Policy Ros Davidson - 03/April/2020

Stimulus funds can transition economies away from climate wrecking activity

The coronavirus is a deadly human tragedy, causing untold grief and pain. It is also rocking the world’s economies as people lose income and businesses struggle to stay afloat. Yet there are lessons to be learned for the climate crisis

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The pandemic has shown central governments can act and collaborate, quickly and effectively


OPPORTUNITY FOR CHANGE Emergency stimulus packages to bolster national economies in lockdown under the coronavirus pandemic are an opportunity to redirect funding away from climate wrecking activity and into improving social, economic and environmental resilience

PARALLEL TRACKS There are similarities in how coronavirus and climate change should be tackled, not least the importance of coordinated action by governments globally

KEY QUOTE “Rather than compounding the tragedy by allowing it to hinder clean energy transitions, we need to seize the opportunity to help accelerate them.”


Climate change should be part of Covid-19 recovery plans, as Fatih Birol, head of the International Energy Agency (IEA) has made clear, along with other commentators. The impacts of the novel coronavirus pandemic are severe, but are likely to be temporary, says Birol. “Meanwhile, the threat posed by climate change, which requires us to reduce global emissions significantly this decade, will remain,” he adds.

The pandemic has shown that central governments can act and collaborate, quickly and effectively. Effective government intervention is an especially important lesson in countries such as the US where, in recent years, many have grown to distrust state action. “We have seen Congress is capable of moving quickly and doing big things,” says Dan Lashof, US director of the World Resources Institute (WRI), a think tank. “It is quite remarkable and suggests what can be done with regard to climate. There is an essential role for government in tackling big problems.”

IEA analysis shows governments directly or indirectly drive more than 70% of global energy investments. “They have a historic opportunity today to steer those investments onto a more sustainable path,” says Birol.

There are parallels between the devastation to human life caused by the coronavirus and the more insidious, but longer term, devastation to all life caused by climate change. Both are battles of life and death, one fast-moving and one far slower, said Otto Scharmer from the Massachusetts Institute of Technology recently. “When you break down the response to Covid-19, you really deal with the issues we deal with in climate change, including, of course, the issue of social justice.”

Both crises can be solved with global cooperation and large-scale action, he says. “Almost anything is possible if we focus on the same thing globally.” Scharmer highlights the recent mobilisation of massive resources to fight Covid-19. “A hundred billion dollars here, a trillion there — whatever it takes. We see the changing and enforcement of regulation and a level of global coordination that we haven’t seen before. All of which of course is highly relevant to climate action.”

Beth Sawin, co-director of the think tank Climate Interactive, agrees, underlining the need for including social justice in the response to the pandemic and climate change. Someone without sick leave, as is often the case in America, may need to work while infected with the coronavirus. With the climate crisis, a worker in dirty power will need to be retrained to work in a clean energy economy. The pandemic shows that perhaps we are braver as individuals than we thought and of the need for individual and collective action, says Sawin. Another parallel is the value of listening to scientists. “Much can go wrong when we delay or deny acting on scientific evidence,” she says.




In response to the pandemic, US President Donald Trump signed into law a $2.2 trillion emergency stimulus package. Debate had included the idea of extending some of the eligibility criteria for tax credits for wind and solar power by two years and a requirement that airlines receiving aid start offsetting carbon emissions in 2025 and halve their overall emissions by 2050. The final version of the legislation does not include these provisions. Transformative investments are more likely to be in future legislation which could focus on longer-term rebuilding, says WRI’s Lashof. That may not happen until May or even after the November 2020 US presidential and congressional elections.

Post-coronavirus economies can be rebuilt so they are more sustainable and lower carbon. “We can’t just build back; we need to build back better, in ways that protect human health, grow the economy and curb climate change,” says Lashof. His colleague Helen Mountford, WRI’s vice president of climate and economics, encourages governments to avoid trying to boost their economies in the wake of one global health crisis by exacerbating another, namely air pollution. The much-vaunted reduction in emissions because of slowed activity will likely be short-lived, she says. China’s emissions may have dropped 25% since the pandemic began, but in the year after the 2008 financial crisis, global emissions from fossil fuel combustion and cement production dropped 1.4% — only to grow 5.9% in 2010.

Of the economic recovery that will be necessary, RMI’s Kortenhorst says: “Let’s rebuild what we need in the future.” Instead of coal plants, he suggests boosting electric vehicle charging infrastructure and building the electric grid needed for a renewables future. Solar, wind, hydrogen, batteries and carbon capture should be central parts of government recovery plans because they will bring the twin benefits of stimulating economies and accelerating clean energy transitions, says Birol.



Lessons on what to do with this money can be learned from the 2009 Recovery Act, passed by US Congress after the recession of 2008. Lashof concedes energy-related provisions were a small part of the overall package, perhaps 10%, and economists agree the package was not large enough given the size of the recession. But nonetheless, the legislation led to the largest single public investment in clean energy the US has ever made. Formally known as the American Recovery and Reinvestment Act, the legislation supported an estimated 900,000 US clean energy jobs from 2009 to 2015 and jump-started a major scale-up of the American wind and solar industries.

Loan guarantees for renewable energy development boosted more than $40 billion of investment, said the White House in 2016.  With extended tax credits for wind and solar, the act spurred a major expansion of renewable energy generation through more than 100,000 projects across the country. Grants were available for renewables developers, since the appetite for investments in energy that would earn tax credits had dried up. Research and development spending in renewable energy also increased, more than a million homes were weather-proofed and a new company, Tesla Motors, received $465 million in government loans and repaid them ahead of schedule, while jump-starting its iconic Model S sedan.



Despite the current crash in oil prices, companies in that sector should not be bailed out and tax credits for wind and solar should be extended, says Lashof, noting that renewables industries are fast-growing and already employ 350,000 Americans. Additionally, he suggests weather-proofing assistance for low-income homes and tree-planting as areas where money should be spent.

Governments can make clean energy even more attractive to private investors by providing guarantees and contracts to reduce financial risks, says Birol. The crash in oil prices is a great opportunity for countries to lower or remove subsidies for fossil fuel consumption, he adds. There are around $400 billion of these subsidies worldwide today and more than 40% of them are to make oil products cheaper, says Birol.

Major investments to jolt the economy in the right direction could include upgrading the energy efficiency of hospitals, schools and other public buildings, and powering them with renewable energy mini-grids to lower costs, clean up pollution, and ensure critical infrastructure is prepared for the next major hurricane or wildfire, says Lashof. Replacing America’s 485,000 diesel school buses with clean electric buses would not only eliminate pollution that harms children, but buses’ batteries can also be used as a large energy-storage asset to help the grid integrate more wind and solar power, he adds.

A price on carbon as a long-time goal, rather than the on-again off-again tax credits that have stimulated the renewable energy sector for many years, as well as inter-regional planning and faster permitting for building renewables-friendly transmission are suggestions from Tom Kiernan, CEO of the American Wind Energy Association, for a cleaner post-coronavirus economy.

In Birol’s words: “Rather than compounding the tragedy by allowing it to hinder clean energy transitions, we need to seize the opportunity to help accelerate them.”


TEXT Ros Davidson


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