Assessing the World Energy Outlook 2020
Assessing the World Energy Outlook 2020
The global shock due to the COVID-19 pandemic has severely altered the course of the global economy. Various reports have highlighted that the global economy will contract by around 4-8 percentage owing to the prolonged restrictions on mobility and socioeconomic activities. The COVID-19 pandemic has caused more disruption to the energy sector than any other event in recent history, leaving impacts that will be felt for years to come. At this juncture, the International Energy Agency’s (IEA) World Energy Outlook 2020 report explores different pathways out of the COVID-19 crisis, with a particular focus on a pivotal next ten years to 2020-2030. According to the report, the global energy demand is estimated to fall by around 5 percent in 2020, with the energy-related CO2 emissions falling by 7 percent, and energy investments by 18 percent. The crisis caused by the COVID pandemic has prompted governments to enact emergency support measures.
The IEA’s World Energy Outlook for 2020 posits that in the post-COVID world, the global energy transition will be shaped by the following D’s: de-carbonization, decentralization, digitalization, democratization, and demand centric services. Electricity generation from renewable natural resources could show a positive growth rate, thanks to increases in capacity and better dispatching facilities. The ongoing crisis has once again highlighted the critical role of the governments in this regard. The IEA report minces no words in pointing out that governments have to be more proactive in doling out stimulus packages and other recovery strategies for the energy sector to uplift global energy production. Though some governments have announced goals boosting spending on sustainability, clean energy technologies have still not been featured prominently in major COVID recovery plans, with the EU, UK, Canada, and New Zealand being some notable exceptions.
The IEA report looks at three scenarios for the global economy to bounce back – namely, the Stated Policies Scenario (STEPS), the Delayed Recovery Scenario (DRS), and the Sustainable Development Scenario (SDS). While, the STEPS works under the assumption that normalcy will restore by 2021 and that the GDP will recover to pre-crisis levels in 2021 itself, the DRS assumes an economy where the GDP does not recover at least until 2023. The SDS envisions a situation where policies are inclined towards long-term investments in green recovery. The report, however, does not take into full account of uncertainties that may be continuously be eroded by factors such as commodity pricing, block-chains, bilateral relations, availability of natural, renewable resources, trade barriers, dependencies, and self-reliance, climate, market design, subsidies. Lower prices and downward revisions to demand, resulting from the pandemic, have also cut around one-quarter of the value of future oil and gas production.
At a moment when Covid-19 has created strange uncertainties, governments have unique capacities to act and guide the actions of each other. They can lead the way by providing the strategic vision, the spur to innovation, the incentives for consumers, the policy signals and the public finance that catalyzes action by private actors, and the support for communities where livelihoods are affected by rapid change. They have the responsibility to avoid unintended consequences for the reliability or affordability of supply. Regions that rely heavily on public funding are also likely to see deep cuts in spending, such as India, and countries in Africa and Southeast Asia.
Enabling a space for green investments in most of these countries carry several risks that can challenge project bankability, though those with strong policies see spending support. The Indian government is taking various measures to absorb the investment shock, including extensions for project commissioning, maintaining renewable auctions, and trying to boost private capital. In some countries, recent government announcements point to growing investment uncertainties. For example, investment expectations for Mexico and Brazil – the two largest markets in Latin America – have deteriorated, as Brazil is postponing all transmission and renewable auctions and Mexico is slowing down the connection of renewables.
Country-analyses of the green spending and clean energy recovery investments show that despite the attractive options that renewables pose in the future, most governments are still focused on short-term brown recoveries, rather than a long-term sustainable strategy. The governments must realise that in a post-COVID world, securing a green energy future is not just a choice, but an inevitable path to survival.
Siddharth Khatri is a research scholar at the School of International Studies, Jawaharlal Nehru University, New Delhi.