green

The European Green Deal is the EU’s action plan to reduce emissions and deliver a sustainable economy. In light of the COVID-19 pandemic, it is also the foundation of Europe’s post-pandemic stimulus response which is based on green stimulus.

By prioritising the Green Deal, Europe is taking the global lead in tackling climate change, and according to the team at Cambridge Econometrics, it makes good business sense as well.

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What if the pandemic accelerated the green transition?

In a recent report, Assessment of Green Recovery Plans after COVID-19, the researchers of Cambridge Econometrics and the We Mean Business Coalition announced that green recovery plans not only provide an immediate boost to output and employment but may also provide long-term economic benefits.

This is not a new premise and has been the mantra of IRENA, the International Energy Agency and a multitude of economists have been promoting since discussions turned to recovery.

The Econometrics report however, provides some deeper insights into specific country policies which consider traditional recovery efforts vs those that are sustainably based.

In addition to a longer-term impact on employment opportunities, a green recovery plan also has a significantly beneficial impact on emissions reductions and on GDP.

What is interesting is that in the report a green recovery plan doesn’t seem to be all that beneficial for utilities, with the overall sectoral impact being -6.3 for a green recovery plan vs -3.6 for a more traditional VAT recovery plan. This is likely due to a diversion of funds away from more traditional utility business to renewable energy businesses.

I reached out to Hector Pollit, lead author of the report, to check my assumptions. His reply casts a bit more light on the variety of issues at hand:

“There are several reasons for this outcome, listed here in order of importance:

  • The energy efficiency measures in the Green Recovery Plan reduce demand for electricity and gas, reducing the output in the electricity supply and gas distribution sectors.
  • Increased renewable shares leads to a reduction in demand for piped gas by the power sector, also leading to lower demand in the gas distribution sector.
  • In the US and global results, reduced energy demand leads to lower levels of extraction by the oil and gas industry. In Poland, coal demand is reduced for the same reason.

Within the electricity sector, some of the loss of demand is offset by higher demand for electricity to power electric vehicles. There is also a slight boost to energy demand generally from the higher GDP results (a faster-growing economy uses more energy – this happens in the VAT recovery scenario too) and electricity prices fall because of the subsidies, also causing demand to pick up a bit. So I would not interpret the results as uniformly bad for the electricity sector. However, overall for wider energy extraction and utilities sector, there is downward pressure on production in line with lower energy demand in the rest of the economy.”

Do you agree that a green recovery could have a negative impact on the utility sector? Will a renewable energy transition and the electrification of heating, cooking and transport help balance out some of the potential negative impact of increased focus on energy efficiency and demand reduction?

Will stimulus packages from Brussels be enough to act as a catalyst for a truly green recovery or will shorter-term challenges such as unemployment and social security divert attention and funding away from this crucial goal? Will communities continue to support a longer-term, sustainable green recovery if it means diverting funding from social programmes in the short term?

There are, of course, myriad opinions and options and scenarios – but these are some of the questions we are asking our readers – and some of the questions the keynote speakers at the Enlit Europe keynote will be answering on Thursday 29 October during the virtual Enlit Europe keynote session. You can register for the session here or you can share your opinion with us via our LinkedIn post.

Wishing you a stimulating week!

Until next time
Claire