Smart Energy International explores the impact and details of the various stimulus packages being announced around the globe in the wake of the COVID-19 pandemic and considers how these packages are going to support the energy transition.
Today, nations are taking far-reaching decisions as they channel trillions of dollars of taxpayers’ money into recovery strategies in response to the COVID-19 pandemic. As we design and implement these recovery plans, we have a choice. We can go back to where we were, or we can invest in a better, more sustainable future.”
This message is part of a global call by United Nations secretary-general António Guterres, appealing to governments to place the transition from fossil fuels to clean energy at the “core” of their COVID-19 economic recovery spending.
During the International Energy Agency (IEA) Clean Energy Transition Summit, Guterres bemoaned the decisions of some governments to direct stimulus towards struggling oil and gas companies or to support new coal projects.
“We can invest in fossil fuels, whose markets are volatile and whose emissions lead to lethal air pollution. Or, we can invest in renewable energy, which is reliable, clean and economically smart. Coal has no place in COVID-19 recovery plans.”
One of the biggest concerns coming out of the pandemic and the resulting economic devastation is that governments will lose sight of the underlying threat of climate change and the need to continue fighting the longer-term effects even while tackling the more immediate health implications.
Across the Asia-Pacific region, policy choices need to determine the balance between short term responses and the longer-term development vision of the 2030 Agenda for Sustainable Development. Losing sight of the longer-term goals risks losing the benefits of the progress already made and economic uncertainty shouldn’t derail a transition to a more sustainable future.
The United Nations ESCAP programme has cautioned that current plans need to put people and planet first. “Tackling unsustainable production and consumption patterns is a precondition for making economic growth planet friendly,” ESCAP said in a blog post on its website.
Contrary to perception, putting the planet first is affordable in a region where “annual subsidies for fossil fuel outstrip total investment in renewable energy. Hence, it is time for vested interests in fossil fuels to submit to the need for our healthy planet,” the post continued.
A ‘planet first’ approach was seen as part of the response to the 2008 economic downturn. Eighty per cent of Korea’s $38 billion stimulus package (2009-2012) was allocated to areas such as renewable energy, green buildings and transport, water, and waste management. In China, close to 40% of the $586 billion stimulus (2009-10) was allocated to areas such as energy efficiency, water and waste management.
Sustainable Energy for All CEO Damilola Ogunbiyi has added her voice to the call, saying that African countries should aim to invest 25% of their COVID-19 stimulus budgets on renewable energy.
According to Ogunbiyi, the COVID-19 pandemic has presented a “once-in-a-generation opportunity” for African governments to reset their economies and improve energy access through investment into centralised and decentralised renewables solutions.
Sustainable Energy for All recently calculated that every dollar invested in the energy transition could add an additional $0.93 of gross domestic product (GDP) above a business-as-usual trajectory. Additionally, each $1 million investment into large scale renewable projects, solar in particular, could create as many as 80 new jobs.
Ogunbiyi also highlighted the gender-equity spinoffs from African electrification schemes, reporting that wages for women with access to energy were 59% higher than those without. This is a gain that put those women on an equal wage footing with their male counterparts on the continent.
Francesco La Camera, Irena’s director-general, has also called for renewable energy to be placed at the centre of economic stimulus. He cited figures of a global boost to GDP of 1% if energy transition related investment were doubled to $2 trillion annually between 2021 and 2023. In addition, this spend is likely to generate some 4.5 million extra jobs in the energy sector, even when job losses in the fossil fuel sector are factored in.
Meanwhile, the IEA’s Sustainable Recovery Plan proposes that $3 trillion in global clean-energy stimulus over the next three years could help repair the economic and employment damage caused by the COVID-19 pandemic.
“The next three years will determine the course of the next 30 years and beyond…
“If we do not [take action] we will surely see a rebound in emissions. If emissions rebound, it is very difficult to see how they will be brought down in future. This is why we are urging governments to have sustainable
The plan, produced in collaboration with the International Monetary Fund, proposes that annual investments of $1 trillion from 2021 to 2023 could help lift global gross domestic product by 3.5% in 2023. The number of
resulting jobs predicted in the plan exceeds nine million over that time.
By mobilising investment (both public and private) into renewable energy deployment, strengthening electricity grids, boosting energy efficiency, and supporting energy technology innovation, among others, it is anticipated that support measures can prevent an even deeper crisis.
“With more stimulus coming, attention is now turning to longer-term recovery plans that seek to repair the economic damage from the disruptions caused by confinement measures and restrictions on mobility. Some plans already include energy, and its role could grow in successive rounds of stimulus spending,” IEA executive director Dr Fatih Birol says.
The United Kingdom has announced a £3 billion energy efficiency package as part of a wider Coronavirus stimulus. This will be split between £2 billion new green homes grants and £1 billion for insulating public buildings.
The green homes grant will give households vouchers to spend on energy efficiency schemes such as insulation of lofts and floors. Ministers hope that the policy will give an immediate boost to the economy; thus the money has to be spent within a year in order to be an effective stimulus method. People on low incomes will receive more generous vouchers than
Rosie Rogers, Greenpeace’s head of green recovery, says the UK government’s response is ‘lacking.’ She continues: “The German government’s pumping a whopping £36 billion into climate-cutting, economy-boosting measures, and France is throwing £13.5 billion at tackling the climate emergency. £3 billion isn’t playing in the same league.”
Angela Merkel’s stimulus package will see a €50 billion future investment package which will focus on carbon reduction and R&D into low carbon industry. Low carbon transportation, shipping and aviation will account for around €15 billion of that. An additional €9 billion will go toward the development of hydrogen – €7 billion for domestic investment and €2 billion for projects in other countries. Energy efficiency in buildings – retrofitting and refurbishment – has been allocated €2 billion, along with an additional €2.5 billion in R&D in other green or digital projects.
In addition, the European Union has allocated 25% of its €750 billion recovery fund for climate action – this includes measures such as a transition away from fossil fuels, investments in electric vehicles and energy-efficient retrofitting of old buildings. This has been further supplemented by the €1.07 trillion European budget for 2021- 2027.
This longer-term budget will focus on rebuilding economies and launching
green and digital transitions. Between the stimulus package and the longer-term budget, approximately 30% of the finances will go toward climate-related projects. As a general principle, all spending will be consistent with Paris Agreement objectives [Investopedia].
Asian stimulus breakdown
China has announced a $559 billion COVID-19 stimulus package, of which
$1.4 billion will be utilised for the construction of new infrastructure such as low-carbon transport, high-speed rail and 5G. The package also includes investment into a number of coal-fired power plants. Other investments into electric vehicles and supporting charging infrastructure, digitalisation and ultra-high electricity transmission have also been announced.
A Green New Deal – which will include investments into renewables, the phasing out of the financing of coal by public sector institutions and the introduction of a carbon tax – are part of South Korea’s plan.
However, a recent decision by KEPCO to take a 15% equity stake in a coal-fired power plant in Indonesia has raised eyebrows. Kepco is also considering investing around $200m in the 600MW Vung Ang 2 coal-fired power plant in Vietnam.
“Coal and renewable energy do not go hand-in-hand,” said Tata Mustaya, regional climate and energy campaign coordinator, Greenpeace Indonesia, commenting on Indonesian government plans to build additional coal-fired power stations.
“We need to choose one. If we continue to expand coal, there will be an over-capacity and renewable energy will not be competitive anymore. ” Indonesia has announced a $1 billion solar power project aimed at driving green economic recovery. According to the Jakarta Post: “The scheme ultimately entails installing panels with a combined capacity of one gigawatt of peak power (GWp) a year for millions of Indonesia’s poorest
households over the next four to five years.
The scheme, dubbed the Solar Archipelago (Surya Nusantara) plan, is expected to cost Rp 15 trillion (US$1.07 billion) annually.” It has been anticipated that the project could create 22,000 jobs.
Rudolf Rauch, renewable energy programme coordinator of the GIZ, commended Indonesia’s green economic recovery plan but cautioned that a lack of manpower may make the 1GWP goal difficult to achieve. Rauch suggested that the government start by installing 200MW in the first year, then double the figure every year.
Malaysia’s post-pandemic recovery plans are centred on large-scale solar. Tenders for a total capacity of 1GW have been announced by the Ministry of Energy and Natural Resources. The anticipated investment exceeds $920 million and will contribute 12,000 new jobs. Additional rooftop solar and LED streetlighting projects have been announced, with an estimated
value of $2.9 billion.
In Japan, a total of $2.1 trillion has been proposed – $74 million will be utilised to subsidise the installation of energy-efficient ventilation systems in public spaces and the construction of factories powered by renewable energy.
United States stimulus packages
The United States passed the Moving Forward Act in July 2020. This new legislation includes the Green Act as well as the Invest Act. American Council on Renewable Energy CEO Gregory Wetstone commented the Act made provision for key taxes “that will be especially helpful in realizing the full potential of clean energy technologies. This forward-looking infrastructure package also includes common-sense first steps toward a 21st-century macro grid that will deliver job growth and economic development, a cleaner environment and lower costs for consumers.”
The Bill will boost federal tax incentives for solar, storage, offshore wind, electric vehicles and more. The United States has seen the loss of over 620,000 jobs in the clean energy sector since the start of the pandemic – approximately 18.5% of its workforce.
Despite calls for a green recovery package, federal lawmakers have only recently passed legislation that directly addresses the renewables industries’ needs.
As countries around the world gather resources and put plans in place to
stimulate their economies in the wake of the economic impact of the Coronavirus, the opportunity to ‘build back better’ is being embraced by many governments. In some cases, stimulus in the greening of the economy seems to be falling short of expectations. However, as pressure from civil society and international bodies continues to mount, we are likely to see more investment into the greening of the global economy in response to COVID-19.