Renewable Energies in the take more than a Pandemic

Renewable Energies in the United States: The shift that will take more than a pandemic

written by Armand Chateau

Photo: IEA, 2020.

Restrictions imposed to slow the spread of Covid-19 have had a dramatic effect on energy consumption. Intentional constraints on economic activity created a supply shock, coupled with a demand shock arising from the impact on consumers’ disposable income and corporate investment activity. The latest data show that the drastic curtailment of global economic activity and mobility during the first quarter of 2020 pushed down global energy demand by 3.8% relative to the first quarter of 2019, wiping off five years of demand growth. Such a decline—which has not been seen for the past 70 years—has led many to hope for a shift in environmental policies. Can this be true?

During the pandemic, there has been an unprecedented decrease of CO₂ emissions and a new-found resilience in renewables (see figure 1). Global CO2 emissions were more than 5% lower in Q1 2020 than in the same period in 2019, with an 8% decline in emissions from coal, 4.5% from oil and 2.3% from natural gas. CO2 emissions declined in the regions hardest hit by Covid-19 such as the United States (-9%). This was the lowest level since 2010 and the largest drop ever. Meanwhile, renewable energy has been the most resilient energy source to Covid-19 lockdown measures, with global use of renewable energy increasing in all sectors by about 1.5% in Q1 2020 relative to Q1 2019 (see figure 2). As a result, renewables almost reached 30% of electricity supply globally and experienced the largest increase, especially in the eastern states of the United States.

However, these encouraging signs must be treated with caution for two reasons. First, not all of the declines in demand at the start of 2020 were a result of the response to Covid-19. Secondly, the pandemic may still threaten the renewable energy sector, and the decrease in CO2 emissions does not guarantee lasting reduction.

Indeed, the relative resilience of renewables is partly due to external factors, including the continuation of milder than average weather conditions throughout most of the Northern Hemisphere winter which pushed down energy demand. This was particularly evident in the United States, where the majority of the 18% decline in residential and commercial gas consumption can be attributed to a milder winter than in 2019. Renewables receive priority in the grid and are not asked

to adjust their output to match demand. Furthermore, they have been lifted by the additional output of new solar and wind projects completed in 2020, insulating them from the short-term impacts of lower electricity demand.

However, the pace of renewable power capacity additions could decline in 2020 as supply chain disruptions and labour restrictions delay construction. In fact, investment is expected to fall by 10% this year, and approvals for new hydropower projects declined to their lowest level of the decade in 2019. This will not be immediately felt but could severely diminish the production of renewable electricity in the long run.

Additionally, emissions reduced following economic downturns have historically recovered rapidly as economies regained their footing. As outlined earlier, the drop in CO₂ emissions is strongly linked to the result of a global health crisis. Thus, while the current crisis may have capitalised on positive renewable energy trends, the drop in energy use is likely to be only temporary. Smart and ambitious government policies will be needed to bring about the kind of sustained structural adjustments needed across a full range of sectors to achieve long-term climate goals, to which we now turn.

The clean energy sector has already seen a 17% drop in employment. The International Energy Association found that energy investment in the United States in 2020 is set to fall by 25%—a decline greater than some other countries—because of the United States’ exposure to oil and gas. If Congress does not support the maintenance and growth of the clean energy industry in a future stimulus or economic recovery package, the renewable industry could face job losses of up to 50% in some subsectors. However, while the United States has responded with some $3 trillion in stimulus packages, targeted relief went to oil and gas companies while largely dismissing the sector-specific requests of clean energy. A glaring example of this disparate treatment is the administration’s granting of royalty relief to the oil and gas industry, which now holds $744 billion in outstanding bonds and loans while at the same time sending massive bills for retroactive rent to the wind and solar companies amid a global pandemic. This was despite 56% of Americans supporting bolstering the renewable energy industry in the economic recovery packages.

Such policies come after years of the Trump administration undermining renewables. Regulatory actions such as repealing the Obama administration’s Clean Power Plan (CPP) in 2019, economic policies including tariffs on imported solar cells and modules, as well as legislative and fiscal policies and blocking of renewable development on federal lands had seriously challenged the sector pre-Covid-19. It is therefore essential to ensure that any future stimulus packages directly respond to the needs of the clean energy sector. Congress should include features like allowing tax credits to be received as a direct payment, delaying the phasedown of existing renewable energy tax incentives, and improving and expanding the energy efficiency tax credits. Both energy storage and hydrogen - critical emerging technologies for unlocking emissions reductions across energy systems - could become key beneficiaries of stimulus plans, much as solar PV and wind benefitted from boosts during recovery packages after the 2008 financial crisis.

Global carbon emissions will fall this year as a result of the major disruptions to travel, trade and economic activity brought about by the pandemic. Yet, this will not be enough to achieve our current goals and commitments, since it comes on the back of an international health crisis and widespread economic trauma. What happens next is crucial for our energy future. Achieving a robust economic recovery without the same kind of rebound in emissions that followed the 2008 global financial crisis, will require governments to take the lead in pursuing structural reductions in emissions. Smart and sustained policies will be paramount in accelerating the development and deployment of a full range of clean energy solutions. This can stimulate job creation and economic development while reducing emissions and fostering further innovation. Ultimately, these decisions are down to the administration, emphasising the importance of the coming US election; this will determine whether the country can recover from five years of anti-sustainable policies.