Female energy engineer works on solar panels in yellow vest and white helmet.

How COVID-19 Could Impact the Clean Energy Transition

Peter Wooders and Ivetta Gerasimchuk met virtually to discuss the impact that COVID-19 could have on the clean energy transition, from renewables to fossil fuel subsidies.

By Peter Wooders, Ivetta Gerasimchuk on April 28, 2020

IISD experts Peter Wooders and Ivetta Gerasimchuk met virtually to discuss the impact that the COVID-19 pandemic could have on the clean energy transition, including renewable energy and consumer and producer fossil fuel subsidies.

Hear what they had to say about the potentially broad-spectrum effects this ongoing crisis might have on global energy systems, or read the highlights of the transcript below.

Peter Wooders (P.W.): Hello, everybody. I am Peter Wooders, director of Energy at the International Institute for Sustainable Development (IISD). We've been analyzing and discussing the impacts of COVID-19 and the crisis on clean energy transitions for some weeks now. Today, I'm joined by my colleague Ivetta Gerasimchuk, the lead of our Sustainable Energy Supplies pillar in the Energy program, for a discussion which I hope you will find useful as you look to define your responses to this ongoing crisis.

What have you been noticing that's happening on the energy supply chains from the COVID crisis?

Ivetta Gerasimchuk (I.G.): All energy is now experiencing a lack of demand. So it's hard for fossil fuels: oil prices have dropped by more than half. And it's also hard for renewables. There is now competition for investment, for buyers actually.

P.W.: It's a buyer's market, and one of my observations around the stimulus and the bailout packages people have been talking about now has been the heavy level of competition from all levels of and all types of energy production for government assistance. We're seeing that from oil, from gas, from coal, and I think one of the concerns here now is that decisions made by governments today in response to this crisis could fix us and lock us into the ways we produce and consume energy and emit carbon for years, and perhaps even decades, to come. Is that how you're seeing it too?

I.G.: Of course. It's a human tragedy, and the immediate response to the health crisis now is paramount. But also, everything we do now has profound effects on future generations. So the future is in our hands, and it's not only about washing them.

Supporting vulnerable people

P.W.: How do you feel that clean energy transitions can support those vulnerable people who are now suffering in the COVID-19 crisis?

I.G.: It's, in a way, the same vulnerable people that suffer from climate change and from a lack of energy access. It's people in poor households, in remote places, and also in not-so-remote places, in bad urban conditions, in developing countries. It's governments and countries with a lack of capacity on the whole. It's also elderly people because they suffer from air pollution from fossil fuel combustion, for instance; that makes them more vulnerable to COVID because air pollution causes non-communicable diseases: respiratory, cardiovascular, diabetes, and many, many other afflictions.

It's also very sad because some of the elements of this crisis could have been avoided, and it's true for both the climate and the health crisis. For instance, subsidies to fossil fuels, to coal power, have been causing some of these problems, but they were also wasted resources, and we know that if they had been used differently—for healthcare, for education—that would have made us more resilient.

P.W.: I couldn't agree more. And I think another opportunity we have that we’ve perhaps missed in the past but now have a chance to move back to, is the creation of jobs. We hear in all these stimulus packages: why not think about upscaling the performance of the buildings that we live in and that we work in through energy efficiency. But I think there are lots of other job creation opportunities and re-skilling opportunities through distributed renewables for more access, through the construction of low carbon infrastructure. We could also consider soil remediation and deal with some of the extractive sites that are heavily polluting, including orphan wells in Alberta, Canada, and other things.

A lot of these are so labour-intensive that they could help generate the jobs that all countries are now looking for as they think about the economic recovery once they start flattening the curve and moving through. It's also, I think, very instructive to look back at some of the previous crises and how countries reacted. For instance, South Korea’s stimulus package in response to the 2008–2009 financial crisis, where a lot of money went into river restoration, tourism sites, energy efficiency, and green transport, has been held up as one that was very successful.

Some of the work that IISD's Energy program has done with the Government of Denmark on energy swaps—taking savings and putting them into clean energy by, for example, moving money from kerosene subsidies to solar energy—has also been very effective. There are all these just transition opportunities. And I think as we look forward into economic recovery, a lot of it is going to be about jobs.

The future of renewables

P.W.: Something that's been very strongly on my mind, and I think we've discussed before and perhaps even disagreed on before, is renewables. Will the growth in renewables be positively affected by this crisis or negatively affected—or perhaps it's too early to say?

I.G.: I think there's going to be more growth in renewables, but slower than if we hadn't had the COVID crisis. We talked a little bit about the disruption of supply chains before, and a lot of renewable energy equipment has been provided by China (but of course also by some other countries: Germany, Denmark). We’ve also seen some countries even saying that renewables are not an essential service in this situation and curtailing renewables.

But I'm also thinking of the European examples, and in particular about the U.K. and Germany, wherein the first quarter of this year renewables provided the lion’s share of electricity. It was 45% in the U.K. in Q1, and it was 52% in Germany. So it's like a paradigm shift with the cost of renewables being so low now. Certainly, the growth will be smaller, but it won't be stalled.

Consumer fossil fuel subsidies

P.W.: We've seen incredibly quick reductions in the price of oil on the global market. And one of the things that we work on very strongly in IISD Energy, and have done for many years, is helping governments to identify where they give subsidies to their consumers of oil and gas products—to gasoline, to diesel, to liquefied petroleum gas, whatever—and then to help them reform those when the situation is right and when we are sure that they can be done politically well and for sustainable development reasons. How much change are we going to see in the level of consumption subsidies because of this oil price reduction?

I.G.: Consumption subsidies at this price, of course, are going to go down, and countries should use this opportunity to reform them. We've seen this scenario already in 2014 at the end of the year when oil prices collapsed the previous time, and a lot of countries—over 40 according to our estimates and the little map that we are doing—were cutting and reforming their consumption subsidies. Because, mostly in developing countries and emerging economies, they account for the difference between the higher international benchmark oil price and the lower domestic prices. Now, this difference is next to nothing, so our estimate would probably be, at the price of USD 30 per barrel, that consumption subsidies will go down from over USD 400 billion per year in 2018 to around USD 200 billion per year.

It's a very big cut, but the key is for countries to ratchet these reforms because we were also seeing in 2018, 2019, when the oil price was creeping up, that some countries started backsliding on fossil fuel subsidy forums and some countries started reintroducing those subsidies.

P.W.: Very interesting. I think there’s a great opportunity here for consumption subsidy reform for big savings. We saw in the past that India and Indonesia were both saving USD 15 billion a year when they came out of these low oil prices in 2014, 2015.

Producer fossil fuel subsidies

P.W.: The other side of this, in the subsidy world, is governments are either being asked for consumption subsidies when prices are high or they're being asked for production subsidies when prices are low. So are we now going to see in the stimulus packages, and then in other requests, lots of requests from companies and from corporations for production fossil fuel subsidies?

I.G.: Yes. It's happening: we've seen in Alberta, Canada, the government already injected equity and provided a loan guarantee to the Keystone XL pipeline. This is a classic example of what I would call zombie energy because zombie energy is only brought back to life by government subsidies; otherwise it's not viable—it should be dead and in the ground. We estimated that global fossil fuel production subsidies are around USD 100 billion per year, and with the goals that we hear from the industry and the signals from the governments, unfortunately, it looks like this number is going to considerably increase in 2020.

P.W.: Are there conditions that governments can put in if they're going to put stimulus packages together and help airline companies or help fossil fuel companies?

I.G.: Yes, absolutely. The first condition is, of course, no layoffs, because it's unacceptable for companies to get bailouts, pay dividends, and lay off people at the same time. But there are other things. The things you mentioned can be fuel-efficiency standards, can be diversification of business—and I think with government ownership and with state-owned enterprises, in a lot of developing and emerging economies, governments really have a lot of influence over how the energy sector is going to develop.

P.W.: Thank you for speaking with me today, Ivetta. Hopefully we're back in the Geneva office together sooner rather than later. It's pretty clear that whether these impacts on clean energy transition are going to be positive or negative is not yet set. We very much hope that they will be positive, and I think there's plenty of support for that case. The more evidence and views we can get out on that, the better.

I.G.: Thank you, Peter, and thank you everyone for listening. Keep safe and healthy.