Subsidy Watch Blog

What Is Tripartite Dialogue and How Can It Help Combat the Climate Crisis in a Just Way?

awainright@iisd.ca — Tue, 01 Mar 2022 20:05:36 +0000

What Is Tripartite Dialogue and How Can It Help Combat the Climate Crisis in a Just Way? Laura Hohenberger awainright@iisd.ca Tue, 03/01/2022 - 14:05

As the world continues to weather the COVID-19 pandemic, the next crisis is knocking at our door, now louder than ever: we need to quickly transform our economy into a sustainable system to avoid further detrimental effects of the climate crisis. A vital part of this is transitioning to low-carbon energy production. However, this raises the question of what will happen to workers and communities affected by the move away from fossil fuels.

When crafting the UN’s Paris Agreement on climate change, world leaders agreed in 2015 that this energy transition needs to be a just one, meaning it should be fair and inclusive while creating quality jobs. What does that mean in practice?

Just Transition: Key definitions

The term “just transition” originates from the labour movement and embodies the idea that the goals of environmental sustainability and decent work are not mutually exclusive—instead, they can and should be pursued together.

The seminal document on the issue is the International Labour Organization’s (ILO) Guidelines for a Just Transition, which outline what a just transition is and how it should happen. In short, these guiding principles are:

a)    Social dialogue
b)    Workers’ rights
c)    Gender equality
d)    Enabling policy environment for sustainability and inclusivity
e)    Decent jobs, social protection, and bargaining rights
f)    No one-size-fits-all solution, with approaches varying by country
g)    International cooperation

To find the best measures to put these principles into action, the ILO recommends social dialogue and, in particular, tripartite dialogue. In the context of just transition, sometimes the word “stakeholder dialogue” is also used, which can lead to confusion. What is the difference between these three forms of dialogue, and why does it matter in practice?

Which Dialogue Now?

Of these terms, stakeholder dialogue is the broadest in scope. Stakeholders are any groups or individuals involved in or affected by a policy. Thus, in a just transition context, stakeholder dialogue refers to the negotiation or exchange of ideas between any parties that have an interest in the matter. These parties could be governments, workers, and employers, but also citizens and representatives from non-governmental organizations, to give a few examples.

While the ILO guidelines mention stakeholder engagement, their main focus lies on social and tripartite dialogue in particular. Here it gets a little tricky: the ILO’s definitions of both terms are similar, but the term social dialogue encompasses more possible combinations of actors. It refers to policy discussions that can involve governments, workers, and employers. However, discussions between workers’ and employers’ representatives without the presence of a government entity are also considered social dialogue.

In contrast, tripartite dialogue specifically refers to discussions between three parties: governments, workers’ organizations, and employers’ organizations. Thus, the terms social dialogue, tripartite dialogue, and stakeholder dialogue are not interchangeable, and which type of dialogue is chosen will depend on the situation at hand.

Why Is Tripartite Dialogue Important?

The ILO places special emphasis on the principle of tripartite dialogue, as governments, workers, and employers are most directly involved in and affected by labour policies. In fact, the ILO itself is based on the principle of tripartism.

The ILO is made up not only of government representatives but also workers’ and employers’ organizations from its member states. This tripartism has been the foundation of the ILO since its creation in 1919. Tripartite dialogue also has a long history of supporting just transitions at a country level. While there are no perfect examples of tripartite dialogue for just transitions, there are experiences we can learn from that show this dialogue’s potential for a positive impact on public policy.

In Germany, tripartite negotiations have been fundamental to softening the impact of declining coal production since the 1960s. Traditionally, German workers and employers have a large influence on policy. The advisory boards of the public German social security insurances, for example, are made up of representatives from government, workers, and employers. While there is no formalized institution for tripartite dialogue, it is common practice to involve all three parties in policy changes.

South Africa is also known for its just transition efforts involving tripartite dialogue. The Council of South African Trade Unions has had a large influence on policy-making in recent years, achieving the implementation of laws that tackle poverty and marginalization. From 2017 to 2019, the National Planning Commission held dialogues with workers’ and employers’ representatives as well as with other relevant stakeholders. This led to more social policies and just transition measures being incorporated in the government's planning.

In New Zealand, one important platform shaping just transition is the Future of Work Tripartite Forum, where the government, the national council of trade unions, and the largest business-advocacy group of the country discuss risks and opportunities of changing workplaces due to challenges like climate change. The forum recently agreed on a government aid program that provides 80% of the former salary for 7 months to laid-off workers or those made redundant.

These examples show how tripartite dialogue can help to bring about just transitions and illustrate different ways it can be put into practice. While stakeholder, social, and tripartite dialogue are all important, to plan an effective just transition, it’s crucial to understand how these processes differ, and why discussion between governments, workers, and employers is especially important.

How Can Trade Maximize Gains From Clean Energy Investment in Developing Countries?

jlian@iisd.org — Tue, 17 Aug 2021 14:04:26 +0000

How Can Trade Maximize Gains From Clean Energy Investment in Developing Countries? Richard Bridle , Christophe Bellmann jlian@iisd.org Tue, 08/17/2021 - 09:04

The growth of renewable energy is the most significant development in the global electricity market over the last two decades. Costs have reached a point where renewable energy can legitimately compete with traditional energy in almost all countries.

Given the recent boom in the construction of clean energy projects, national governments are now increasingly keen to ensure that these projects create domestic employment and industrial development opportunities. In recent years, they have used a range of instruments, including trade policy restrictions—such as local content requirements or import tariffs—to incentivize domestic production.

National governments are now increasingly keen to ensure that clean energy projects create domestic employment and industrial development opportunities.

While these restrictions may, under certain circumstances, play a role in stimulating local capacity to produce clean energy components, they also tend to increase project costs and prices for consumers, which in turn may delay the renewable energy transition. A new paper by IISD helps governments determine how to strike a balance between maximizing local benefits and minimizing project costs through trade policy with a particular focus on wind and solar energy in developing countries.

Wind and solar projects typically involve a mix of very specialized components manufactured in a small number of places at very large scales, along with components that are produced in many countries and everything in between. For wind energy, generators, transformers, nacelles, and rotors are likely to be procured from global manufacturers, whereas blades, foundation, cabling, and civil work can be procured and built locally. In the case of solar panels, solar modules and inverters are likely to be procured from global manufacturers, whereas the structures and electrical components—including wiring, protection equipment, and civil work—can be procured and built locally.

In practice, most low-income and lower-middle-income countries are net importers of wind and solar components. Among the top 30 leading exporters of solar components, only eight have a trade surplus, while 22 are net importers. This is even more marked in the wind sector, where only two countries export more than they import.

In terms of trade protection, it is noteworthy that average tariffs on solar modules (3.8%) and inverters (5.4%) are significantly lower than the ones applied to structure (15.8%) and electrical components (12.4%). This seems consistent with the finding that solar modules need to be sourced globally, and, therefore, lower tariff levels would help ensure they are accessible to businesses.

Similarly, in the case of wind, average tariffs on wind turbines (4.1%), which are generally sourced internationally, are lower than those applied to wind towers (12.4%), which can be produced locally. They are, however, only marginally lower than those on transformers (6.9%), which could also arguably be produced domestically.

Bottom line: the average tariff structure of low-income and lower-middle-income countries only partially reflects the extent to which specific components are expected to be sourced internationally or locally. This is explained by other factors. Figure 1 represents a rough typology of different trade policy settings observed in practice depending on domestic productive capacity and tariff levels.

Table 1. Trade policy objectives: The productive capacity and applied tariffs matrix

Source: Bridle & Bellmann, 2021.

In short, the imposition of tariffs may stimulate the deployment of additional productive capacity, particularly for products that are suited to local production. A good example is the production of heavy or bulky components such as towers, for which minimizing transport distances provides a cost advantage. In these cases, however, there is a need to balance the likelihood of achieving competitive production with increased project cost and the economic value of local production.

International initiatives that liberalize environmental goods and services could reduce costs and increase renewable energy deployment.

By contrast, the overall impact of tariffs on highly centralized components is very likely to be negative and reduce the deployment of renewable energy. In these cases, the barriers to entry for new manufacturers are so high that tariffs will only increase costs without fostering local production. For moderately centralized components (such as wind turbine blades), the results are strongly case dependent.

International initiatives that liberalize environmental goods and services could reduce costs and increase renewable energy deployment. However, considering what precedes, countries’ interests in liberalizing trade in equipment for wind and solar energy generation will vary depending on their productive capacity, trade policy settings, and export destinations (see Figure 1).

Figure 1. Policy options and considerations regarding tariffs on renewable energy equipment

Source: Bridle & Bellmann, 2021.

As international initiatives are pushed forward, the opportunities for liberalizing environmental goods and services should be accompanied by policies that support the competitive local production of components to help build the political and economic cases for a transition to renewable energy. This may call for allowing exceptions for some of these components as part of a list of sensitive items under either regional or plurilateral initiatives.

Gas Is Not a Bridge Fuel, It’s a Wall. So Why Are Governments Still Financing It?

jlian@iisd.org — Tue, 17 Aug 2021 14:24:18 +0000

Gas Is Not a Bridge Fuel, It’s a Wall. So Why Are Governments Still Financing It? Greg Muttitt jlian@iisd.org Tue, 08/17/2021 - 09:24

At this week's meeting of G7 leaders, fossil fuels are on the agenda. Governments have agreed to phase out financing for "carbon-intensive" energy projects but have so far failed to adopt a clear timeline to end support to oil and gas. This is a serious blind spot: gas projects receive more international public finance in low- and middle-income countries than any other energy source, four times as much as wind or solar.

This is a poor use of public money, serving the interests of powerful and polluting companies when it could be used instead to help countries in the Global South transition to zero-carbon energy systems.

The gas industry increasingly sees its future in developing countries, where it is calling on governments—especially in Asia and Africa—to make a dash for gas. Expanding liquefied natural gas exporters such as the United States and Australia are seeking new markets, while gas companies look for new resources to extract and export. This expansion risks locking Global South countries into a high-carbon pathway, imperilling their economic future and the global climate.

As early as the 1980s, the gas industry began to propose that their product could serve as a bridge from coal and oil to cleaner energy on the other shore. More than 30 years on, the same argument is being made, now targeted mainly at the Global South.

Gas is more like a wall than a bridge, impeding rather than enabling the energy transition.

Today, however, the idea of a bridge is obsolete for three reasons. First, after decades of continually rising carbon emissions, there is no longer room for more fossil fuels of any type: the International Energy Agency argued last month that to meet the Paris Agreement goals, there should be no investments in new gas, oil, or coal production. Second, the costs of renewable energy have fallen dramatically, and renewables are now cheaper than fossil fuels in most of the world. Third, recent findings on the extent of methane leakage from gas infrastructure undermine claims of environmental benefits over other fossil fuels.

In other words, we have missed the opportunity to cross by bridge, but we don’t actually need one anyway. Besides, gas is more like a wall than a bridge, impeding rather than enabling the energy transition by competing with renewable energy for investment and policy support.

The largest use of gas is in power generation. But in the majority of countries for which data are available, wind and solar are now the cheapest power sources. And although gas advocates may argue that wind and solar are too variable to power the grid single-handedly, fluctuations in power generation are better addressed by batteries than fossil fuels. Battery costs too are falling rapidly, and the combined cost of wind or solar with batteries is often less than that of "peaker" gas plants, which add power to the grid during times of high demand. For the minority of gas uses where clean alternatives are not yet available or affordable—such as in heavy industry—rapid technological development is underway, with commercialization expected by the early 2030s.

Gas advocates may argue that wind and solar are too variable to power the grid single-handedly, but fluctuations in power generation are better addressed by batteries than fossil fuels.

Gas is also a poor solution to the problem of energy access. Of the 800 million people worldwide lacking electricity, 85% live in rural areas where decentralized renewable energy is a better, cheaper option for electrification. Providing clean cooking fuels for the 3 billion people relying on dangerous solid biomass is an urgent priority, but costly plans to expand natural gas connections to residential consumers may prove obsolete as the cost of renewables falls and the efficiency of electric stoves rises.

If we want to achieve the goals of the Paris Agreement, we need far less private capital flowing into fossil fuels and far more into renewables. Public finance plays an outsized role in influencing private funds by de-risking projects and sending market signals. Instead of funding the gas industry, public money could help unlock renewables projects in the Global South, opening the doors to more private funding. Public financial institutions could also help with technology transfer, integrating renewables into often weak or unstable electricity grids, and delivering energy access.

The greatest impacts of climate change will be felt in the Global South, especially by the poorest people. New gas expansion compounds this threat, putting countries in danger of being left behind as the world transitions to clean energy, saddled with stranded assets, more expensive energy, and a dependence on imports.

The COVID-19 pandemic has exposed how rapid global change can affect countries in deeply inequitable ways and underscored the importance of building resilient and socially just economies. As economic resources remain constrained in the coming years, it will be vital that scarce public funds are devoted to building back better, away from fossil fuels.

The G7 has an opportunity to lead and should use this week's summit to announce an end to all finance for fossil fuels, directing energy finance instead to clean energy solutions.

A Green Recovery From COVID-19: Responding to the health crisis and the climate crisis in tandem

jlian@iisd.org — Thu, 12 Aug 2021 07:36:54 +0000

A Green Recovery From COVID-19: Responding to the health crisis and the climate crisis in tandem Silke Bölts , Lourdes Sanchez jlian@iisd.org Thu, 08/12/2021 - 02:36

How can we achieve a COVID-19 recovery that avoids old patterns and assures a fossil-free future? For one of our first in-person workshops since the pandemic, Silke Bölts and IISD expert Lourdes Sanchez tackled this question with young international leaders from the private sector at the One Young World Summit in Munich, Germany.

Participants at the IISD workshop at the One Young World summit in Munich. Photo taken by Lourdes Sanchez.

Most of the participants believed that current global support for COVID-19 recovery is not in line with the United Nations Sustainable Development Goals nor with countries’ net-zero commitments—a major missed opportunity. As Luca Anselmi, who works in the renewable energy sector, explained, “It seems that some want to return to the past, while we need to build a better future. A lot of big opportunities could be missed.”

Their sentiments are backed up by research: the Energy Policy Tracker has found that, to date, 45% of all public money committed to energy production and consumption in G20 recovery packages has supported fossil fuels, versus only 35% for clean energy.

At the same time, many participants stressed the importance of the energy sector in recovery plans. “Electricity must be renewable,” said Friederike Göpel, who works as a project lead and business developer at BMW. “Otherwise, it will not be sustainable to drive a car. The energy sector needs to deliver its part in the recovery. Therefore, incentives for investments in fossil-free technologies need to be provided.”

But how can that be achieved? And what is the government's role in supporting this transition?

Silke Bölts leads a discussion during the workshop. Photo taken by Lourdes Sanchez.

IISD’s report Achieving a Fossil-Free Recovery proposes five steps that governments can take to align their economic recovery with a sustainable energy sector. As countries continue to develop and implement their recovery plans, there is a critical window of opportunity to put these principles into action.

Participants suggested that COVID-19 is a chance for some countries, especially those in the Global South, to move away from or even leapfrog old technologies and instead directly invest in future-proof fossil-free ones. While some countries, such as Iceland or Costa Rica, already run on mostly renewable energy, most countries still have a long way to go to implement their pledges.

Although the costs associated with catastrophic climate change would be far greater, the energy transition will not be free. Workshop participants discussed who should pay: governments, companies, or consumers? Fossil fuel subsidy reform is one way for governments to raise money while reflecting the social and environmental costs of burning fossil fuels. Another important tool is carbon pricing. But the reality is that some of the costs will get passed down to consumers in the form of higher taxes or higher prices.

In order to minimize the impact on people and communities and to protect vulnerable populations from high costs or hardship, participants agreed that governments must put measures like social compensation packages in place. Governments can also follow in the footsteps of Nordic countries’ green taxation policies by simultaneously lowering other consumer costs such as income taxes. In this way, policy-makers can reduce pollution while mitigating the effect on taxpayers’ budgets and stimulating economic growth.

However, governments have been slow to implement a price on pollution. “We have been discussing taxing fossil fuels already for quite some time,” Davina Savelli, who works at Deutsche Bahn, noted. “I remember learning about it when I was in school. But it has not been put into practice in the meantime. In business, we run pilots, analyze, improve, and then scale up. Why is it so different in politics?”

“The discussion made me realize that we need to rethink the decarbonization of our economy more ambitiously after this pandemic.”

Adli Renhoren, an advisor at Energy Investment Management BV

Adli Renhoren speaks during the workshop discussion amongst participants. Photo taken by One Young World.

Another key point raised was that governments need to guarantee transparency on fossil fuel taxation. Tax revenue should be used for investments in renewable energy or for social compensation measures instead of just adding to the government’s general budget. Another “Gilets Jaunes” incident should be avoided, emphasized a participant. In the end, participants proposed a carrot-and-stick approach, meaning governments should provide incentives to those that abandon fossil fuels and penalize those that are reluctant.

But implementing the required changes is very complex, the group agreed. Many important questions were raised. How can energy efficiency and reduced consumption be incentivized (at least in the Global North, where this idea is often neglected)? How can renewable energy be promoted without resulting in higher costs for consumers (as has happened in Germany and Spain)? And how can young people drive solutions most effectively? Our work on Fossil-Free Recovery principles provides some answers to these questions—youth activists and organizations are voicing others—now what we need most is bold and responsible leadership from our governments.

“Very interesting workshop, with many different voices, from across all aspects of the Global North industry.”

Tamara Myers, One Young World Ambassador and Project Engineer at Deutsche Bahn

Down to Earth: How to Achieve a Fossil-Free Recovery

lsalter — Mon, 28 Jun 2021 17:41:22 +0000

Down to Earth: How to Achieve a Fossil-Free Recovery lsalter Mon, 06/28/2021 - 12:41

This episode is about one of the biggest challenges of our times: recovering from the COVID-19 pandemic in a way that will put us on track to meet climate goals and build a resilient, fossil-free economy for current and future generations.

Down to Earth Podcast · How to Achieve a Fossil-Free Recovery

In early 2020, COVID-19 turned the world upside down. Almost immediately, people stopped travelling and commuting, oil prices crashed, and governments started preparing enormous stimulus packages. Our reality changed dramatically.

But there’s another crisis coming up behind the pandemic: the climate crisis.

When IISD Senior Communications Officer Paulina Resich saw the first results from the Energy Policy Tracker, a project that tracks funds for energy in recovery packages around the world, she was shocked by the amount of money governments were pledging to fossil fuels. It became clear that governments need to radically rethink recovery spending in order to avoid the catastrophic impacts of climate change.

In this episode of Down to Earth, join Paulina in conversation with leading energy experts to hear about solutions governments can use to rebuild their economies, put people first, and achieve a fossil-free recovery.

Five Key Principles for a Fossil-Free Recovery

May 17, 2021 | Lourdes Sanchez

Lourdes Sanchez, lead author of Achieving a Fossil-Free Recovery, explains how the COVID-19 pandemic has created a window of opportunity to fund a green recovery, along with five principles to do so.

Blog: How Can Renewable Energy Help Us Through the COVID-19 Pandemic?

May 20, 2021 | Richard Bridle

Richard Bridle, co-author of Achieving A Fossil-Free Recovery, explains why governments should put renewable energy at the heart of their recovery.

Just Transition Measures for a Green Recovery

May 21, 2021 | Philip Gass

Philip Gass explains how a just transition can ensure workers and communities aren’t left behind by the green recovery.

Just Transition Measures for a Green Recovery

lsalter — Fri, 21 May 2021 16:39:15 +0000

Just Transition Measures for a Green Recovery Philip Gass lsalter Fri, 05/21/2021 - 11:39

How do we make sure that communities aren't left behind in the energy transition? What role does just transition play in the recovery from COVID-19? Transitions expert Philip Gass explains.

How does the economic recovery from COVID-19 correspond with the global need for a just energy transition?

The pandemic has exposed how urgently we need a just transition. At the same time, more public money is being invested in recovery measures than we could have ever foreseen. There's an opportunity to invest these funds strategically—not just to protect existing workers but to set up new jobs. We have to seize this opportunity to accelerate a just transition to a more sustainable and resilient economy.

Do you see governments seizing this opportunity as they spend billions on recovery packages?

The current global recovery package is greener than any we've had before, with substantial funding going to clean technologies. On the other hand, less than half of recovery funding in the energy sector has been invested in clean energy. The other half of the money is still supporting fossil fuel production and consumption.

There is a lot more work to do if we want a recovery that's green and just. It's not simply determining what type of energy is supported but also ensuring how that spending will directly support workers. If we emerge from the pandemic having missed this opportunity, we may not see another chance for such a sizable investment for several decades.

What does a just transition look like?

The process itself is more important than the individual elements; it's the social dialogue and planning between workers, employers, and government, and meaningful engagement with other critical stakeholders.

Just transition measures could include funding support for job transitions, training programs, or early retirement support. Some communities may need to diversify their economies, so there might be programs for agriculture, alternative manufacturing, renewable energy, or tourism. Solutions have to be locally tailored.

Another big part of it is necessary investments in the social safety net, such as employment insurance, poverty reduction programs, and childcare and healthcare support for families.

Over time, have we seen just transition policies increasingly included in recovery packages?

Not as much as they should be. At the moment, there are case studies, and a lot of hard work has been done laying out principles and guidelines for a just transition, led by organizations such as the International Labour Organization. But there aren't a lot of countries that have actually undergone the process through to completion. In those that have, it's been constrained to individual sectors, such as Canada’s and Germany's coal transitions, which started well before the pandemic. But I think we're going to see it grow. From an economic standpoint, it's self-evident that coal is no longer economically competitive, so transitions are happening, and it is necessary to ensure that they are just.

Why do you think some countries still don't consider social protection measures as a key element of the energy transition?

Awareness of just transition principles has accelerated over the past years, due in part to the tireless efforts of labour organizations, but there is still awareness and capacity building to do. It's also harder to have discussions between partners and stakeholders when we can't be in the same room together due to the pandemic.

Another challenge is that in countries where there isn't trust between the government, industry, and workers, or where there are fundamental barriers to human rights and social protections, a just transition cannot happen.

When we say "workers," who are we talking about?

In a just transition, the ideal approach considers all workers. For example, if a coal plant shuts down and the families move away, there are teachers, nurses and healthcare professionals, and workers in informal sectors who are affected as well. The idea is to have protections and plans in place for everyone impacted.

In a just transition, the ideal approach considers all workers.

What are the potential long-term risks of not investing in a just transition?

By delaying the inevitable, you risk sectoral collapse, and you risk major companies going bankrupt or otherwise defaulting on their investments or tax and environmental obligations. Workers are left jobless, communities suffer, and it's ultimately the public (i.e., government) that ends up having to pick up the pieces after damage has already been done. So you risk stranded assets; large-scale losses of livelihoods; and far-reaching impacts on areas such as social safety, poverty, domestic violence, and substance abuse.

Some people might argue that supporting fossil fuel companies is the best way to support workers and communities in fossil fuel-producing areas. What would you say to them?

Environmental organizations often face the criticism that we just want to put people out of work, shut down fossil fuel production, or get rid of consumer subsidies and increase everyone's electricity bill. But that's not the case. We're looking for equal footing between environmental, economic, and social outcomes. So when we look at recovery measures, the first question to ask is: does this support a long-term, sustainable low-carbon transition?

We're looking for equal footing between environmental, economic, and social outcomes.

The best way to support workers is to support them directly—not necessarily the company or the industry in question. We need to reach net-zero emissions by 2050, so it would be inconsistent to subsidize expanded fossil fuel exploration and production, especially when fuel prices are low. We need to identify and support what's best for workers while achieving our other goals in energy transition.

What are the barriers to getting more people and communities on board? And how can we address those barriers?

The first step is really listening. Instead of trying to come forward with the answers right off the bat, it's important to start understanding the problems. A lot of the groups affected by the energy transition are under immense pressure, facing the loss of livelihoods and a sense of identity that has gone back several generations. And now, whether it's due to economics, regulation, or technology advancements, that way of life is evolving. Our work needs to support and elevate local experiences and the solutions that local partners and stakeholders are identifying. Ultimately, just transition is local. External experts like us can provide some constructive input, but at the end of the day, a lot of the solutions will come from the people that are most affected by it. It's our job to support them.

Five Key Principles for a Fossil-Free Recovery

May 17, 2021 | Lourdes Sanchez

Lourdes Sanchez, lead author of Achieving a Fossil-Free Recovery, explains how the COVID-19 pandemic has created a window of opportunity to fund a green recovery, along with five principles to do so.

Blog: Green Taxation and Fossil Fuel Subsidy Reform: Two tools for a green recovery

May 19, 2021 | Joachim Roth

Joachim Roth suggests two key ways to fund energy transitions during the COVID-19 recovery: fossil fuel subsidy reform and green taxation.

Blog: The Disparity Between Climate Commitments and Clean Energy Spending

May 18, 2021 | Tom Moerenhout

Are governments missing a historic opportunity to fund green transitions? How has the pandemic affected the energy system? Tom Moerenhout explains.

Blog: How Can Renewable Energy Help Us Through the COVID-19 Pandemic?

May 20, 2021 | Richard Bridle

Richard Bridle, co-author of Achieving A Fossil-Free Recovery, explains why governments should put renewable energy at the heart of their recovery.

How Can Renewable Energy Help Us Through the COVID-19 Pandemic?

lsalter — Thu, 20 May 2021 15:03:32 +0000

How Can Renewable Energy Help Us Through the COVID-19 Pandemic? Richard Bridle lsalter Thu, 05/20/2021 - 10:03

As governments plan economic measures to recover from the pandemic, they face a critical decision: to back transformational investments in a clean energy future or lock in fossil fuels for another generation. Renewable energy expert Richard Bridle, co-author of the report Achieving a Fossil-Free Recovery, explains why governments should put renewable energy projects at the heart of their recovery plans.

How has the pandemic affected the future of clean energy?

The pandemic has placed us at a crossroads. We've already seen that the first wave of government action has been aimed at protecting existing energy sources and technologies. And most of those are fossil energy because that's the nature of the energy system. There's a risk that, moving forward, governments will return to austerity measures, cutting back on programs related to the environment and energy.

Did the pandemic hurt the clean energy transition?

Yes, it made the situation worse. When the pandemic hit and oil prices fell, fossil fuel companies saw their profits drop, and many had to temporarily shut their operations. The demand for bailouts became very strong, and the government didn't feel that they could accept so many job losses. At that point, calls to bail out the clean energy sector were much quieter—even though it's far more important that they are supported since they're the future of our energy system.

How can we ensure clean energy growth as the pandemic drags on?

First, we have to make sure our response isn't counterproductive. Recovery spending shouldn't prop up old fossil fuel industries and lock them in for another generation. We need our governments to make explicit political commitments to the clean energy transition by backing transformative energy investments. In practice, that means targets need to be put in place, and those targets need to be backed up with credible mechanisms to fund their deployment.

Does this mean the pandemic recovery could be an opportunity for governments to push the clean energy transition forward?

Yes. It's important that the next waves of government action are designed for the future we need, which is a clean energy future. We all looked to our governments to manage the pandemic, and now we're looking to them again to manage what comes next. I think people are acutely aware that we need to avoid an even worse threat coming up behind the COVID-19 crisis—and that's the climate crisis.

If governments were to adopt policy measures supporting clean energy, energy access, clean transportation, and energy efficiency, what would be the advantages for economic recovery?

In the short term, one advantage is that renewable energy projects tend to have very short lead times. It takes decades to build or renew a nuclear power station, but renewable energy projects can be delivered in months. If you want to create jobs and economic activity in the supply chain now, then renewable projects are really well-suited to doing that.

We also need a fundamental redesign and retooling of our building sector, looking into things like insulation and the conversion to electrically powered heating systems such as heat pumps. If we took these actions now, we would put large numbers of people back to work in deploying those technologies, reduce energy costs for homeowners and consumers, and reduce our emissions.

So why do you think this potential is not being used?

I think the biggest single barrier is that governments are very concerned about finances at the moment. There is exceptional demand for welfare funding, in addition to the pressure coming from industries and interest groups, so it's quite difficult to commit funds to infrastructure or energy projects. It requires governments to be very farsighted and strategic about how money should be spent.

What can change this?

Governments need to have a bold and consistent vision and use that as a litmus test for all policies that are being proposed. It's clear that, over the next decade, we need to have a fundamental transition in our energy sector, which means that every tax and subsidy policy has to be consistent with that goal.

We need our governments to make explicit political commitments to the clean energy transition by backing transformative energy investments.

How do you convince governments of economies that are highly dependent on fossil fuels that this is necessary?

I don't think it has escaped any government's notice that reliance on fossil fuels is increasingly becoming an economic and political risk.

But I think that we do have to convince governments that the time to act is now. There's no place for fossil fuel subsidies in a modern economy, so the message that subsidies should be swapped from fossil fuels to clean energy should be at the heart of recovery policy. It would be highly effective to reform those subsidies, increase taxes on fossil fuels, and reallocate a portion of those savings to prepare for the transition to clean energy. The post-pandemic restructuring of the economy is an opportunity to tackle these difficult issues.

Recently, Bill Gates said: "You're more likely to try to invent a new type of clean fuel if you're confident you won't be undercut by cheap gasoline." How do you think the policy measures you propose will affect our creativity and development in the area of clean energy?

Yes, I think that's true. Look back in history to when innovation in the energy sector has occurred: during the oil crisis in the 1970s, energy prices were very high, and that spurred a lot of governments to consider renewables. The wind industry, and to some extent the solar industry, was born in that era. Then it went dormant for a couple of decades because fossil energy got cheap again, and everyone stopped worrying about it.

I think that's the key: we have to make fossil fuel energy into expensive energy. We have to price energy in accordance with the external cost of the energy, taking into account the cost and health impacts of pollution and the cost to the environment. The prices we charge should reflect those external costs. In that environment, renewable energy will always look far cheaper than fossil energy.

If governments do implement these solutions, what can we expect?

If governments succeed in reforming fossil fuel subsidies and reallocating the savings to fund a clean energy transition, we will see very rapid change. We'd see much of the fossil infrastructure start to be dismantled, and we'd see our homes being heated and provided with electricity for a lower cost—and at a much lower cost to the planet. There would also be a fundamental change in the economy, with a massive increase in jobs related to the deployment of clean energy technologies.

We have an opportunity to prepare our economies, our homes, and our transport to meet the target of net-zero emissions by 2050. By taking these steps now, we could get ahead of the curve.

Five Key Principles for a Fossil-Free Recovery

May 17, 2021 | Lourdes Sanchez

Lourdes Sanchez, lead author of Achieving a Fossil-Free Recovery, explains how the COVID-19 pandemic has created a window of opportunity to fund a green recovery, along with five principles to do so.

Blog: Green Taxation and Fossil Fuel Subsidy Reform: Two tools for a green recovery

May 19, 2021 | Joachim Roth

Joachim Roth suggests two key ways to fund energy transitions during the COVID-19 recovery: fossil fuel subsidy reform and green taxation.

Blog: The Disparity Between Climate Commitments and Clean Energy Spending

May 18, 2021 | Tom Moerenhout

Are governments missing a historic opportunity to fund green transitions? How has the pandemic affected the energy system? Tom Moerenhout explains.

Blog: How COVID-19 Could Impact the Clean Energy Transition

April 29, 2020 | Peter Wooders , Ivetta Gerasimchuk

IISD experts Peter Wooders and Ivetta Gerasimchuk discuss the impact of COVID-19 on the clean energy transition, renewable energy and fossil fuel subsidies.

Green Taxation and Fossil Fuel Subsidy Reform: Two tools for a green recovery

lsalter — Wed, 19 May 2021 14:04:08 +0000

Green Taxation and Fossil Fuel Subsidy Reform: Two tools for a green recovery Joachim Roth lsalter Wed, 05/19/2021 - 09:04

How can governments align their recovery plans with energy transitions, and where can they find the money for green investments? Energy expert Joachim Roth suggests two key measures: fossil fuel subsidy reform and green taxation.

In the new report Achieving a Fossil-Free Recovery, you propose solutions for a green recovery in the energy sector. Where can governments find the money for green investments?

One way is fossil fuel subsidy reform. There are a lot of subsidies out there, from tax breaks for fossil fuel producers to government support for fossil fuel prices. These come with high climate, social, and environmental costs and waste taxpayer money on fuels and projects that are unlikely to be profitable in the long run. Reforming these subsidies can generate a lot of revenue.

Another method is green taxation, which can take a lot of forms, including energy taxes, excise duties on gasoline or coal, or carbon pricing. These taxes can also decrease energy consumption by pricing fossil fuels to reflect their environmental costs.

Both of these methods are currently underutilized by most countries.

In just 60 seconds, Tara Laan explains the benefits of using fossil fuel subsidy reform and green taxation to fund a green recovery.

How much money could be raised through fossil fuel subsidy reform?

A lot. Just reforming subsidies to the consumption of diesel, gasoline for transportation, and coal, and implementing a tax on the consumption of these fuels could generate around USD 553 billion per year globally. And there are many more subsidies supporting both the production and consumption of other fossil fuels.

A tax of just 0.125 cents per litre on gasoline and diesel could raise over USD 1 billion per day—the equivalent of more than USD 400 billion per year, although estimates can vary because of different methodologies.

How could that money be better spent?

It depends on local priorities. India placed an excise duty on gasoline and diesel and used that revenue to fund their COVID-19 response. The Government of Costa Rica implemented a set fuel price for gasoline—so when fuel prices dropped during the pandemic, domestic fuel prices did not fall below a certain level. The revenue raised was then used to support workers at risk of losing their jobs. In Colombia and Costa Rica, they have used carbon tax revenue to fund forest conservation projects.

A good way to build support for these measures is to earmark revenue to support renewable energy industries, which has been done in a number of countries, such as the Nordics. There are many creative ways that this revenue can be spent to fill gaps and build projects.

What sort of benefits could we see if we put these measures in place?

Besides generating revenue, these measures level the playing field for renewables by factoring climate, environmental, health, and other impacts into the price of fossil fuels. These policies tell investors and companies that they can invest in clean energy technologies with less risk and better outcomes for society.

Another advantage is job creation. When the Nordic countries implemented environmental fiscal reform in the late 1990s, they raised carbon prices and green taxes and then reduced income taxes and taxes on employers. Median disposable income in Swedish households grew four times faster after 1995. So while green practices may seem detrimental to growth in the short term, several models show that these measures actually have a modest impact on growth and can be beneficial for jobs.

And the last benefit is air quality. In Norway, they used green tax revenues to fund pollution-reducing technologies, like green shipping and monitoring systems for nitrogen oxide (NOx) emissions. Similarly, Sweden set a threshold of NOx emissions above which polluters would have to pay a tax, creating an incentive for increased efficiency and reducing air pollution.

Should the average person be concerned about higher taxes or inflation?

Governments need to make sure consumers expect, prepare for, and don't suffer unnecessarily from price changes. Measures must be put in place to balance the negative economic impacts and protect the poor and vulnerable from the reforms.

It's difficult to raise taxes without having some impact on consumers and prices, but dedicating part of the additional revenue or budget savings to support low-income groups or implementing targeted subsidies can mitigate the effects. In the big picture, although some costs might go up, with the right measures in place, the overall material impact on most citizens would be small.

If you use taxation as part of a wider package and thoughtfully redirect revenue, then even in fossil fuel-based economies, you can see positive change.

When we look specifically at highly fossil fuel-dependent economies, is there a risk that raising taxes and lowering subsidies on fossil fuels could lead to an economic downturn?

Some are concerned that green taxation will affect industry competitiveness, but I'm skeptical of this if reforms are enacted in the right way. To combat this challenge, the Nordic countries initially lowered rates for strategic industries to gain widespread acceptance; then they gradually increased the rates to allow for adjustment. They also built in energy-efficiency incentives. So if these policies are designed well, industries can actually become more competitive.

Of course, there could be a risk of downturn in economies that are deeply rooted in fossil fuels. One of the key elements for success is using the revenue to promote new activities, create jobs, and allow the economy to shift. If you use taxation as part of a wider package and thoughtfully redirect revenue, then even in fossil fuel-based economies, you can see positive change.

How do you identify the right specific measures? This is where just transition comes in. This is a process where workers, employers, governments, and other stakeholders, like local communities, work together to develop the right suite of policies and practices that will maximize benefits and mitigate risks. Just transition is a core component of a successful energy sector transition.

Some attempts to put these measures in place have led to public backlash, as we saw with France's yellow vest movement and in Ecuador in 2019. How can this be avoided?

Timing is important. Public backlash is sparked when governments fail to include civil society groups and communities that will be impacted in their decision-making or fail to communicate the intent and process behind the policy. That risk is mitigated if governments use the revenue appropriately, such as to fund the low-carbon transition, cover the needs of vulnerable groups, or support green industries. They must also clearly explain what they're doing to the public. We cannot forget that, overall, it is the richer groups of society that benefit most from fossil fuel subsidies.

Are there regional differences in how these mechanisms should be applied?

Context is definitely important. The fiscal reforms implemented in the Nordic countries, for example, will work in countries that have a strong social safety net, organized formal labour sectors, and open dialogues between labour, industry, and government. In countries without these conditions, other approaches may be needed. Instead, cash transfers, food vouchers, or reduced costs of public transportation may be more appropriate, along with establishing social safety nets. The challenge of distributing benefits and social compensation remains the same; it just requires a strong understanding of (and adaptation to) the local context.

What are the next steps to implement these policies more widely?

First, governments should commit to regularly reviewing and phasing out fossil fuel subsidies, targeting revenue recovered from reform of subsidies to those that need it most. Second, governments should commit to progressively raising green taxes alongside measures for social compensation. It's important to remember that these are two tools in a wider toolkit and take into account the social impacts. But at the end of the day, these tools can be very beneficial if they're used in the right way.

Five Key Principles for a Fossil-Free Recovery

May 17, 2021 | Lourdes Sanchez

Lourdes Sanchez, lead author of Achieving a Fossil-Free Recovery, explains how the COVID-19 pandemic has created a window of opportunity to fund a green recovery, along with five principles to do so.

Blog: The Disparity Between Climate Commitments and Clean Energy Spending

May 18, 2021 | Tom Moerenhout

Are governments missing a historic opportunity to fund green transitions? How has the pandemic affected the energy system? Tom Moerenhout explains.

The Potential From Fossil-Fuel Subsidy Reform for Funding and Achieving Sustainable Development Goals

October 8, 2014 | Laura Merrill

A new report from the IISD Global Subsidies Initiative was launched in conjunction with the Asia Europe Foundation, at a conference exploring the financing of future Sustainable Development Goals (29-30 September 2014).

Blog: Are Countries Walking the Talk on Cutting Carbon?

March 16, 2021 | Joachim Roth , Silke Boelts

Increasing climate ambition over time is key, but revised NDCs lack two critical components: fossil fuel subsidy reform & green taxation.

The Disparity Between Climate Commitments and Clean Energy Spending

lsalter — Tue, 18 May 2021 15:12:15 +0000

The Disparity Between Climate Commitments and Clean Energy Spending Tom Moerenhout lsalter Tue, 05/18/2021 - 10:12

Are governments missing an historic opportunity to fund green transitions? How has the pandemic affected the energy system? Tom Moerenhout explains.

Where has government financial support been directed in the energy sector?

Early in the pandemic, a lot more support was directed to fossil energy. That includes direct funding for oil, gas, and coal production, as well as spending on sectors that rely on fossil energy, such as aviation, trucking, and shipping. With time, funding for clean energy started to pick up—although looking at G20 countries, around USD 293 billion of government stimulus funding has been pledged to fossil energy while USD 246 billion has supported clean energy.

Most clean energy funding is invested in energy-efficiency measures: building retrofits; solar, wind, and green hydrogen in the power sector; and public transport and electric vehicles (EVs). Across the world, a lot of money has gone to the development of EVs, charging infrastructure, and purchase rebates.

Unfortunately, stimulus funding has also gone to fossil fuels, particularly coal. Any funding that goes to coal mining or coal power plants has huge impacts in terms of climate change and air pollution, so every dollar spent on coal matters.

Why did we see such a disproportionate amount of funding directed to fossil fuels early in the pandemic?

A lot of government support initially went to reducing economic damage through bailouts—including those linked to fossil energy. Our world economy is addicted to fossil fuels, and detoxing from that is going to be a lengthy process. So initially, there were few choices but to bail out some of these fossil fuel users, such as airlines, that really suffered and have quite a big impact on jobs.

Which governments are leading on clean investments?

Although it's natural to want to rank countries, most have both good and bad investments. In terms of electric mobility, for example, one of the biggest funders is China. They have performed very well in terms of incentivizing EV purchases and recharging infrastructure.

The European Union deserves a special mention: within their EUR 750 billion package, they agreed that more than one third will be allocated to climate. When that money comes in throughout 2021, it will make a big impact.

The Biden plan in the United States is also very impressive; we just need to see it adopted and implemented. Canada and Australia are interesting because of their internal contradictions. Canada has a lot of money going to fossil fuels, and at the same time, they have a really impressive number of clean energy policies. In Australia, coal and natural gas are still receiving major funding, although there is also a big push for clean energy. So in those cases, we need a decision, and we need it fast. Any investment made now could lock countries or regions into either a fossil fuel future or a green future.

I really believe that there is a lot of goodwill in terms of net-zero targets and other long-term goals. But that needs to be matched by stimulus decisions today.

Why are some countries doing better than others?

Generally, countries that invested in clean energy had preparations in place already. The European Union had established the European Green Deal framework, so they were able to build on that. A lot of the content in the Biden plan came from the Green New Deal movement in the United States, which was a bottom-up process that eventually gained support from high-level politicians. We shouldn't be surprised by China's EV stimulus because China already had generous subsidies and produced more than 90% of global batteries that go to EVs.

Overall, how are government responses to the crisis lining up with their climate commitments?

There's definitely a big mismatch between climate commitments and the funding decisions of most countries. I really believe that there is a lot of goodwill in terms of net-zero targets and other long-term goals. But that needs to be matched by stimulus decisions today, and unfortunately, those are simply not yet good enough.

To avoid catastrophic impacts, the Paris Agreement sets a target to limit the global temperature increase to 1.5°C above pre-industrial levels. If we don't change anything, we will be on track for two degrees of warming or more by 2060. That's in four decades. From an energy system perspective, this is a very short time period—even more so when you consider that current energy infrastructure that is installed or under construction would lead to 1.65°C of warming. Investments need to be much more radical, with more money directed to renewables, green energy, and electric mobility.

But it's also essential to stop funding oil and gas companies, which receive billions of dollars in subsidies per year on top of any stimulus funding. These subsidies are wasteful and are deeply problematic for the energy transition. There's just too much money still going to fossil fuels to put us on track for that 1.5°C target. But of course, those companies have vested interests and a lot of influence over decision-makers. These areas remain difficult and require countries to have more courage. Our future will be massively impacted by the investments we see today.

There's just too much money still going to fossil fuels to put us on track for that 1.5°C target.

How should governments move forward with recovery commitments in the energy sector?

There are four key goals that we need to focus on. First, add more renewable energy to the grid. Second, increase energy efficiency—which stimulus funding has helped with. Third, phase out coal rapidly—we're not at all on track to meet this goal yet. And fourth, cut methane emissions from oil and gas—we are also not on track there. So those last two should receive more attention than is the case right now.

The recent shift toward solar, electric mobility, and batteries has not happened in any other sector that quickly. This is beautiful.

But so far, it's not enough.

Five Key Principles for a Fossil-Free Recovery

May 17, 2021 | Lourdes Sanchez

Lourdes Sanchez, lead author of Achieving a Fossil-Free Recovery, explains how the COVID-19 pandemic has created a window of opportunity to fund a green recovery, along with five principles to do so.

The Potential From Fossil-Fuel Subsidy Reform for Funding and Achieving Sustainable Development Goals

October 8, 2014 | Laura Merrill

In Search of Just Transition: Examples from around the world

April 8, 2019 | Philip Gass

Energy transitions are about people: the ones who make the decisions and the ones affected by those decisions. A ‘Just Transition’ approach ensures the affected people are considered by those making decisions.

Blog: How COVID-19 Could Impact the Clean Energy Transition

April 29, 2020 | Peter Wooders , Ivetta Gerasimchuk

IISD experts Peter Wooders and Ivetta Gerasimchuk discuss the impact of COVID-19 on the clean energy transition, renewable energy and fossil fuel subsidies.

Five Key Principles for a Fossil-Free Recovery

lsalter — Mon, 17 May 2021 16:17:57 +0000

Five Key Principles for a Fossil-Free Recovery Lourdes Sanchez lsalter Mon, 05/17/2021 - 11:17

Lourdes Sanchez, lead author of the report Achieving a Fossil-Free Recovery, explains how the COVID-19 pandemic has created a window of opportunity to fund a green recovery, along with five principles to do so.

How did COVID-19 affect the energy transition?

COVID-19 has changed the way we perceive the future, from what kind of energy we’ll use to how we will use it. Due to the pandemic, people use more energy in their homes and travel much less, if at all. While we all hope that these circumstances are temporary, it is possible that they could lead to long-term behavioural changes in energy use. It’s an opportunity for governments to plan smart policies that encourage a shift to cleaner forms of energy and more efficiency as the energy sector moves forward.

How have governments reacted to the COVID-19 crisis?

We have seen governments use COVID-19 recovery packages to put a lot of money into the energy sector. In general, countries that were already supporting the clean energy transition continued to do so by investing in renewable energy or electric vehicles. At the same time, countries that were dependent on the fossil fuel sector have spent a great deal of stimulus funding on non-renewables. The pandemic has placed us at a crossroads, and the decisions made by governments now will have huge impacts on the clean energy transition.

How can leaders take climate action while recovering from COVID-19?

This is an opportunity to plan an economic recovery that creates jobs by accelerating the move to clean energy while making sure that the transition away from fossil fuels is equitable. That means a transition should create opportunities to develop a fairer and more inclusive society by considering people and communities as we develop new ways of strengthening the economy and doing business.

What does it mean when we say that the recovery should be “fossil free”?

It means that we need to move away from fossil fuels. It doesn’t mean that our activities will suddenly stop. It's about using climate-friendly and cleaner alternatives to traditional energy sources. For example, instead of investing in new coal or gas power plants, countries can invest in wind turbines, solar panels, and electric grids. Instead of subsidizing gasoline and diesel, governments can buy electric buses for cities where people use this type of public transportation.

The pandemic has placed us at a crossroads, and the decisions made by governments now will have huge impacts on the clean energy transition.

There are many other options and examples. But one thing is certain: the government's role is key because they define the policies and decide where public money is spent. Overall, instead of supporting fossil fuels, they can swap that spending for clean alternatives.

What should be done in the short term and the long run to implement this idea?

Our report Achieving a Fossil-Free Recovery promotes five main principles.

First, stop using stimulus funding to perpetuate the production of fossil fuels, especially if the funding is not assisting with the clean transition.

Second, governments should reform fossil fuel subsidies or implement taxes to raise revenue for the sector’s transition. These measures help to reflect fossil fuels’ true cost to society: they cause climate change and air pollution and come with high health and economic costs.

Third, instead of subsidizing fossil fuels, governments should swap that funding with cleaner alternatives to work toward the net-zero target and better meet people’s needs.

Fourth, governments should incentivize private investments in clean energy.

Lastly, while enacting these measures, governments should ensure a just transition by considering the effects on workers and communities.

How do you convince governments of fossil fuel-dependent economies that these actions are necessary?

Instead of trying to convince them, we have to help them see that change is happening regardless of their actions. Every day, more and more insurance companies and investment funds choose to diversify their money away from the fossil fuel sector. But at the same time, we know that this is not easy and that there are going to be a lot of people and businesses that are quite affected by this. On the other hand, new industries will arise that will need workers and investors.

The main message for governments is that it is possible to plan a transition. That’s the key word: plan. All the social, environmental, and economic risks must be considered and mitigated as much as possible. To do that, planning has to be rooted in a dialogue between the different groups that are likely to be affected by the shift. That is what we call a “just transition.”

Is it possible to get all countries on board when there are so many considerations at play, such as different economic systems, levels of deployment, and fossil fuel dependency?

It is possible if we consider local context and priorities. For example, in Africa, a high percentage of the population does not have access to electricity at home or even to clean cooking fuels so it makes no sense to promote purchasing electric vehicles there. But a fossil-free energy transition also means increasing access to clean energy, so governments could invest in community solar power plants instead of expensive diesel generators.

All the social, environmental, and economic risks must be considered and mitigated as much as possible.

They could also remove subsidies for transport fuels. This measure is unpopular because it causes the price of gasoline and diesel to increase. But the truth is, it’s the affluent segments of the population who benefit most from gas and diesel subsidies, as they own cars. Governments should instead subsidize forms of clean public transportation or provide cash transfers to those who will suffer the direct effects of price increases.

There are also studies showing that improving access to public services, such as health or education, is a good alternative for people who might suffer due to fossil fuel subsidy reform. Ultimately, there are many options, but it’s critical that the local context is carefully analyzed and understood.