For all the talk of “building back better,” governments around the world have been slow to support the clean energy transition in their recovery measures.
But there are concrete policy solutions that, if implemented today, could turn things around.
By Lourdes Sanchez
For all the talk of “building back better,” governments around the world have been slow to support the clean energy transition in their recovery measures. But there are concrete policy solutions that, if implemented today, could turn things around.
As COP 26 approaches, ramping up climate ambition and finance is top of mind. Although there is a long way to go, we have seen progress this year—in July, G20 countries agreed to try to limit global warming to 1.5°C for the first time. Denmark and Costa Rica are leading efforts to create the Beyond Oil and Gas Alliance, gathering governments committed to delivering a managed and just transition away from oil and gas production. Just last week, the United Kingdom and the European Investment Bank called on governments and public finance institutions to endorse a joint statement on shifting public finance from fossil fuels to clean energy. Nations across the globe have been making increasingly bold climate commitments.
But, if we are to achieve global net-zero emissions by 2050 and limit global warming to 1.5°C, ambition must be paired with concrete action. This starts with a COVID-19 recovery that supports the transition to clean energy, not fossil fuels, and contributes to achieving SDG target 13.2, “integrating climate change measures into national policies, strategies and planning”.
…the transition is not only about technology—it is mostly about people, jobs, and communities, just like the recovery should be.
Unfortunately, the numbers show that we are far from achieving this. Fossil fuel subsidies still attract billions of public dollars every year and, in their recovery packages so far, the G20 and 11 other major economies have pledged billions toward fossil fuels—USD 350 billion, to be exact, as of October 6th. This makes up 40% of all quantified recovery funds directed to the energy sector in these economies (versus 37% committed to clean energy).
This recovery funding adds to the already very high support to fossil fuel production and consumption, which globally in 2019 reached at least USD 802 billion. Instead of putting these billions toward achieving net-zero goals, governments are spending this money in a way that directly undermines climate action.
How can we change course to a fossil-free recovery? It starts with ending fossil fuel production subsidies, reforming fossil fuel pricing, supporting clean energy, incentivizing investment in clean electricity, and implementing a just transition. This has the power to boost economies and create jobs for a more resilient future.
So far, governments have largely neglected these opportunities to align COVID-19 recovery with actionable climate goals, but we can still turn things around if we start now.
First, we must recognize that public money for fossil fuel production has to stop. Governments must stop subsidizing fossil fuel extraction, both in recovery packages and on a regular basis, in line with SDG target 12.c to “rationalize inefficient fossil-fuel subsidies that encourage wasteful consumption”.
Second, let’s use fossil fuels to raise much-needed public money for recovery. Governments could generate around USD 550 billion a year by taxing gasoline and diesel for transport at just USD 12.5 cents per litre and coal for electricity at USD 5 per tonne, while removing subsidies to those fuels.
Raising energy prices during a pandemic might seem counterintuitive. But evidence from Nordic countries in the 1990s and following the 2008 global financial crisis shows that a “green tax shift” can actually be a pathway out of an economic downturn. Taxes on energy, transport, air pollution, and waste can generate revenues that allow a reduction in growth-hampering taxes on capital and labour, while funding green stimulus to boost productivity and jobs.
At the same time, taxes incentivize cleaner choices while adding a price to air pollution, climate change, and traffic congestion. These measures should also be implemented alongside appropriate compensation mechanisms to make sure that those most vulnerable to price increases do not suffer.
Third, governments can use money raised by ending subsidies and pricing fossil fuels correctly to accelerate the recovery by creating jobs and boosting the economy in ways that also advance the energy transition. Some of these funds can be put toward key areas to achieve climate and development targets that also create jobs and help get our economies back on track. These include increasing energy access, boosting energy efficiency, electrifying the transport system, and improving electricity systems so that they can support the energy networks of the future.
Fourth, to continue growing the economy and the energy transition, governments have to incentivize private investment in clean electricity, which will be essential to building up the low-carbon economies of tomorrow. Massive investment in renewable energy will be needed and 70% is expected to come from the private sector, but governments still have a central role to play in defining policies that encourage investors to put their money into the energy transition. This way, they can stimulate a full economic recovery that aligns with climate goals.
And last, but not at all least, the transition is not only about technology—it is mostly about people, jobs, and communities, just like the recovery should be. The energy transition implies massive changes in the energy sector, affecting companies across the fossil fuel production supply chain—and those who work for them.
To make sure no one is left behind, governments should follow the International Labour Organization’s guidelines for a Just Transition away from fossil fuels, planning ahead based on social dialogue with the affected communities as well as meaningful and strong stakeholder engagement, with the objective to create decent work, social inclusion, and poverty eradication in the shift toward sustainable economies.
It is not too late for governments to change course to a fossil-fuel recovery, if they act now. Not only will these five steps put us on a path toward meeting climate and development targets, but evidence shows they can create resilient growth and help to build the post-pandemic economy.
This guest article is authored by Lourdes Sanchez, Senior Policy Advisor, International Institute for Sustainable Development.