3 years and $3 trillion could shift the climate change narrative
INTERNATIONAL - Plummeting carbon emissions and big government spending—two of the defining narratives of 2020 so far—could create an unprecedented opportunity for the world to meet the goals enshrined in the 2015 Paris climate change agreement, according to the International Energy Agency. With $1 trillion of investment over each of the next three years, global energy-related CO₂ emissions could end up falling in 2023 by 4.5 billion metric tons, or 14% of last year’s total.
So says a special edition of the IEA’s annual World Energy Outlook, released today, which looks at more than 30 individual policies with the potential to both lift the world out of its Covid-19 economic slump and generate climate-safe growth.
Together they would create 9 million jobs across a variety of energy-intensive sectors and push global GDP 3.5% higher by 2023 than it would otherwise have been, according to a joint IEA-International Monetary Fund analysis.
“The plan would make 2019 the definitive peak in global emissions, putting them on a path towards achieving long-term climate goals,” the report states.
The IEA is releasing its analysis at a moment when many nations are beginning to consider what the next phase of pandemic stimulus should look like, giving its recommendations unusual urgency. The energy sector has received limited stimulus funding thus far, but according to the report, greater support would further the triple goals of recovery: growth, job creation, and climate-safe development.
The new analysis focuses on potential job gains and targeted policies in six sectors: electricity, transport, buildings, industry, fuels, and technology. Retrofitting buildings to make them more efficient users of energy would create the most jobs, followed by the solar and power-grid work. Many of the recommended policies would accelerate changes already enabled by technology and welcomed by markets, such as the rise of electric vehicles, batteries and renewable power, industrial energy efficiency and recycling, and cutting oil-and-gas methane emissions. The policy catalog also encourages urgent development of expensive or new technologies that have yet to reach market scale, including carbon-capture and storage, modular nuclear reactors, and high-speed rail networks.
The $1 trillion in annual investment required in the IEA’s estimates would come from public and private sources, and is equivalent to about 0.7% of global GDP. About 30% of that would come from governments, which amounts to less than 10% of the funds committed to coronavirus economic relief, according to the IEA. And it would come on top of already planned investments in clean energy, the report says.
The majority of private investment would flow into the industrial and buildings sectors, guided by public policy incentives or mandates. The economic impacts from Covid-19 have hit energy and related industries particularly hard. About 8% of their combined workforce, or 3.2 million people, have been or are at risk of being put out of work this year. Vehicle manufacturing faces the biggest hurdles coming out of the pandemic, with 2 million jobs potentially at risk, followed by the oil-and-gas sector, with more than 1.2 million jobs on the line. Global energy investment is projected to be down 20% for the year, and renewable power generation may be the only energy-related industry to grow this year.
The report also mentions energy-rich developing nations such as Nigeria and Iraq, whose national balance sheets are already under siege and may see oil-and-gas income drop 80% this year.
“Investors want Covid-19 economic recovery plans that deliver a cleaner and greener future. The IEA has shown this is not only desirable, but economically astute and essential in addressing the climate crisis,” says Stephanie Pfeifer, CEO of the Institutional Investor Group on Climate Change. “It’s vital governments pursue a sustainable recovery. The IEA’s grand coalition provides an important opportunity to ensure this happens and investors are fully committed to playing their part in this process.”
Not everyone was full of praise, however. “The IEA assumes very high levels of public and private spending in developing countries,” says Brian O’Callaghan, a climate researcher at the University of Oxford. “Their numbers are completely unrealistic without significant external support.”
While global CO₂ emissions from energy plateaued in the mid-2010s, they began to grow again in 2018 and 2019. Even the slowdown wasn’t enough to bring the world in line with international climate goals. In September, the UN Environment Programme suggested that climate pollution must fall by 7.6% each year through 2030 if the world is to maintain a chance of limiting global warming to 1.5° C.
The economic pain inflicted this year by Covid-19 may cause an emissions drop of as much as 8%. That itself won’t affect climate change in the long run. To reduce emissions permanently, the world must accelerate the transformation of energy-related industries.
IEA’s Executive Director Fatih Birol points to the 2008 financial crisis as an example of what happens if emissions reductions due to economic pain aren’t converted into systemic change. CO₂ emissions fell 400 million metric tons in 2009 then leaped by 1.7 billion metric tons in 2010. The climate can’t afford to repeat, much less exceed that, he says.
“This was the highest increase in the history of global emissions,” Birol says. “Let's first avoid the rebound.”
The report’s three-part focus on growth, jobs, and sustainability is particularly clear in detailed case studies of how emerging economies can benefit from particular reforms. India, the report says, has installed 500,000 electric irrigation pumps since 2010. The pumps, which can be powered by the sun, help make farming more efficient. Every 10% increase in crop yields would cut poverty by 7% in Africa and 5% in Asia.
The report further positions the IEA, founded by rich nations in 1974 in the wake of the first oil shock, as a bridge between debates about climate change and the future of energy.
“One thing is clear for me: The problem is not the energy,” Birol says. “The problem is the emissions. We need energy—energy is a good thing. But we have to reduce emissions.”