Clean energy transitions and a sustainable economic recovery

The Covid-19 pandemic has delivered an unprecedented shock to societies and economies around the world. The disease has brought immense human loss and suffering, stretching health systems to breaking point. It has also caused massive disruption to global economic activity, including the energy systems that underpin it.

According to the IEA’s Global Energy Review 2020, this year is set to see the largest fall in global energy demand since the Second World War. The expected six percent annual drop – resulting from dramatic declines in transportation, trade and other economic activities – would be the equivalent of losing the entire energy demand of India.

The staggering impact of the pandemic on the energy world is even more troubling when we look at investment trends. At the start of 2020, global energy investment was on track for growth of around two percent, which would have been the largest annual rise in spending in six years. But after the Covid-19 crisis brought large swathes of the world economy to a standstill in a matter of months, global investment is now expected to plummet by 20 percent, or almost $400 billion, compared with last year, according to the IEA’s World Energy Investment 2020 report. This would be the largest drop in global energy investment in history, with spending expected to plunge in every major sector this year – from fossil fuels to renewables and efficiency.

The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems.

Global energy-related carbon dioxide emissions (CO2) are on track for a record decline this year, but this is nothing to celebrate. The decline is the result of premature deaths, widespread suffering and a great deal of economic hardship. If we are to achieve a lasting reduction in global emissions, then we will need to see a rapid increase in clean energy investment. The response of policy makers – and the extent to which energy and sustainability concerns are integrated into their recovery strategies – will be critical.

The power sector, a central part of clean energy transitions, is suffering considerably. Global electricity demand is set to decline by five percent in 2020, the largest drop since the Great Depression in the 1930s. The abrupt changes are putting new strains on electricity systems, highlighting the need for investment in new technologies and modern infrastructure. But global investment in the power sector is on course to decrease by 10 percent in 2020.

Electricity grids have been a vital underpinning of the emergency response to the health crisis – and of economic and social activities that have been able to continue under lockdown. These networks have to be resilient and smart to ward against future shocks but also to accommodate rising shares of wind and solar power. Today’s investment trends are clear warning signs for future electricity security.

Boosting the recovery by investing in clean energy

As countries emerge from months of lockdown, the world faces an enormous task getting people back to work and reigniting the engines of economic growth. Around the world, policymakers are drawing up massive economic stimulus packages. Some of these plans will provide short-term boosts, others will shape infrastructure for decades to come.

By making clean energy an integral part of their plans, governments can deliver jobs and economic growth while also ensuring that their energy systems are more modern, more resilient and less polluting. They can also learn from the response to the 2008 global financial crisis. The economic recovery that followed was highly carbon-intensive, resulting in the largest ever increase in emissions.

As they design once-in-a-generation stimulus plans, policymakers are set to make hugely consequential decisions that are likely to shape our energy future for many years to come. Even before this crisis erupted, IEA analysis showed that governments directly and indirectly drive more than 70% of global energy investments. The IEA is committed to supporting governments with reliable data, rigorous analysis and clear policy advice as they make these critical decisions.

IEA data and analysis show that investing in clean energy technologies like energy efficiency and renewables brings benefits on multiple levels. It makes energy systems more modern, more resilient and cleaner, stimulates much needed job creation in the short term, and also enhances future economic competitiveness and productivity.

The current context is an inter-generational opportunity, where smart economic planning can enable us to put the world on track to meet our climate commitments, including the Paris Agreement. We need to make the key pillars of energy transitions – such as energy efficiency, renewables and battery storage – top priorities for creating jobs, improving critical infrastructure and driving innovation.