissions would be around 5% lower. In addition, around 420 million people would gain access to clean cooking solutions in low-income countries, and nearly 270 million people would gain access to electricity.
  • Energy systems would also become more resilient as a result of the plan. Investment in better electricity grids and improved efficiency would improve electricity security by lessening the risks of outages, boosting flexibility, reducing losses and helping to integrate larger shares of variable renewables. Energy consumer bills would also be lower across all regions, freeing resources for spending in other sectors.
Introduction

The enormity of the shock caused by the Covid-19 pandemic is prompting governments around the world to develop economic recovery plans that will shape infrastructure and industries for decades. There is a very strong case for the energy sector to play a central part in these plans:

  • The Covid-19 crisis has highlighted the importance of developing more resilient and sustainable energy systems that are capable of withstanding future shocks and improving the health and well-being of citizens; but the disruptions occurring to energy markets and investment trends has made this more difficult to achieve.
  • Investment in the energy sector can provide jobs and boost growth, while strengthening the resilience of energy systems and making energy more affordable, thereby supporting broad economic activity and jobs in all parts of the economy. Improved energy sector resilience and reliability would greatly reduce economic losses and lost labour hours. Investment in energy is also needed to develop more sustainable systems, speed up clean energy transitions and reduce emissions in pursuit of the goals of the Paris Agreement and the UN Sustainable Development Agenda. A rebound in emissions as the global economy emerges from this crisis is very likely unless action is taken to place clean energy transitions at the heart of economic recovery.

Chapter 2 examined a range of measures, assessing their potential to create jobs and stimulate growth and their likely impact on energy security, emissions and air pollution. This chapter sets out a sustainable recovery plan for the energy sector based on these assessments and on countries’ specific circumstances. It is for governments to make their own decisions about what measures to adopt and how much to spend, but action on the basis of the measures in the plan would provide a major boost to the global economy, create millions of new jobs, and ensure that the recovery yields long-lasting benefits for energy sustainability and resilience.

Objectives and design of a sustainable recovery plan for energy

In drawing up a sustainable recovery plan for energy, we have focused on three overarching objectives: to create jobs, to boost economic growth, and to improve resilience and sustainability. While some measures could contribute to all three objectives, there are inevitably some trade-offs. Taking into account country-specific circumstances and the world’s shared goals on sustainability, we have developed a practical, concrete and time-limited global sustainable recovery plan for the energy sector that would collectively deliver on all three objectives.

Boost the economy

Create jobs

Sustainable Recovery Plan goals

Improve energy resilience and sustainability

Boost the economy

Create jobs

Sustainable Recovery Plan goals

Improve energy resilience and sustainability

Boost the economy

Create jobs

Sustainable Recovery Plan

goals

Improve energy resilience and sustainability

Evaluation of measures

In evaluating the measures discussed in Chapter 2 in the context of the three objectives of the sustainable recovery plan, we have considered in particular: 

  • Timeliness: Some measures can provide an immediate boost to jobs, either because they are relatively small-scale and do not require protracted planning processes or because they have already gone through these processes (projects of this kind are often described as “shovel-ready”).
  • Near-term employment effects: The larger the number of jobs per unit of spending, the greater the immediate impact on employment and growth. This is assessed in the table below on the basis of the jobs multipliers discussed in Chapter 2 that indicate the number of jobs created per million US dollars of investment or spending.
  • Provision of jobs for displaced workers: Some measures would create jobs for workers who were made redundant as a result of the Covid-19 crisis or who work in sectors where further job losses are likely. Some measures would also provide employment requiring similar skills to those used in jobs that have disappeared, minimising the need for retraining.
  • Long-term benefits: While a focus on near-term factors is central to the sustainable recovery plan, some measures would support long-term economic growth and significantly improve energy system resilience and sustainability. This includes, for example, measures that would expand energy access, reduce energy poverty and reduce carbon dioxide (CO2) emissions.
  • Current cost effectiveness of emissions reductions: Some measures provide much larger emissions reductions per unit of spending than others. This is assessed on the basis of the relative net present value of the costs and savings divided by the CO2 emissions avoided over the lifetime of each measure. 

There are certainly trade-offs between these factors. For example, there are some measures that would provide very cost-effective emission reductions but would not provide a major boost to jobs. The table below provides an overall assessment of how the measures compare. It is important to note, however, that the assessment of measures may vary from one country to another. For example, new gas-fired power capacity might lead to emission reductions in countries where it replaces coal, but might “lock-in” a higher level of emissions in countries that do not currently rely heavily on coal-fired power plants.

Global average jobs created and cost effectiveness of emissions reductions for selected energy sector measures

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Assessment of measures for the sustainable recovery plan

Creates jobs
Boosts the economy
Improves energy sustainability and resilience
Timeliness Near-term employment effects* Provision of jobs for displaced workers Long-term benefits Current cost effectiveness of emissions reductions*
Electricity
Expand and modernise grids
Wind and solar PV
Lifetime extensions of nuclear and hydro power
New unabated gas
New unabated coal
Transport
New electric and high efficiency cars
High speed rail
Urban infrastructure
Buildings
Retrofits and more efficient new buildings
Appliance efficiency
Clean cooking
Fuels
Reduce methane from oil and gas operations
Reform inefficient fossil fuel subsidies
Biofuels
Industry
Efficiency
Material efficiency
Innovation
Hydrogen
Batteries
CCUS
SMRs
Good match    Neutral match    Poor match

*Based on relative levels of jobs created per unit of spending and dollars per tCO2-eq avoided. Notes: PV = photovoltaic; CCUS = carbon capture, utilisation and storage; SMRs = small modular nuclear reactors, tCO2-eq = tonnes of carbon-dioxide equivalent. Suitability of the various measures will vary across different regions; levels shown provide a global perspective.

Spending on measures

The spending associated with this plan is around $1 trillion for each of the next three years (i.e. from 2021 to 2023). This amounts to around 0.7% of global gross domestic product (GDP) in each year. This figure is based on the difference between spending on clean energy technologies in recent years and the spending needed to deliver the measures in the plan, taking account of current project pipelines, market conditions and the varying circumstances of countries. This spending would be additional to the annual levels of expenditure on clean energy measures that have occurred in recent years and includes both public spending and private finance that would be mobilised by public policies.

The plan envisages expenditure across six sectors:

Electricity measures would cover:

  • Support for electricity networks to strengthen resilience. They would help operators integrate higher shares of variable renewables and could lead to a long-term reduction in consumer bills. In developing economies, investment in grids and off-grid solutions would increase network reliability, reduce electricity losses and bring access to people who currently lack it. Nearly $110 billion would be spent in each of the three years on grid infrastructure and for investment in smart grids, the majority of which is spent on upgrades, modernisation, and refurbishment.
  • Accelerated wind and solar PV deployment. These are two of the power technologies that most merit government support in many countries, given their short construction times, declining costs, and, for solar PV, the large numbers of jobs it can create. Around $180 billion would be spent each year globally on new wind and solar PV projects and projects to repower existing sites.
  • Modernising and upgrading existing nuclear and hydropower plants in countries where licensing and approvals processes are in place. In countries where site permitting is already well advanced, new hydro and nuclear power plants would bring jobs and reduce emissions from power generation if displacing fossil fuel plants. Around $20 billion would be spent each year to support continued generation from existing and new hydroelectricity power plants. Around $15 billion would be spent each year to support lifetime extensions of existing plants and build new nuclear power plants.

Buildings measures can quickly create a large number of new local jobs, often with low or negative CO2 abatement costs. They can help to ensure that new buildings are constructed as efficiently as possible, and that existing buildings are made more efficient by insulating, air sealing, replacing inefficient appliances and installing heat pumps and renewable energy systems that use solar water heaters and biomass boilers. Around $250 billion would be spent on buildings measures each year.

Average annual spending by sector and measure

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The transport sector was severely affected by the Covid-19 lockdowns across most countries. Governments could support jobs while also reshaping transport systems to be more modern and resilient while reducing air pollution and greenhouse gas (GHG) emissions. Around $150 billion would be spent each year on purchases of more efficient cars and electric vehicles (including electric cars, two/three wheelers, buses and light commercial vehicles).1 Nearly $90 billion would be spent each year on long-distance transport to boost high speed rail and to improve the efficiency of trucks, airplanes and ships. A further $30 billion would be spent each year to accelerate deployment of recharging networks for electric vehicles, upgrade public transport, and improve walking and cycling infrastructure.

Industry measures offer considerable scope to improve efficiency, and by doing so to improve resilience and reduce emissions. Around $70 billion would be spent each year to improve the efficiency of existing industrial facilities through the deployment of improved electric motors, heat pumps and agricultural irrigation pumps, and wider implementation of energy management systems. An additional $10 billion would be spent each year to improve waste management and material efficiency.

Measures for fuels would cover:

  • Support for biofuel industries if they meet appropriate sustainability criteria. Biofuel industries are important employers of both low and high skilled workers in many countries that have been severely impacted by the slowdown in demand for liquid fuels. Around $20 billion would be spent on biofuels in each year of the sustainable recovery plan.
  • Support for the upstream oil and gas sector could be focused on reducing methane emissions. This would provide a new source of employment for oil and gas workers made redundant by the crisis and would be a cost-efficient way to bring about an immediate reduction in GHG emissions. Any wider support for the upstream sector would need to take into account the investment levels needed to meet future oil and gas demand.

Support for innovation and the development of new technologies is unlikely to create a large increase in jobs or economic activity in the short term. In the longer term, however, targeted support to develop and deploy emerging clean energy technologies and boost the skills base of domestic workers could bring important benefits in terms of sustainability and resilience. It could also lead to the development of new industries. The current low cost of capital adds force to the case for supporting research and development, providing market incentives, promoting commercial demonstration plants, and encouraging the scaling up of manufacturing capacity. Around $45 billion would be spent each year to accelerate the development and production of new projects and industrial capacity for clean energy technologies such as hydrogen, batteries, carbon capture, utilisation and storage (CCUS) and small modular nuclear reactors (SMRs).

Some important cross-cutting points:

  • Energy efficiency measures score highly in terms of effectiveness across the transport, industry and buildings sectors, and feature strongly in the plan. They improve self-sufficiency, reduce exposure to extended supply chains and reduce potential impacts of volatile commodity prices, while providing an immediate boost to local jobs. In total, one-third of the $1 trillion annual spending would be devoted to efficiency measures.
  • For low-income countries, it is critical to accelerate efforts to provide universal access to electricity and clean cooking solutions. This would provide an immediate increase in local jobs and durable improvements to social well-being by modernising health services and food value chains: it would also support economic and social resilience. Around $45 billion would be spent each year improving access to electricity for people in low-income countries, (which is included in the spending levels discussed for the electricity sector). An additional $5 billion would be spent each year to ensure and improve access to clean cooking solutions.
  • The significant decline in fossil fuel prices presents an opportunity to further the process of reforming inefficient fossil fuel subsidies without increasing end-use prices. In producer economies, fiscal positions are under a great deal of strain given increases in spending to deal with the health and economic crises, as well as the contraction in oil and gas revenues. Cutting expenditure on fossil fuel subsidies could help alleviate some of this stress.


The sustainable recovery plan rests on five key policy pillars. Of course, the specific policies adopted will vary from country to country depending on their particular circumstances and needs. Examples of specific policies that could be adopted under each of the pillars are provided in the table below.

Sustainable Recovery Plan:

  • Deliver shovel-ready clean energy projects that boost resilience
  • Develop a strong pipeline of new projects
  • Tailor support for distressed industries
  • Mobilise private finance
  • International co-operation

Deliver shovel-ready clean energy projects that boost resilience. A number of projects that were under construction or had reached the advanced stages of planning were delayed or postponed as a result of the Covid-19 pandemic. Restarting and supporting these projects – while ensuring the health of workers – could provide an immediate boost in employment and economic output. However it is important that these projects are compatible with long-term energy security and environmental objectives.

Develop a strong pipeline of new projects. Developing a more modern and resilient energy system requires investment in longer term infrastructure and energy efficiency projects. A pipeline of such projects would help to maintain steady investment activity and create jobs. Alongside direct government expenditure, consideration could be given to supporting the development of a pipeline of projects by modifying incentive structures and streamlining planning laws and procedures, which could make investment in such projects more attractive to private finance.

Tailor support for distressed industries. Some sectors severely impacted by the Covid-19 crisis are likely to require government support to continue operations. A number of countries have announced support packages for their construction, vehicle manufacturing and airline industries, for example. Governments could make support for these industries conditional on progress towards long-term sustainability and resilience.

Mobilise private finance. Some of the spending on energy projects will need to be undertaken directly by governments. However, it is essential that public policies mobilise private spending on measures that are aligned with the goals of the sustainable recovery plan. In some cases, it may be possible to use direct government expenditure to underpin measures such as improving effective regulatory procedures, reforming energy taxes, setting or raising actual or effective carbon prices, and reducing risks for private investment.

International co-operation. There would be significant co-ordination gains if countries align their actions. For example, if a group of countries deploy a particular clean energy technology, its costs are likely to fall faster than if only one country deploys it, to the benefit of all. Cross-border collaboration could also be useful in helping to re-establish some international supply chains disrupted by the Covid-19 crisis. 

Mobilising investment

Part of the sustainable recovery plan will need to be funded through direct government expenditure. One of the five key policy pillars of the sustainable recovery plan is the mobilisation of private financing to complement the direct government expenditure. Public policies have an essential part to play in facilitating the deployment of private capital through regulations, market frameworks and tax reforms.

Private investment needs to be aligned with the goals of sustainability and resilience, and this could be facilitated by integrating sustainability risk considerations within financial regulatory frameworks and introducing or raising carbon prices, so as to direct private capital towards low-carbon options. There are increasing amounts of data available to allow markets to assess sustainability risks (TCFD, 2017), as well as measures that allow markets to recognise and reward sustainable investments (European Commission, 2020).

Where central banks are expanding the supply of money through the purchase of assets, the introduction of appropriate eligibility criteria (for example, a preference to purchase corporate bonds that meet certain conditions), would help to ensure that the finance is directed towards sectors and technologies that are aligned with the goals of the sustainable recovery plan (Matikainen, Campiglio and Zenghelis, 2017).

Selected policies that could be implemented alongside financial support as part of the Sustainable Recovery Plan

Pillar

Examples of policies

Deliver shovel-ready clean energy projects that boost resilience

  • Undertake deep retrofits of government-owned buildings.
  • Ease regulatory approval procedures and extend tax credits schemes for electricity from renewables and other clean energy projects.
  • Promote the use of energy management systems in light and heavy industries.

Develop a strong pipeline of new projects

  • Provide a long-term vision on sustainability and resilience to guide investment decisions.
  • Increase borrowing thresholds and provide tax credits or grants for new infrastructure such as electricity networks.
  • Promote auctions, grants and rebates that seek to improve the energy efficiency of new and existing buildings.
  • Strengthen minimum energy performance standards for appliances supported by mandatory labelling and targeted rebates.
  • Support the development of urban and public transport infrastructure such as high speed rail and charging points for electric vehicles.

Tailor support for distressed industries

  • Strengthen and widen energy efficiency goals and promote the use of zero-carbon fuels in car manufacturing industries.
  • Accelerate renovation and construction activity by introducing or strengthening requirements for highly efficient or near-zero energy buildings.
  • Introduce or strengthen rules on measuring and reducing methane emissions from oil and gas operations.

Mobilise private finance

  • Establish public co-funding schemes to reduce upfront investment costs through grants, concessional loans, public procurement and feed-in-tariffs.
  • Provide more long-term contracts and regulatory investment guarantees.
  • Provide insurance policies and guarantees to reduce the cost of capital.
  • Provide technical assistance and capacity building.
  • Strengthen international finance institutions sustainable development lending criteria.
  • Introduce or raise actual or effective carbon prices.

International co‑operation

  • Accelerate the re-establishment of disrupted energy supply chains.
  • Co-operate on cross-border energy efficiency standards to expand the market size for more efficient goods and technologies.
  • For internationally traded goods and technologies, promote the alignment of measures to support production with measures to stimulate demand.
  • Advance cross-border transport links and establish infrastructure that provides hubs for alternative fuels for international travel and transport.

Within the sustainable recovery plan, direct government investment focusses mainly on areas where private investment is difficult to mobilise or where the levels of private investment seem likely to fall short of what is needed. The need for such investment should be carefully assessed; it should last only as long as necessary and it should be undertaken with a view to facilitate private finance where appropriate. The scale of the needed investment for the plan means that in practice most of it is going to have to come from the private sector. That portion to be funded by government will vary from country to country. 

There is, for example, likely to be a greater need for public financing in some developing economies, where state-owned enterprises tend to play a bigger role in overall energy spending than in advanced economies, especially in electricity generation and networks.

Globally, the sustainable recovery plan requires just under $300 billion of government spending each year over the period to 2023. This direct expenditure, together with enabling policies, mobilises private spending of close to $700 billion.2

Annual public and private spending in the Sustainable Recovery Plan, 2021-2023

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Total government spending over the three years of the plan ($870 billion) would be equivalent to less than 10% of estimated fiscal expenditure in recovery plans that have been announced globally as of the end of May 2020 (Battersby, Lam and Ture, 2020). After the 2008-09 financial crisis, spending on clean energy technology and environmental management measures accounted for around 16% of total stimulus measures (as discussed in Chapter 1).

Many developing economies are at particular risk from the Covid-19 crisis. In terms of immediate health, unemployment and humanitarian implications, they often have inadequate healthcare capacity and weak social safety nets relative to some advanced economies. Many could also face particularly severe economic difficulties because of high existing levels of public sector debt and high levels of informal or insecure jobs; in some cases these difficulties may be compounded by weakness in their institutions. Some rely on income from oil and gas exports and have seen a major drop in revenues. Many are boosted by remittances and direct aid from advanced economies that could be at risk because of the economic slowdown. For example, it is estimated that remittances in 2020 going to countries in sub-Saharan Africa could fall by almost 25% from 2019 levels, while remittances to countries in Latin America could fall by 19% (Ratha et al., 2020).

Many people in developing economies still lack access to modern energy and clean cooking. Globally, 860 million people did not have access to electricity in 2018, and around 60% of health services lack reliable access to electricity in most sub-Saharan countries (Cronk and Bartram, 2018). More than 2.6 billion people also relied on traditional uses of biomass, coal or kerosene as their primary cooking fuel in 2018. Household air pollution causes around 2.5 million premature deaths every year; progress on clean cooking would substantially reduce this. Innovative and more decentralised energy systems, making full use of local agricultural and energy resources (including modern bioenergy, such as biogas or bio-ethanol and solar PV), have an important part to play in improving access to electricity and progress on clean cooking. Modest levels of investment in these areas can often generate large social and environmental improvements, while at the same time boosting energy resilience and facilitating economic growth.

Accessing private financing could be a challenge for some countries considering sustainable recovery plans. There has been a major increase in capital outflows away from developing economies since the start of the Covid-19 crisis, and many countries have limited monetary policy options at their disposal. Not all countries have access to international capital markets, and those that do are facing higher financing costs because of increased sovereign risks (Spiegel, Schwank and Obaidy, 2020). International co-operation to mobilise concessional loans and provide debt restructuring or debt relief therefore will be critical (UN DESA, 2020).3

International finance institutions (IFIs), multilateral development banks (MDBs), and bilateral donors (e.g. the G20 countries) will have an important role to play in underpinning the sustainable recovery plan measures in some countries. They have provided emergency financial assistance and debt relief to a number of low-income countries during the unfolding of the pandemic. IFIs and MDBs have also been among the largest foreign direct investors in clean energy technologies in developing countries in recent years, offering short-term credit or guarantees (to improve risk-adjusted returns for private investors), helping to remove barriers to investment and providing technical assistance. Many IFIs and MDBs have announced financing goals or are refining frameworks to improve the alignment of their lending portfolios with sustainability objectives (for example, to limit or discourage emission-intensive technologies and infrastructure, and more broadly to integrate adaptation measures into project designs). This should help to boost the development of new low-emission and resilient infrastructure projects, attract private investors, expand markets, and support governments in reforming climate and investment policies (OECD/The World Bank/UN Environment, 2018).

Domestic policy frameworks and market designs play a key role in attracting private finance. Markets dominated by monopolies and state-owned enterprises are often less attractive to foreign investors. For example, in sub-Saharan African countries (excluding South Africa), every $1 of public funding in power generation attracted around $0.6 of private capital in recent years, much lower than the levels for South Africa ($4.5) and countries in Southeast Asia ($3.5). Governments can improve the prospects for mobilising private financing with targeted interventions to support risk sharing, liquidity support and take-out financing.

Recovery plans also need to take into account countries’ individual macroeconomic characteristics such as the size and robustness of supply chains, the degree of economic diversification and the extent of labour market flexibility. Governments with restricted fiscal space may want to pay special attention to mobilising private finance and focus on ensuring the delivery of shovel-ready clean energy projects. For maximum impact, projects should be carefully selected and appraised, backed by precise cost-benefit analysis and channelled through or overseen by adequately resourced public institutions, with a high degree of transparency throughout. Targeted engagement with the private sector and civil society can help improve transparency. An approach of this kind would also help to avoid the creation of asset bubbles.

Implications of the sustainable recovery plan

We estimate that this sustainable recovery plan would create nearly 9 million new energy-related jobs in construction and manufacturing on average over the next three years, and that there would be an additional 0.4 million job-years in later years from continued work on assets with long construction periods. In total, the plan would therefore directly produce around 27 million job-years worldwide.4 There would also be more than 0.5 million permanent jobs associated with operating and maintaining the assets constructed by the sustainable recovery plan.

We look first at the temporary construction and manufacturing jobs that would be created and then at the longer term operations, maintenance and management jobs.

Construction and manufacturing job creation

The near-term focus of the sustainable recovery plan is to stabilise existing projects to maintain jobs and to launch new projects with very short lead times to jump-start new employment. For example, energy efficiency retrofits can often be ramped up quickly, as can projects to install or improve urban transport infrastructure. New projects of this kind would provide some immediate opportunities for those who have lost or stand to lose jobs in construction and manufacturing because of the pandemic and its fallout.

If the sustainable recovery plan were to be implemented by all countries globally, this would lead to the creation of around 9 million full-time equivalent energy sector jobs in construction and manufacturing by the end of 2021. Construction and manufacturing jobs only last as long as there is a steady stream of new projects, and at some point countries would need to assess the need to repopulate the project pipeline to sustain these jobs. The plan runs from 2021 to 2023, but countries could decide to maintain support for particular measures or to incentivise new activities beyond the three-year period considered here. Ideally those working on energy efficiency, for example, would return to a revived retrofit and construction economy or retrain for other fields. There would also be a small number of construction and manufacturing jobs that would last beyond the brief recovery plan period, largely from long-lead time and slow-to-build infrastructure projects in the power sector.

Construction and manufacturing jobs created in the sustainable recovery plan by sector, 2021-2023

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Of the 27 million job-years created worldwide by the sustainable recovery plan, 35% are in energy efficiency projects in the buildings and industry sectors, and just over 25% are in the electricity sector. Jobs related to cars account for over 10%, and those arising from other transport measures are also about 10%. The remaining jobs are spread across fuels, renewables in end-uses, recycling and innovation.

Of the 9.5 million total job-years for energy efficiency in buildings and industry, just under 60% are for buildings retrofits and efficient new construction. Most regions have a domestic supply chain to support construction material production and implementation, and so most of these jobs would be created within the regions where the investment takes place. Many efficiency measures would lead to consumer savings, often within a short period of time; they would also provide immediate improvements in the resilience of energy systems. In the power sector, 60% of the 7 million total job-years created would be in renewables. While the construction jobs for these investments would be created locally, some of the manufacturing jobs, which make up around 20% of the total job-years created, would be created outside the region making the investment.

The drop in coal demand is expected to decrease employment in coal-based electricity generation by 0.2 million by 2021. To reduce the social impact of these job losses, well-resourced retraining, capacity building and regional revitalisation programmes will be required to enable workers and communities to find attractive alternative livelihoods.

The economic impact of Covid-19 is likely to be felt most profoundly by the poor and economically vulnerable segments of society. Around 5% of the jobs created by the sustainable recovery plan would be suitable for unskilled labour: a number of measures, like waste collection and biofuels support, would also be likely to support a significant number of workers in the informal economy. In low-income countries without full electricity access where many people rely on the traditional use of biomass for cooking, investment in grids, decentralised systems and clean cooking solutions could employ around 350 000 people globally on average in the period to 2023.

Annual average construction and manufacturing jobs created in the sustainable recovery plan

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Many of the jobs created by the sustainable recovery plan would match the skills of workers who lost jobs during the crisis, or would require little retraining. For example, former manufacturing workers could work on assembling highly efficient commercial durable goods, and former construction workers could undertake building retrofits. However, we estimate that around 40% of the jobs created globally in the sustainable recovery plan would be in specialised positions, which would require substantial retraining programmes. For example, a large portion of the work on large civil construction projects (such as hydro or nuclear power) is highly technical. While workers may be available from overseas to fill immediate skills gaps, investment in retraining and capacity building would be essential to supply this segment of the labour market.

Some measures in the sustainable recovery plan would stimulate demand for imports of goods and services. Suppliers for high-tech goods and services (for example relating to power networks and high speed rail) are often located in advanced economies, while basic fabrication materials and appliances are often manufactured outside of advanced economies. Countries could aim to maintain or develop a higher proportion of jobs by promoting local industries and developing domestic supply chains, although this would need to be balanced against the need to ensure competitiveness. International co‑operation and trade agreements could help reduce potential areas of conflict.

Globally, males hold around 93% of construction jobs and more than 60% of manufacturing jobs. Unless gender occupational segregation is addressed, the jobs created by sustainable recovery plans are likely to be taken mainly by men. A multi-track approach is needed to close gender gaps and achieve equality in employment and remuneration (ILO, 2019). Rights at work should ensure that women and men have equal opportunities, are protected from discrimination and have access to maternity and parental leave allowances. Child-care policies, support for lifelong learning, an enabling environment for female entrepreneurs and social dialogue would also contribute to empowering women in the labour market.

Operations, maintenance and management job creation

Construction and manufacturing would account for the vast majority of the immediate jobs boost during the sustainable recovery plan, but long-lived capital assets built as a result of the plan would also give rise to continuing operations and maintenance (O&M) and management jobs. A much smaller number of these jobs would be created, but they would last for a much longer period. We estimate that nearly 0.5 million O&M and management jobs would be created by the measures realised in the sustainable recovery plan. The cost of sustaining these jobs is not included in the sustainable recovery plan: they would be funded from the operating revenues of firms using the assets developed under the plan.

The sustainable recovery plan would provide further long-term employment by “inducing” further jobs across the economy: spending by those in new jobs would lead to further job creation in other sectors. Many energy measures – in particular energy efficiency – would deliver savings for consumers and so increase household disposable income for other purposes, thereby supporting employment in other economic activities. Investment in new industries, such battery manufacturing and hydrogen production, could also provide an important runway for future job growth.

Economic growth

A critical aim of the sustainable recovery plan is to provide a boost to the global economy. The impacts of the sustainable recovery plan on global GDP have been estimated by the International Monetary Fund (IMF) using the Global Integrated Monetary and Fiscal (GIMF) model5. The GIMF provides an estimate of the response in GDP over time across different regions to a surge in spending that is above the past five-year average levels of investment. The estimate assumes that monetary authorities do not raise nominal interest rates in response to the increases in activity and inflation resulting from the recovery plan: this provides additional impetus to activity by reducing real interest rates. The estimate isolates the specific impacts of the sustainable recovery plan by comparing its results against a baseline that assumes no other increase in investment. The sustainable recovery plan – with $1 trillion dollars of annual spending through 2023 – is estimated to lead to a 3.5% increase in real global GDP in 2023 above the level that it would have been without the spending. In terms of annual changes in GDP, this means that global economic growth each year to 2023 would be 1.1% higher on average than it would have been otherwise.

Impact of the sustainable recovery plan on selected global macroeconomic indicators

 

2021

2022

2023

2024

2025

Inflation

0.3

0.7

1.3

1.7

1.9

Real interest rate

-0.5

-0.9

-1.4

-1.7

-1.8

Consumption

1.4

2.7

3.9

4.6

5.0

Inflation and real interest rate are percentage point differences from a baseline with no increase in investment. Inflation is the change in consumer price index; all other values are in real terms. Consumption is the percentage increase in aggregate spending by households and firms.

Increase in real GDP as a result of the sustainable recovery plan, 2020-2025

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After the period of growth to 2023, the boost to the level of the global economy is maintained, despite the end of the spending and a tightening in the accommodative fiscal stance6. This is because, in addition to the direct increase in GDP from the public and private spending in the energy sector, there are a number of other benefits that help amplify the boost to GDP. Investment in new infrastructure such as electricity networks and in energy efficiency increases the overall productivity of both workers and capital. This generates savings for households, firms and governments which can be reinvested. Improvements in health from reductions in air pollution and increases in the level of energy access in low-income countries also lead to additional medium- and long-term economic growth.

The increase in GDP growth is less in advanced economies than in the rest of the world. This is partly because the amount of spending in advanced economies is less, but also because many of the indirect manufacturing jobs created are located outside of advanced economies. Many countries therefore benefit both from domestic recovery plan spending and (through exports) from the spending in advanced economies. A further point is that investment in energy supply infrastructure in advanced economies tends to be less labour intensive and to provide a less of a boost to productivity than is the case elsewhere.

The sustainable recovery plan would begin the process of structurally reorienting countries’ energy sectors by accelerating the shift towards electricity and increasing the share of energy supplied by low-carbon energy sources. If all countries were to follow the proposals set out in the sustainable recovery plan:

  • An average of around 130 gigawatts (GW) of additional wind and solar PV global capacity would be installed each year from 2021 to 2023 (additional to the levels that would be installed in the absence of the recovery plan). This additional capacity would generate nearly 320 terawatt-hours (TWh) of electricity on average each year. This would be underpinned by widespread grid extensions and improvements, including smart grids and energy storage. The $110 billion spending on grids in the sustainable recovery plan would increase total spending on grids globally by around 40% from levels seen in recent years, boosting investment towards the levels needed for a more resilient and sustainable electricity network.
  • Just over 30 GW of hydro and nuclear power capacity would benefit from lifetime extensions each year to 2023. This enables 90 GW of hydro and nuclear capacity that would otherwise have been soon retired to continue to provide low-carbon power well beyond the end of the recovery plan.
  • Final energy consumption would be around 350 million tonnes of oil equivalent (Mtoe) lower than it would have been otherwise by the end of the spending period. Around n one-third of this would be because of reductions in the traditional use of biomass as a result of shifts to clean cooking solutions.
  • Global electricity demand would rise in the period of the recovery plan, but the increase would be around 900 TWh (75 Mtoe) lower than it would otherwise have been. There would be deep retrofits of a large number of existing buildings, and a number of new highly efficient buildings would be built. In total, the efficiency of around 20 million dwellings would be drastically improved each year as a result of the recovery plan. A number of end-uses in buildings could switch to renewable sources, such as solar water heaters and biomass boilers, to reduce fossil fuel and electricity use. Incentives in the recovery plan would stimulate the purchase of more than 350 million high efficiency appliances each year. A variety of efficiency improvements in industrial processes would curb electricity use.
  • Oil consumption in transport would be around 2 million barrels per day (mb/d) (100 Mtoe) less. Around 12 million car purchases on average each year would be purchases of more efficient internal combustion engine vehicles (ICEs) (including hybrids), while around 6.5 million car purchases would be electric vehicles. Total annual average electric cars sales between 2021 and 2023 would be around 8 million. Oil demand in transport would also be reduced from a shift in some light commercial vehicles sales to electric models and from improvements in the efficiency of trucks, airplanes and ships. 


Additional average annual sale of efficient and electric vehicles in the transport sector as a result of the sustainable recovery plan, 2021-2023

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Additional average annual increase in capacity in the power sector as a result of the sustianable recovery plan, 2021-2023

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Additional average annual retrofits or appliance replacement in the building sector as a result of the sustainable recovery plan, 2021-2023

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The sustainable recovery plan would have a marked impact on GHG emissions. Emissions would be nearly 3.5 gigatonnes of CO2 (Gt CO2) lower by 2025 than they would have been without the recovery plan. It is estimated that CO2 emissions in 2020 will be around 2.6 Gt lower than they otherwise would have been as a result of the slowdown in activity and the contraction in the global economy related to Covid-19. The emissions reductions from the three years of the sustainable recovery plan would therefore provide a much higher level of CO2 emissions reductions than was caused by the Covid-19 crisis, but achieve this through structural changes in the way that society produces and consumes energy rather than by curtailing economic activity.

Emissions avoided as a result of the Sustainable Recovery Plan

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The sustainable recovery plan would kick-start the reductions needed to achieve the goals of the Paris Agreement. Nonetheless, in isolation, the recovery plan would not be sufficient; further actions would be needed to put the world on course to achieve the Paris Agreement goals.

Energy efficiency measures deliver the largest overall reductions in emissions. Historical patterns show that efficiency measures have not attracted as much attention as they deserve; the unique set of circumstances created by Covid-19 mean that this could be an opportunity for their potential to be seized. Around one-third of the CO2 emissions reductions that would occur as a result of the sustainable recovery plan have negative abatement costs, meaning they would save emissions while also saving money. Most of the elements with negative abatement costs are efficiency measures in the industrial, buildings and transport sectors. While initial investment from the recovery plan is needed to stimulate action, the savings from the projects would accrue to firms and households, reducing short-term risks of energy insufficiency and income stress, and would eventually be reinvested to stimulate further economic activity and induce further job growth.

In addition to the reductions in energy-related CO2 emissions, investment in tackling methane leaks from oil and gas operations would yield immediate results by curtailing around 0.8 Gt CO2-eq emissions (assuming that one tonne of methane is equivalent to 30 tonnes of CO2). Unlike many of the other emission abatement opportunities, the spending on methane emissions reductions must be sustained each year to maintain the emissions reduction. For example, leak detection and repair (LDAR) is a cost-effective way to avoid fugitive methane emission. However, if LDAR programmes stop, new leaks that could occur would not be found and fugitive emissions would rise again. There would also be a small drop in methane emissions from replacing the traditional use of solid biomass in households with alternative fuel sources like liquefied petroleum gas (LPG) or with more modern cook stoves.

For countries that currently subsidise the use of fossil fuels, strengthening reform efforts could curb fossil fuel consumption and thus reduce GHG emissions. As discussed in Chapter 2, phasing out inefficient fossil fuel subsidies in nearly all regions would reduce CO2 emissions by around 700 million tonnes (Mt) by 2030. To date, there are few signs that the fall in oil and gas prices is prompting an acceleration in efforts to phase out subsidies. In fact, some countries have introduced additional price interventions to protect newly vulnerable consumers, particularly in the electricity sector (IEA, 2020). Turning this around and strengthening a process of reform would provide an additional boost to emissions reductions from the sustainable recovery plan.

Reductions in SOx, PM2.5 and NOx emissions as a result of the sustainable recovery plan

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The sustainable recovery plan would also lead to reductions in the levels of the three main air pollutants (sulfur oxides [SOX], particulate matter [PM2.5], and nitrogen oxides [NOX]) compared with what would otherwise happen. These pollutants are largely responsible for poor air quality and are a major public health hazard. The decline in the use of coal, mostly for power generation, is the main cause of lower SOX emissions. The shift away from the traditional use of biomass in cooking towards modern and clean alternatives is the main factor leading to the large reductions in PM2.5. Lower oil use in transport is the main cause of reduced NOX emissions.

Some of the measures, particularly those involving new infrastructure such as transmission lines, power plants and roads for maintenance, would have an impact on biodiversity and natural ecosystems. It is important that all new infrastructure should be developed in ways that minimise environmental impacts.

The sustainable recovery plan improves security and resilience in a number of ways. It stimulates investment in electricity networks and energy storage, which reduces the risk of supply disruptions; it helps to modernise grids, thus strengthening the ability to withstand and recover from shocks; and it increases affordable access to energy services, helps to integrate increasing shares of variable renewable electricity, and improves system reliability.

The resilience of low-income economies would be substantially improved by increased energy efficiency, better access to electricity and progress on clean cooking solutions. Such improvements would be particularly beneficial for women, who are generally responsible for collecting fuel and cooking, and who have the highest exposure to fine particulate matter. Investment in networks, mini-grids and residential standalone systems under the sustainable recovery plan mean that around 270 million people gain access to electricity over the period to 2023, while investment in modern and clean cooking solutions move around 420 million people away from the traditional use of biomass, significantly reducing premature deaths from air pollution.

The recent reduction in LPG prices substantially reduces the payback period for households switching to LPG cooking equipment, so long as savings are passed on to consumers and not accompanied by tax increases. Governments may wish to consider implementing price caps to avoid volatility in LPG prices affecting affordability for low-income consumers, or instituting targeted subsidies, as has been done in India. Establishing clean cooking infrastructure in rural areas would improve the ability of governments to reach and support these populations, particularly during times of crisis.

People gaining access to electricity and clean cooking as a result of the sustainable recovery plan

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Energy poverty and the affordability of energy is a critical concern for policy makers. Assuming that prices remain unchanged, there would be important reductions in consumer bills by the end of the sustainable recovery plan compared with a case without this spending as a result of fuel switching and energy efficiency measures.

Reduction in consumer oil and electricity bills as a result of the Sustainable Recovery Plan

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References
  1. Incentives for efficient and electric cars would likely encourage some consumers to change planned car purchases and some consumers to make new car purchases. In the former case, only the additional cost of the more efficient or electric car (compared with an inefficient equivalent) is included in the spending, in the latter case the full cost of the new car is included.

  2. The public to private split is broadly based on historical investment ratios between state-owned enterprises and private firms across the various measures, with differing values for advanced economies and the rest of the world, but with allowance for the higher level of government support that may be needed in some sectors (such as transport). This may underestimate the level of public spending since the economic downturn may reduce the relative willingness or ability of private firms to invest at historical levels.

  3. Concessional loans have more generous terms than market loans, for example through lower interest rates or longer grace periods than those available on the market.

  4. For information on the definitions for the jobs analysis conducted for this report and its methodology, please refer to Annex A of the PDF.

  5. GIMF is a multi-country dynamic stochastic general equilibrium model used by the IMF for policy and risk analysis (Laxton et al., 2010; Anderson et al., 2013). It has been used to produce the IMF’s World Economic Outlook scenario analyses since 2008.

  6. There is a small degree of variation in the increase in global GDP in later years depending on how the near-term increase in government expenditure is assumed to be funded (e.g. through an increase in taxes or reduction in government consumption).

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