An agenda for resilience, development and equality
INTRO DUC TION The COVID-19 pandemic has devastated people’s lives around the world. On top of the tragic death toll, widespread lockdown measures have thrown the global economy into a severe crisis – one set to become the worst recession since the Great Depression of the 1930s. The need to lock down economies to combat the virus has severely affected multiple sectors, caused massive job losses in many countries and slashed incomes and economic prospects around the world. Demand has tumbled in energy markets, to varying degrees, precipitating the steepest drop in oil prices in two decades. While some developments of recent months may prove temporary, the world after COVID-19 will clearly be different. Shutting down large parts of the economy has led to significant, temporary, cuts in greenhouse-gas emissions, with global industrial emissions in 2020 expected to show their largest annual drop since the Second World War. However, if anything, this just serves to highlight how little progress in decarbonisation the world is making. Changes in production as well as consumer behaviour before this crisis, although notable, led to only a fraction of the reduction in emissions needed to meet key climate goals. Nor has the current reduction in economic activity put the world on track – specifically to keep the rise in average global temperature to within 1.5°C above pre-industrial levels.
COVID-19 AND ITS IMPACT ON THE GLOBAL ENERGY LANDSCAPE Because of the lockdowns needed to slow the spread of the virus, the COVID-19 pandemic has disrupted production and supply chains and slashed the demand for a wide range of goods and services around the world. This, in turn, has caused contractions in economic activity and depressing many commodity prices. Hundreds of millions of people have either lost their jobs or seen their live lihoods put at risk.1 With lockdowns, spending on leisure activities, restaurant dining, flights and other activities has plummeted. Consumers have stopped spending on many non-essential goods and services, while job or income losses have constrained even essential purchases for many. Businesses have delayed new investment, and economic activity in many sectors has been reduced or has slowed down severely. This part of the report reviews the pandemic’s impact on the global economy, on the energy sector and on renewable energy – all with a principal focus on employment.
THE ENERGY SECTOR As response measures took centre stage in many parts of the world, the impact of the economic slump started hitting the energy sector hard. By mid-April 2020, weekly energy demand had fallen 25% for countries in complete lockdown and 18% for those in partial lockdown.27 Energy needs for transport plunged. Global energy demand could contract some 6% for the year, over seven times more than in the 2008-09 financial crisis. Fossil fuels have taken the brunt of the demand reduction in transport and industry. Oil and coal use could fall by 8-9% in 2020.28 Coal use, driven mainly by trends in China, was down nearly 8% in the first quarter, year on year. Oil consumption fell about 5%, amid 50–60% less ground and air travel compared to 2019 levels. The drop in crude oil prices in April was the largest since 2002. Amid weakening demand, Brent crude prices fell to an 18-year low of USD 19/barrel in April 2020,29 in the United States crumbling demand and storage constraints even resulted in a negative U.S. oil price for the first time in history as forward contracts came due.
RENEWABLE ENERGY DEVELOPMENT So far, the renewable energy sector has fared better than the rest of the energy sector. Still, the crisis has affected project schedules and industries considerably. Lockdown measures, along with dampening fuel and electricity demand, have caused delays opening new facilities or bringing new plants online. At the same time, the availability of finance has contracted and the risk appetite among investors has shrunk, affecting future investments and installations. Yet not all effects of the economic slowdown are negative. As more governments pledge to build a better future, ambitions to decarbonise energy sector may be gaining ground. This would suggest faster deployment of renewables, both in the power sector and beyond.
INVESTMENT AGENDA FOR 2030 Unprecedented government intervention has played a critical role in confronting the health crisis and related economic downturn. The shock of the pandemic has necessitated a kick-start, providing a rare and timely opportunity for structural changes that emphasise sustainability and deliver benefits with minimal negative effects. Governments must ensure that their recovery plans are sustainable, so that investments made now in people and infrastructure have longevity. IRENA’s Global Renewables Outlook (GRO): Energy Transition 2050 presents ambitious but realistic global pathways to a future that is consistent with the goals of the 2015 Paris Agreement on Climate Change. Under the report’s Transforming Energy Scenario, in which the rise in global temperatures is kept to well below 2°C, the goal is achieved by cutting 70% of the world’s energy related carbon dioxide emissions. The report also offers a “deeper decarbonisation perspective,” with options to reduce energy-related carbon dioxide emissions to zero.
Renewables and efficiency as key investment focus Investments in the energy transition can be an attractive part of a recovery package. They can boost the economy over the next three years and beyond, while creating good jobs in a wide range of professions. Investments can be scaled up rapidly in several areas, accelerating the recovery. Short-term and longer-term opportunities can be sequenced with an eye to cascading investment flows into the areas needed for the transition to succeed. Recovery programmes also offer opportunities to take a comprehensive approach that will ensure that supply chains, enabling infrastructure and skills are in place when certain investments are made. Such a holistic approach would allow governments to tailor investment to meet a range of domestic policy agendas. The Transforming Energy Scenario suggests that cumulative energy sector investment in renewable energy and energy efficiency must rise to USD 49 trillion between now and 2030.110 The simple average therefore represents annual investments of around USD 4.5 trillion per year in climate friendly investment in renewable energy, energy efficiency and low-carbon facilitating technologies over the period to 2030 – including enabling infrastructure such as power grids and storage (see Figure 4.1). This is more than five times greater than the amount USD 825 billion invested in 2019 in renewable energy technologies, energy efficiency and power grids, including storage.111 This will mean a change in the amount as well as the type of investment needs, as investments in the energy transition, enabling infrastructure and energy efficiency rise, while those in fossil fuel supply decrease.
IRENA analysis suggests excluding CO2 capture and storage (CCS) for power generation from investment projections for the stimulus package, as CCS technologies are uneconomical and can only play a minor role in the energy transition. Given the technology’s capital-intensive nature and long project development time, CCS for power does not fit well with stimulus objectives. CCS today is mainly linked to CO2 use for enhanced oil recovery. If the energy transition causes oil demand to dwindle and oil prices to fall, this driver will disappear. A longerterm need may remain in specific industrial processes, such as cement clinker kilning. Elsewhere, CCS would mainly be applied as a transition solution to keep existing plants alive. With CO2 capture and use (CCU) technologies, various estimates suggest limited net CO2 mitigation. By 2030, all combinations of CCU and CCS represent less than 1% of total CO2 emission reduction. Early stage innovations, such as biomass CCS (BECCS) and direct air capture, as well as PtX synfuel production, may be considered. However, the investment needs for these technologies in the next few years represent a small volume compared to the overall stimulus size. This option, therefore, is not discussed in further detail. Figure 4.2 provides a further breakdown of investment needs by technology. In addition to solar PV and wind investment, the substantial requirements for transmission and distribution grids are notable, as are the needs for energy efficiency investment across all end-use sectors and for substantial investment in EV charging infrastructure.
MEASURES NEEDED THROUGH 2030 AND BEYOND Mobilising the finance needed to scale up investments in renewable energy and energy efficiency, as outlined in this report, requires swift and decisive policy measures in a number of areas. Policy measures are also required to maximise socio-economic impacts, enhance the institutional and economic system capacity to manage this high level of investments, and distribute the benefits in an equitable manner. Underpinning is the development of domestic industrial capacities and supply chains through local content requirements, domestic capacity development, the involvement of national development banks in green financing, the adoption of proper price signals, and adequate support for research and development. To build the needed workforce and meet skills requirements, a comprehensive set of labour and educational policies are needed. Mobilising the necessary green investment requires greater engagement on the part of institutional investors and the use of green bonds. Finally, to achieve the goal of universal access to modern forms of energy, financing for electrification and clean cooking must be increased.
Developing renewable energy industries COVID-19 recovery packages need to be integrated into forward-looking industrial policies focused on energy transition technologies. Industrial policies will play a vital role in transforming the productive structures that underpin green industries, especially in developing countries that lack pre-existing related capabilities, where market forces may detract from welfare-optimal outcomes and where the broader trends dominating anti-poverty and recovery policies have favoured consumption jobs over production jobs.127 The financial resources now mobilised to address the social and economic repercussions of the COVID-19 pandemic have altered perceptions of what governments can and must do. The necessary government efforts could be channelled into accelerating the energy transition. Individual countries are embarking on the energy transition from different starting points, defined largely defined by their existing socio-economic structures, supply chains and human expertise. Countries must nevertheless acknowledge that policy interventions underlie the accumulation of productive capabilities. This section will outline policy interventions capable of stimulating the investments needed to promote a post-COVID recovery.
The green bond market can be a bridge between providers of capital, such as institutional investors, and sustainable assets, including renewable energy. Although progress to date has been impressive, cumulative issuances of green bonds are still below 1% of global bond issuances, leaving significant opportunity for further growth.150 Stimulating the recovery of the green bond market and boosting further growth, particularly with respect to renewable energy, will require co-ordinated measures among stakeholders, including policy makers, public capital providers, and institutional investors.
OPPORTUNITIES TO STIMULATE ECONOMIC RECOVERY This report has made a case for a decade of action on the global energy transformation. It has shown that ambitious investment in the energy transition through 2030, underpinned by targeted policies, can bring about a much-needed shift toward decarbonised energy systems. The involuntary pause that COVID-19 imposed on the global economy offers a unique opportunity to recalibrate the role of energy policies in strategic economic decision making. Recovery efforts can and should be consistent with the trajectory of an ambitious energy transition, building on the principles of sustainability and human solidarity expressed in the Agenda 2030 for Sustainable Development, in the 2015 Paris Agreement on Climate Change, and in plans made for the implementation of those agreements (notably the Addis Ababa Action Agenda163 on financing for development). The energy transition does not yet feature prominently in governments’ recovery plans, even though transition-focused recovery measures could correct the pandemic-induced economic downturn while addressing climate and development imperatives in the medium and long term. Rooted in IRENA’s 2050-focused Global Renewables Outlook, the previous part of the present report has focused on the key decade until 2030. This provides a context for specific, practical recommendations to policy makers on post-COVID recovery strategies.
These estimates refer to the additional jobs created through the investment stimulus linked to the Transforming Energy Scenario, on top of those already set to be created the Planned Energy Scenario.227 Notably, the total increase in transition-related jobs compared to current employment levels would be higher. Compared to 2020, the Transforming Energy Scenario would create 12.19 million additional transition-related jobs by 2023. The specifics vary from region to region and country to country – whether in terms of underlying structural conditions, the specific opportunities that can be pursued, or the likely scope of policy ambition. Yet what emerges very clearly are the energy transition’s contributions to annual GDP and welfare. Looking more deeply, these benefits reflect the comparatively high employment intensities of renewables and other transitionrelated technologies; the vast potential for short-term employment; the opportunity for a net gain in jobs across the energy sector; the specific role that solar energy and biofuels can play in expanding employment; and the positive employment effects seen across different segments of the value chain.
This Post-COVID recovery agenda offers a comprehensive set of investment and policy responses to the combined challenges of a global health and economic crisis and climate change. Recovery measures after COVID-19 come at a unique moment. The pandemic has forced a dramatic break with business as usual. It has exposed the vulnerabilities inherent in an economic system that puts relentless stress on the natural world and leaves many people behind. The situation also exposes structural connections between the current COVID-19 crisis and the less immediate, but no less urgent climate crisis. Piecemeal responses will not suffice in either case. The global agenda needs to be comprehensive, systemic, and transformative.