Sustainable Recovery

World Energy Outlook Special Report
River running through a forest

Covid-19 and energy: setting the scene

Summary
  • The economic crisis caused by the coronavirus pandemic is prompting governments around the world to enact emergency support measures. Understandably, most of the measures announced so far focus on healthcare and financial support for vulnerable households and businesses. There are large variations between countries, but the announced fiscal measures in G20 countries represent around 7% of each country’s gross domestic product on average.
  • The energy sector has played a vital role in supporting the delivery of healthcare, remote working and many other needs. Like many other sectors, it has been strongly affected by the Covid-19 crisis. Global energy demand is estimated to fall by around 6% in 2020 relative to 2019. We estimate that around 8% of the 40 million jobs directly provided by the energy sector are at risk or have already been lost. Electricity from renewables could be the only energy source to grow in 2020, thanks to new capacity additions and priority dispatch.
  • Attention is now turning to longer term recovery plans that seek to repair the economic damage being caused by Covid-19, minimise job losses among the 300 million jobs thought to be at risk globally, and help to create new jobs. Decisions made now will inevitably shape infrastructure and industries for decades.
  • Recovery plans need to be aligned with long-term national and global objectives on energy resilience and sustainable development, and it is essential that they focus on clean energy transitions if those are to be met. Annual global CO2 emissions are expected to fall by around 8% in 2020, predominantly due to the downturn in economic activity, but recoveries from previous global economic crises have generally been accompanied by a large jump in emissions. A similar rebound in emissions can be expected after this crisis unless there is effort by governments to place clean energy transitions at the heart of the economic recovery. 
  • This report analyses sector-by-sector over 30 specific energy measures that governments may wish to include in their economic recovery plans. It draws on new IEA analysis of the direct and indirect jobs created by different measures and – in collaboration with the International Monetary Fund – presents an assessment of the impact of these measures on global economic growth. On this basis, we set out a sustainable recovery plan – a collection of measures and associated policies, initiatives and regulatory frameworks for countries to consider in the light of their own circumstances – with a view to deliver a cleaner, affordable, more secure and more resilient energy system, and at the same time provide a major boost to employment and economic growth. 
Introduction

The Covid-19 pandemic has delivered a brutal shock to countries around the world. The immediate focus of governments has necessarily been on healthcare, with parallel emergency financial and economic interventions to provide essential support to citizens and businesses, and to help avert economic meltdown.

The energy sector has played a vital role at this time of crisis, not least in enabling the provision of digital services. In most regions, the energy sector, in particular electricity, has enabled hospitals to provide care, food to be delivered, and allowed millions of people to work remotely and be home-schooled: it has also underpinned digital connections with family and friends. Where access to reliable electricity remains a challenge, the impact of this on health services, economic activity and the wellbeing of households during the crisis has served to underline the urgency of achieving universal access to energy (IEA, 2020a).

The enormity of the shock caused by the economic crisis – the largest since the great depression of the 1930s – is prompting governments around the world to develop recovery packages on a scale that will shape infrastructure and industries for decades to come. These packages offer a significant opportunity to advance national and global objectives for long-term growth and sustainable development. If well designed, the parts of these packages focussed on the energy sector have the potential to deliver both jobs and growth, as well as an energy system that is cleaner, more secure, resilient and cost-effective.

A unique feature of the Covid-19 crisis is that governments have had to take short-term measures that actively suppress economic activity, and it is possible that some of these measures could continue for some time. Reduced economic activity has been accompanied by a steep drop in carbon dioxide (CO2) emissions. However, these emissions are very likely to rebound as economies recover, making it increasingly hard to meet sustainable development goals related to climate and health, and to mitigate other energy risks – notably those related to climate resilience1 – in the coming decades. By putting clean energy transitions at the heart of recovery, governments can help to bring about the structural changes needed to ensure that economic recovery is not associated with an unsustainable rebound in CO2 emissions and local air pollution.

This special report analyses energy-related measures that could be included in recovery plans and quantifies their implications for jobs, emissions and energy sector resilience. It proposes a variety of measures that could provide a major boost to economies, generate millions of new jobs, make the energy sector more resilient, and provide a pathway towards achieving long-term climate and sustainable development objectives. Some measures are likely to be more suitable for particular countries than others, depending on national circumstances. If countries were to align their actions, however, there could be synergistic gains from better integrated supply chains, cost reductions associated with cumulative deployment and policy/regulatory co-ordination across markets. Such co-ordination could make for a more cost-effective and quicker recovery for all.

The report is structured as follows:

  • Chapter 1 sets the scene. It assesses the macroeconomic impact of the Covid-19 pandemic and its impact on the energy sector, including on energy demand, investment and employment. It looks at the emergency economic measures announced or implemented by governments to date. It examines the lessons for clean energy transitions from stimulus plans in the wake of the 2008-09 financial crisis and the case for energy being an important part of stimulus programmes. The chapter concludes with an overview of some of the main ways in which the unique set of circumstances created by the Covid-19 crisis may influence the design and implementation of sustainable recovery plans.
  • Chapter 2 assesses a number of energy sector measures in six areas: electricity, transport, industry, buildings, fuel supply and strategic opportunities in technology innovation. It looks at both the short-term and longer term implications of these measures for job creation, economic growth and energy security, resilience and emissions. It takes account of major original analysis that has been undertaken for this report on current employment in the energy sector and the potential for future job creation. Not all measures are applicable to all countries, but given the breadth of the measures covered, we hope that all countries will be able to find measures that are relevant to their particular situation and gain insights from the various specific examples presented.
  • Chapter 3 presents a sustainable recovery plan for policy makers to consider, taking account of the individual circumstances of their countries and their strategic long-term energy security and sustainability goals. It aims to help countries deliver their energy security and sustainable energy goals while at the same time boosting jobs and economic recovery. The gross domestic product (GDP) impacts were assessed in co-operation with the International Monetary Fund (IMF). 


Macroeconomic impacts of the crisis

It is still unclear how long the current health crisis will last and how deeply the pandemic and related containment measures will impact global trade fundamentals, businesses, consumer behaviour and investor confidence. By mid-April 2020, lockdown measures were at their peak, with the governments of countries representing almost 60% of the global economy having mandated full or partial lockdowns, resulting in huge job and output losses (IEA, 2020a). By mid-May, around one-third of the global population remained under full or partial lockdown.

Share of global population under containment measures, Jan.-June 2020

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The Organisation for Economic Co-operation and Development (OECD) expects the global economy to contract by around 6% in 2020, on the assumption that a second wave of infections is avoided during the second-half of 2020: this would be the largest economic dip since the global depression of the 1930s (OECD, 2020)2. This is similar to a projection by the IMF which assumes long lasting containment measures, but no second wave of infections (IMF, 2020a). GDP is expected to shrink in nearly every country in 2020, although with significant variation reflecting their differing circumstances. As economic growth projections have been revised downwards, the unemployment count has continued to rise. Worldwide, some 300 million full-time jobs could be lost and nearly 450 million companies are facing the risk of serious disruption (ILO, 2020).

There has been a high degree of volatility in global energy markets, with a major drop in oil and natural gas prices in early March 2020. This is of particular concern for countries in which the production and export of oil and gas are central to financing national budgets (IEA, 2018). Oil and gas income in producer economies such as Iraq, Nigeria, Algeria, Oman and Angola could fall by as much as 80% in 2020. This would reduce their income to its lowest level in over two decades (IEA, 2020b) at a time when the social and health infrastructure of many of these countries face significant strains and their public finances are in worse shape than during the previous oil price shock in late 2014. Such reductions would reinforce the importance of economic diversification but also undercut the means to support it.

Low-income countries are facing additional pressures in dealing with the pandemic and its fallout. The ability to mitigate immediate health risks is often compromised by a lack of access to sanitation and public health infrastructure, high household occupancy rates and a significant number of low-income, often informal jobs which cannot be carried out remotely, making it hard to practise social distancing. In 27 sub-Saharan African countries, close to 60% of health centre facilities are without access to reliable electricity (IEA, 2019), and over 860 million people worldwide lack access to electricity, severely limiting their ability to store medicines and food, charge phones, access digital information, maintain access to education remotely or light their homes effectively (IEA, 2019b).

Many developing economies also have less capacity than advanced economies to boost spending on health measures, provide emergency assistance to workers, households and businesses, and rekindle their economies. This is because it is harder for them to deploy many of the fiscal and monetary levers that are available to advanced economies. In addition, developing economies often face high levels of debt service: many countries in sub-Saharan Africa spend more on interest repayments than healthcare. Remittance flows, which can be a significant source of revenue for many economies, could also fall by around a fifth in 2020 due to job losses in wealthier countries (World Bank, 2020). International co-operation, assistance and aid will be critical to ensure that developing economies do not suffer disproportionately from the fallout of the crisis. 

Covid-19 crisis and the energy sector

Based on data for the first four months of 2020, and on the assumption of a gradual recovery in the global economy, we estimate that total primary energy demand will drop in all major regions and contract globally by around 6% in 2020. This would amount to a shock around seven-times larger than occurred during the 2008-09 financial crisis. 

  • Oil demand is expected to drop by around 8% on average across the year. Demand in April declined by 25%, with transport demand dropping particularly sharply. Demand is expected to pick up as economic activity increases, but a number of uncertainties remain over the speed and magnitude of the rebound (IEA, 2020c).
  • Natural gas demand is expected to fall by around 4%, which would constitute one of the largest contractions since natural gas became a major industry. However, the recent major reduction in gas prices, together with the widespread availability of liquefied natural gas, have created a cushion for gas demand and made it more competitive with coal, including in many Asian countries.
  • Coal demand is expected to drop by 8% in 2020, the largest contraction since World War II, as a result of reductions in demand in major coal consuming countries, including India. Declines in electricity demand are the principal cause of lower coal use.
  • Nuclear power is set to fall by 2.5% from 2019 levels due to lower demand and delays both in refuelling existing projects and in operations at new plants.
  • Electricity demand has been depressed by 20% or more during periods of full lockdown in several countries, with higher residential demand outweighed by reduced demand for commercial and industrial operations. Demand could fall by 5% globally in 2020 as a whole, and by up to 10% in some regions. Generation from renewables is expected to increase because of low operating costs, its preferential access in many power systems, and recent growth in capacity with new projects coming online in 2020. As a result, electricity generation from renewables is expected to rise by nearly 5% in 2020.
  • Biofuels are likely to see demand decline as a result of reduced transport activity and a loss of price competitiveness with oil.

The drop in energy demand has also led to a significant reduction in local air pollution, especially in cities. Global CO2 emissions in 2020 are expected to fall by around 2.5 gigatonnes (Gt) to just under 31 Gt, around 8% lower than in 2019. This would be the lowest level since 2010. Nearly all of this decline is due to reductions in economic activity rather than structural changes in the way the world produces and consumes energy. Unless there is immediate action to bring about such structural changes, emissions are very likely to rebound as economies recover.

Change in global primary energy demand, 1900 to 2020e

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More than 90% of people worldwide are exposed to unsafe levels of fine particulate matter (PM2.5) over their lifetimes. Outdoor air pollution still accounts for around 3 million premature deaths globally, mostly in middle income countries in the Middle East and Asia.

In regions with lockdowns, there was a decrease of 50-75% in road transport activity and up to 95% in rush-hour traffic congestion in major cities. Road vehicles are a major source of nitrogen dioxide (NO2) in cities. There were many recorded declines in NO2 concentrations, probably due to the lockdowns. For example, average NO2 concentrations in Milan were around 17% lower during the two week period after the start of its lockdown than during the two weeks before. The most polluted cities saw some of the biggest improvements in overall air quality: in New Delhi a major reduction in rush-hour traffic congestion during the first weeks of lockdown coincided with a 66% drop in NO2. Cities in the People’s Republic of China (hereafter China) and India also recorded reductions in sulfur oxide (SOX) concentrations as industrial activities were curtailed.

The impact of lockdowns on levels of PM2.5 is not as clear-cut. Road traffic typically accounts for less than a third of PM2.5 emissions. The majority of PM2.5 emissions come from other sources such as industrial activity, space heating in buildings and agriculture. Therefore the impact of reduced road traffic on PM2.5 emissions is likely to be smaller than on NO2 emissions. Local weather conditions can also drive large fluctuations in NO2 and PM2.5 concentrations, making it hard to see the effects of the relatively small reductions in PM2.5 emissions in concentration levels. For example, in New Delhi and Paris there were marked increases in average concentrations of PM2.5 during the two weeks after lockdown compared to the previous two weeks, while in Milan there was little significant change. This underlines the need for efforts to reduce PM2.5 in line with the UN Sustainable Development Goal 3.9 to be wide ranging.

After the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003 it was shown that previous exposure to air pollution dramatically increased the risk of death (Cui et al., 2003). Although a connection between air pollution and mortality rates from Covid-19 has yet to be established, several recent studies have pointed towards a link between areas of high pollution and high death rates (Conticini, Frediani and Caro, 2020). In northern Italy, which has some of the highest concentrations of PM2.5 in Europe, death rates from Covid-19 are markedly higher than in the rest of the country. Causation, however, is difficult to establish: other factors such as demographics and population density may be important. There may also be a connection between the likelihood of becoming infected with Covid-19 and levels of particulate matter pollution, as one preliminary study reports that the Covid-19 virus has been found attached to samples of micro-particulate pollutants (Setti, et al., 2020).

Change in air quality index and rush-hour traffic congestion before and after lockdowns in selected cities, 2019 compared to April 2020

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Volatile commodity prices and suppressed energy demand will leave many energy companies with weakened financial positions and strained balance sheets. As a result, spending has been reined in, project workers have been confined to their homes, planned investments have been delayed, deferred or shelved and supply chains have been disrupted. We expect that investment in the energy sector in 2020 will experience its largest decline on record with a reduction of one-fifth – almost $400 billion – in capital spending compared with 2019 (IEA, 2020d).

The oil and gas sector has experienced the largest reduction in investment of any energy sector as a result of diminished revenues that reflect less demand and lower prices, and uncertainties about future prospects. We estimate a decline in oil and gas investment in 2020 of around one-third compared with 2019. The power sector has been less exposed to price volatility, and cuts in investment announced by companies are lower, yet we estimate a drop of 10% in capital spending. Investment in renewable energy has been relatively resilient, compared with fossil fuels, but is still set to fall by around 10%. In addition, sharp reductions in vehicle sales, construction and industrial activity are set to stall progress in improving energy efficiency.

The share of investment in low carbon technologies (such as renewables, efficiency, nuclear, carbon capture, utilisation and storage [CCUS]) has held at around one-third of total energy sector investment in recent years. It is likely to jump towards 40% in 2020, but only because investment in fossil fuels is set to drop sharply. In absolute terms, it remains far below the levels that would be required to accelerate clean energy transitions. The IEA’s Sustainable Development Scenario3 sees annual investment in electricity networks in the 2025-30 period that is around 50% above the level seen in 2019, and annual investment in power from renewables that is around 90% higher.

Power sector investment in 2019 and 2020e, and annual average investment in the Sustainable Development Scenario

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Fuel supply sector investment in 2019 and 2020e, and annual average investment in the Sustainable Development Scenario

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The energy industry4 is a major employer that directly employed around 40 million people around the world in 2019. Of these, around 17 million worked in electricity generation and networks, and around 20 million in the production, transport and distribution of fossil fuels, and a further 3 million in the production, transport and distribution of bioenergy.

Energy sector, energy efficiency and vehicle manufacturing jobs at risk post Covid-19 and share of total sector employment

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Of the roughly 17 million people working in electricity generation and networks, nearly 12 million were employed in electricity generation in 2019, with around 30% of those involved in the operation and maintenance of existing plants, and the remainder involved in the building of new power plants (including construction and manufacturing activities). The solar industry is the largest employer in the power sector, with over 3 million employed, mainly in manufacturing and construction, followed by employment in coal at roughly 2.5 million, hydropower at 2 million and wind at about 1 million. Electricity networks employed around 5 million globally, with roughly a quarter of jobs in transmission and three quarters in distribution. About 90% of those jobs are in utilities and related projects, and around 10% are associated with equipment manufacturers.

Of the roughly 20 million people working in fossil fuel industries, the oil and gas sector employed over 13 million people in 2019, with around 5 million of those working in oil field services, the market segment impacted the most by low prices. Coal extraction, processing and delivery employed roughly 6.5 million globally in 2019. Coal mining, particularly in China and India, employs a large number of unskilled labourers in low-income regions, and the industry is an important element of socio-economic stability in these regions.

Economy-wide labour hours are expected to be down 10.5% in the second-quarter of 2020 due to Covid-19, the equivalent of 305 million full-time jobs (ILO, 2020). We estimate around 6 million jobs across the energy sector, energy efficiency and vehicle manufacturing have been lost or are at risk of being permanently lost due to Covid-19 impacts.5 Jobs in fossil fuel industries are likely to be hardest hit due to sustained low prices, especially in oil and gas, where more than 1.2 million job losses are expected in upstream operations. Global employment in coal, which has already been on a downward trend in recent years, could drop by around a further 0.7 million jobs, driven primarily by decreasing demand for coal in the power sector and fuel switching to low-price natural gas.

Jobs in operating power plants and networks are likely to be less affected, as electricity demand is expected to return more quickly and since electricity grids have to continue to operate reliably. The majority of power sector job losses are related to expected declines in new investment for generation and grid projects. Many projects currently on hold are expected to resume after lockdown measures are lifted, but some face being postponed until electricity demand increases. Developers and manufacturers in both power generation and networks are bracing for a decreased pipeline of new projects in the coming years; around 0.6 million jobs have already been lost or are at risk in the longer term.

The transport sector and energy efficiency have significant impacts on improvements in energy intensity; both are expected to see sharp job losses due to the pandemic. We estimate that around 1.3 million jobs in energy efficiency are at risk worldwide, primarily in construction associated with retrofits and manufacturing of efficient appliances. Automobile and parts manufacturers employ around 13 million globally, including contract workers, with alternative fuel vehicles representing roughly 10% of total employment. Car sales are expected to decline by 15% in 2020, with the decrease in sales being most pronounced for efficient internal combustion engine vehicles, and more moderate declines for alternative fuel vehicles, in particular electric vehicles (EVs) (IEA, 2020e). Aviation directly employs6 about 10 million people worldwide of which about 1.2 million are in civil aerospace, where fewer orders for new planes will decrease jobs and slow improvements in fleet efficiency (IATA, 2020).

Sustaining and creating employment is a major priority for policy makers and is fundamental for economic recovery. To provide a full understanding of the implications and design of recovery packages, we have undertaken a new global analysis of jobs in the energy sector. This analysis was conducted by energy sectors and by regions, and estimates pre-pandemic employment, potential job losses and the job creation potential of various investments targeted in stimulus measures. This analysis is discussed at length in the Chapters "Evaluation of possible recovery measures" and "Sustainable recovery plan for the energy sector". (For more information on the detailed jobs analysis conducted for this report and its methodology, please refer to Annex A. of the PDF)

How should governments respond?

While significant uncertainty lingers on the length, depth and impacts of the Covid-19 crisis, there is a broad consensus on the need for well-designed packages of measures that will support economic recovery. The pandemic is global and its impacts – though uneven – are global too. This suggests that packages of measures are likely to be more effective if they involve some elements of international co-operation. 

Emergency financial and economic support measures in selected countries and regions (as of 4 June 2020)


 

Brazil

China

European Union

India

Japan

Saudi Arabia

South Africa

Southeast Asia

United States

Financial system stability

Ease in implementation of fiscal rule, flexibility within accounting and prudential rules, central bank intervention.

Social measures

 

 

 

 

 

 

 

 

 

Emergency safety net for vulnerable households

Government loans, direct payments, tax cuts/deferral, extension of rent/mortgage payment deadlines, food assistance.

Emergency safety net for workers

Enhanced/extended unemployment insurance/wage subsidies.

Business support

 

 

 

 

 

 

 

 

 

Direct tax rebates

 

Liquidity provisions for SMEs

Loans, credit guarantees.

Forbearance (debt, tax, bills)

Support to exporters

 

 

 

Bailouts, grants and/or subsidies

 

 

 

Energy sector support

Public investment/support for ongoing projects; government loans and bailouts for energy companies and targeted support for their workers; purchase of oil stocks; energy access measures.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes: Prudential rules = regulations requiring that financial firms maintain adequate capital and have appropriate risk controls in place. SMEs = small and medium enterprises. Data for the European Union and the Association of Southeast Asian Nations (ASEAN) encompass measures taken at member state level as well as at the regional association level. As of 11 May 2020, the Saudi Arabian government had announced fiscal consolidation measures (increased consumption tax, suspension of a cost-of-living allowance for civil servants). Sources: IEA analysis based on official communications, as compiled in the OECD Country Policy Tracker; IMF Policy Responses to Covid-19; Gentilini et al. (2020).

Many governments remain primarily focussed on emergency relief packages that target the health sector, as well as on maintaining financial stability and providing emergency support to households and businesses. In response to the pandemic, many countries implemented some form of health and containment measures, although these differed in scope and duration. Around one-third of the global population was subject to complete or partial lockdowns in mid-May 2020, and nearly the entire global workforce was affected by some form of containment measure.

Social protection measures have been implemented or extended in about 160 countries and form the bulk of short-term policy responses (Gentilini et al., 2020). Wage subsidies are among the most common measures, and many governments are going beyond formal employment support to provide explicit help to informal workers. Argentina, Brazil, Ecuador, Egypt, India, Morocco, the Philippines and the United States are among the countries providing social assistance through cash transfers.

Many governments have also provided financial and regulatory support to small and medium enterprises (SMEs), as many of these are facing liquidity stress and solvency concerns. SMEs account for around 70% of total employment in OECD countries, and around 45% in emerging economies (OECD, 2017). Emergency response measures in many countries are also targeting sectors identified as particularly exposed or as strategically important: in some countries this has led to support for industries such as aviation and vehicle manufacturing.

The scope, orientation and duration of current emergency social and economic plans vary widely by country. They depend not only on the local severity of the health crisis and its impact, but also on fiscal policies and social and economic structures. Different national challenges mean that governments have chosen various responses tailored to their particular circumstances.

It is difficult to compare the precise sums of money that have been committed to support schemes across countries and regions, but existing plans, in terms of fiscal measures, are estimated to represent between -3% and 21% of countries' GDP, corresponding to around seven trillion dollars for G20 countries in total. At a global level, recent appraisals show that total amount spent on fiscal measures is about nine trillion dollars (Battersby, Lam and Ture, 2020). Some of these emergency measures will have an influence in the longer term. However, as this report went to press, only a handful of governments had announced intentions to implement medium-term plans beyond the immediate economic and financial relief measures.

Emergency fiscal measures announced by G20 countries in response to the Covid-19 crisis

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So far, the energy sector features in a number of emergency plans, although not as a primary target. These energy-related measures can be clustered into three key areas.

Focus on energy security and opportunities provided by lower prices. Some governments have seen an opportunity in the recent low market prices to boost strategic oil reserves, with longer term benefits for global energy security, or to take other actions. The Australian government, for example, has agreed to buy capacity in the US Strategic Petroleum Reserve. The Indian government increased excise duties on petrol in order to generate public revenues earmarked for post Covid crisis recovery.

Revising or reaffirming commitments to clean energy transitions. In the context of responding to the crisis, a number of countries in the European Union are implementing or considering measures to accelerate clean energy transitions. The Netherlands has continued with legislative processes for the implementation of national carbon taxes and, along with Spain, has reasserted commitments to achieve climate change targets. Germany announced a series of measures incorporating purchase incentives for electric and hybrid vehicles, financial support for charging stations and battery production and public investment to expand the production of low-carbon hydrogen. Austria and Sweden have completed their phase-out of coal power generation ahead of schedule. Denmark has set out plans to invest heavily in energy efficiency improvements in social housing and to build two artificial islands for energy purposes and target a minimum combined 4 gigawatts (GW) of offshore wind capacity by 2030. The European Commission’s proposal for a new €750 billion recovery instrument aims to support member states to accelerate clean energy transitions.

In the United Kingdom, budgetary plans set out in March include provisions to enable the funding of at least two carbon capture storage clusters by 2030. In Korea, the government’s recovery plans encompass a number of measures that aim to achieve a net zero greenhouse gas emissions target in 2050, ranging from investments in renewable energy sources to the introduction of a carbon tax and targeted support for fossil fuel industry workers transitioning to other sectors. In China, plans and objectives announced during the convening of the National People's Congress in May 2020 include additional investments in electric and fuel cell vehicles, as well as in new infrastructure supporting digitalisation, EV charging stations and ultra-high electricity transmission. China’s government extended financial support that had been set to expire at the end of 2020 to 2022 to cushion the impacts of the Covid-19 epidemic on new EV markets.

A number of countries have confirmed or extended their support for clean energy projects. In France, deadlines for contracting and grid connection for project developers were extended, and the level of feed-in-tariffs was frozen to accommodate delays due to supply chain disruptions or labour constraints. The Portuguese government has confirmed its intention to start the construction of a 1 GW solar-powered hydrogen plant in the coming year. The UK government has maintained the original timetable for wind auctions, and is continuing public consultations on its proposed support scheme for biomethane injection into the grid. In India, the government listed renewable energy installations as essential services, allowing the workforce to continue operations as needed. In Indonesia, the government has reconfirmed its plan to enact a new regulation on renewable energy that had been announced before the epidemic. A number of governments have also defined climate change or environmental conditions for access to public support. For instance, in Canada authorities have included annual environmental planning and reporting requirements among the conditions that large firms will need to meet in order to qualify for its emergency loan programme. They also announced funding for the decommissioning of inactive and orphan wells in three provinces, as well as a fund to support the oil and gas sector in reducing methane emissions. The Austrian and French governments, among others, have signalled a willingness to link airline bailouts to environmental conditions.

At the same time, however, some countries have chosen to delay a number of decisions related to clean energy transitions. For example renewable energy auction schedules have been subject to partial or full postponement in Chile, China, France, Germany, Ireland and Portugal. In Brazil, where power sector auctions have also been postponed, the flagship policy to enhance biofuel targets in its transport sector may be adjusted in a way that affects planned reductions in CO2 emissions.

Creating safety nets for companies and consumers. A number of governments have introduced measures to defer energy bills or provide other support for vulnerable households and businesses. In Togo, for example, households with “solar home” systems operated by private companies participating in the national electrification programme have been offered free services and payment deferrals. Governments are also implementing measures to help utility companies. In Brazil, tariff revision cycles have been suspended to avoid increases in consumer prices, and funds have been provided to improve power sector liquidity and to help utilities provide consumer subsidies. Liquidity injections and state-guaranteed loans have also been provided to electricity distribution companies in India. As part of wider responses to support heavy industries, some governments have implemented specific support measure for the oil and gas sector, notably in the form of loans in the United States.

The current economic crisis differs in a number of ways from the financial crisis in 2008-09, and the ways in which countries respond will also differ. There are, nonetheless, some useful lessons to be drawn from analysing the results of the energy-related spending and support for clean energy technology in recovery plans launched in the wake of the 2008-09 global financial crisis.

While definitions of what constituted clean energy in the 2008-09 packages vary, policies targeting renewable energy generation, energy efficiency in buildings, scrappage payments for vehicles with low fuel efficiency, clean technology development support, mass transit, nature conservation and water resource management were then estimated to account for around 16% of the total global stimulus measures, totalling over half a trillion dollars (Agrawala, Dussaux and Monti, 2020). Although global clean energy investment in 2008-09 helped to unlock growth in wind and solar photovoltaic (PV) technologies, and to improve the resilience of gas and electricity networks, the overall recovery from the financial crisis generally was carbon intensive. Following an initial decline in emissions of 0.4 Gt CO2 in 2009, emissions rebounded by 1.7 Gt CO2 in 2010.

It is difficult to measure the overall effectiveness of these energy-related funds. But to take one example, spending by European Union member countries on clean energy measures included investment in energy efficiency, transport infrastructure, vehicle scrappage schemes, renewables and innovation. Spending on these specific measures, estimated on average to have cost around 0.3% of GDP, provided a boost to GDP at a national level of around 0.6 - 1.1%, depending on the level of ambition in each country, and as much as 1.5% at a European Union level (Cambridge Econometrics, 2011). This was in the context of a 0.1% decrease in global GDP during the financial crisis, with G77 countries recording an average decline of 3% (IMF, 2020b).

Some of the key lessons from the financial crisis in 2008-09 for stimulus spending on clean energy include:

  • Scaling up successful existing policies usually delivers the biggest economic and employment returns. The two policies that significantly increased renewable energy investment in Europe and the United States pre-dated the crisis, but were then boosted in scope and ambition as a response to the economic crisis. At one stage in 2010, the US government was providing as much project financing for renewables as the ten-largest private green investment funds combined (Mundaca and Richter, 2015). Large-scale programmes used well-known, standardised technologies and deployment approaches, for example to improve energy efficiency in industrial energy use in China. In Germany, funding allocated to energy efficiency in public buildings significantly exceeded previous investment levels. While the use of existing policy structures helped with the efficient roll out of large fiscal and investment programmes, the size, speed and choice of policy instruments led to challenges in some cases. In China, for example, reliance on rapid investment driven growth led to a surge in local government debt and to inflation in land and housing markets (Wong, 2011).
  • Technology readiness is critical. Clean energy stimulus investment provided strong support for wind and solar PV in 2009, creating positive feedback loops and cost declines. In the United States there was strong support for research and development for lithium-ion battery storage systems and for electric vehicles which led to accelerated cost reductions and improved standardisation of EVs and grid storage. However, a lack of sufficient maturity in 2009, combined with prevailing market conditions (in particular an oil price crash), meant that stimulus funding for technologies such as advanced biofuels and hydrogen did not lead to a material increase in manufacturing capacity.
  • Large infrastructure projects require careful appraisal and management if they are to fulfil expectations. Policy makers in 2008 identified energy infrastructure as a promising area for stimulus in part because of its large macroeconomic multiplier impact. While this helped the development of some clean energy infrastructure, it also led to the allocation of funding to projects that never got built, often because of complex licensing procedures (for example long-distance direct current transmission lines in the United States) or an inability to get the projects co-funded and off-the-n ground within the required timeframe (for example, CCUS projects in the power sector in the United States and Europe).
  • Stimulus spending on clean energy is most effective when synchronised with training. Experience from the United States shows that the deployment of clean energy technology is labour intensive, and that a critical success factor is including targeted education and training in programme deployment from a very early stage. Timely training (or re-training) enables workers to develop the skills needed to be ready for employment when projects are deployed (Mundaca and Richter, 2015).
  • Stimulus funding is most effective when it is aligned with long-term price signals. Some large low carbon projects receiving significant public investment struggled to attract private funding due to the absence of clear, long-term price signals, such as carbon prices. Following the 2008-09 financial crisis, legislative efforts to introduce an emissions trading system in the United States were abandoned, while allowance prices in the European Union Emissions Trading System remained very low. This meant that the business case for investments such as CCUS was difficult to maintain.


Energy has not featured prominently in the Covid-19 recovery packages proposed to date. Yet the magnitude of this crisis, as well as lessons from the 2008-09 financial crisis, combined with the long-term current trajectory of global CO2 emissions all lend credence to the case for heightening attention to the energy sector in the next phases of recovery and stimulus programmes.

Investment in energy can sustain and boost employment while helping to deliver affordable and reliable energy and to improve the resilience of energy systems. This in turn helps to support higher employment and activity levels in all parts of the economy. Investment in energy measures therefore can induce indirect economic benefits which extend far beyond the energy sector.

Furthermore, investment in energy is needed if there is to be a structural reorientation of the global energy sector that enables countries to meet their long-term goals on climate change, energy access and sustainability.

While the Covid-19 crisis could in some ways hamper efforts to develop cleaner and more resilient energy economies, in other ways it could bolster these efforts. It has, for example, led to: 

  • A focus on the urgent need to restore existing jobs and create new ones. The massive unemployment rates around the world make labour-intensive projects that also boost the productive capacity of the economy attractive components in economic recovery and stimulus packages. Some measures in the energy sector would be excellent candidates in terms of job creation. However there is a risk that measures that are not sufficiently labour intensive (such as spending on electricity networks) may receive less attention, even though they could make an important contribution to improving long-term resilience and sustainability. 
  • Changes in the monetary environment. Central banks are responding to the Covid-19 crisis by lowering interest rates and increasing quantitative easing programmes. This means that the cost of capital in many regions has fallen, which improves the economics of new capital-intensive projects such as large-scale infrastructure. However, there has also been a large increase in capital outflows from many developing economies, where monetary action is not always easy to take, private sector co-financing ability is limited and government borrowing capacity on international markets is constrained. As a result, it may be difficult for some developing countries to undertake large-scale investment programmes.
  • Volatility in fossil fuel markets. The recent large drop in oil demand has led to extreme oil price volatility. This has had negative consequences for key producer economies as well as for many companies: while this highlights the need for many of these countries to diversify their sources of revenue, it simultaneously makes the process of reform more challenging to implement. Natural gas prices have also fallen, which is helping the economics of coal-to-gas switching, but, at the same time, is making some efficiency measures less cost-effective.
  • Heightened awareness of the benefits of clean and secure energy. Air pollution in cities, largely linked to road transport and to oil and coal use, has major implications for health, and is a possible contributory factor in Covid-19-related mortality. Significant improvements in air quality during the lockdown period have underlined how much air pollution there normally is in many cities. Meanwhile more than 4 billion people have spent time in lockdown, with many working from home and home-schooling, underlining the vital importance of reliable electricity supplies.
  • The possibility of lasting changes to the way people behave. Some of the changes to behavioural patterns originally brought about by the Covid-19 lockdowns could continue to some extent after the immediate crisis has waned. Working from home could become more common, reducing commuter journeys and potentially reducing air pollution in cities. Conversely, due to perceived health risks, there might also be some lasting reluctance to use public transport, making it harder and slower to reduce air pollution and decarbonise transport.


References
  1. Resilience of the energy sector refers to the capacity of the energy system or its components to cope with a hazardous event or trend, such as war, famine and extreme weather. Because climate change can create conditions that will negatively impact the energy sector, resilience becomes increasingly important (IEA, 2015).

  2. Values presented for the year 2020 are estimates.

  3. The Sustainable Development Scenario sets out a pathway for the development of the global energy sector consistent with the goals of the Paris Agreement and UN Sustainable Development Goals related to air pollution and energy access (IEA, 2019b).

  4. The “energy industry” encompasses all supply of fuels to end-uses, including the production, transformation and provision of solid, liquid and gaseous fuels to consumers, together with the power sector, including the operation, development and manufacturing of power generation technologies, networks and storage.

  5. These estimates reflect neither those jobs likely to resume after furlough measures nor lost labour wages associated with lockdowns.

  6. This includes airport operators, airlines, civil aerospace (the design, manufacturing and testing of aeroplanes) and air navigation service providers.

  7. G7 countries are Canada, France, Germany, Italy, Japan, United Kingdom and United States.