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3 Impact of post-covid recovery packages: preliminary results
3Impact of post-covid recovery packages: preliminary results
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3.1 Recovery packages broken down by economic activity, technologies, innovation stage
25. The newly developed Low-carbon Technology Recovery database comprises approximately USD 1.2 trillion worth of low-carbon recovery spending. As discussed in section 2, 20% of total funding relates to policy measures that encompass more than one technology, or where we are unable to determine the technology. The results presented in this section therefore focus on 80% of the database, where funding can be precisely allocated to specific technologies and sectors (which amounts for USD 990 billions). 26. Figure 6 shows which technologies are supported in each sector for all the countries combined, and Figure 7 presents the distribution of recovery funding to different sectors across countries. 27. In total, less than half of total funding is dedicated to climate mitigation technologies related to transportation. Over a third of the funding was dedicated to the reduction of greenhouse gas emissions related to energy generation, transmission or distribution. Climate change mitigation technologies related to buildings stood for 16%, and climate change mitigation technologies in production/processing of goods (“industry”) stood for no more than 1%. Finally, 2% of funding was dedicated to CCUS, and 1% to unspecified low-carbon technologies (“other”). 28. Within transportation, Figure 6 shows that a significant share of the green recovery spending is channelled towards upgrading, expansion and electrification of railways (48%) and to low-emission vehicles, such as EVs, hybrids, hydrogen heavy-duty vehicles and charging infrastructure (47%), with the remaining distributed to charging infrastructure and public transport. 29. Figure 7 shows that recovery funding related to transportation is heavily prioritized in several countries, especially in South Africa, the United Kingdom and Australia. This shows the focus of recovery spending on large infrastructure investments, such as large investments to railways in Australia and lowemission public transport investments in South Africa and in the United Kingdom.14
14 The sectoral distribution slightly differs from that reported in the OECD Green Recovery database (OECD, 2022[10]). This is mainly due to different scope and other methodological differences (see section 2.1). For example, not all the sectors presented in OECD (2022[10]) are included in the present paper (such as forestry or agriculture) and categories are broader (for example the OECD Low-carbon Technology Recovery database does not distinguish between aviation, maritime and ground transport, The specific focus on low-carbon technology is also responsible for differences in the transport and building sectors covered by both databases (for example, the OECD Low-carbon Technology Recovery database does not take into account broader measures targeting road transport and highways without concrete mentions of low-carbon technologies, whereas they fall in the scope of the OECD Green Recovery). Finally, the inclusion of the U.S. Build Back Better measures, where the U.S. Inflation Reduction Act is used as a proxy to break down the policy packages (see section 2.2 Data for more details), which are not included in the OECD Green Recovery Database, also contributes to possible discrepancies.
WILL POST-COVID-19 RECOVERY PACKAGES ACCELERATE LOW-CARBON INNOVATION?
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Figure 6. Low-Carbon Technology Recovery funding by sector and technology
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USD billions
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0
Transport Energy generation Buildings Other Industry
Low-emission transport modes
Rail
Public transport
Charging infrastructure
Renewable energy
Hydrogen (energy)
Transmission
Nuclear
Energy efficiency
Sustainable construction materials
Zero-energy buildings
CCUS (no sector)
Clean technologies
Low-carbon solutions for industry
CCUS
Hydrogen (industry)
Note: Results are provisional and should be interpreted with caution. The figure does not include recovery funding related to measures that support multiple technologies or to measures where the technology cannot be determined (20% of the database). In addition, USD 20 billion of the recovery funding that supports one technology is omitted from this graph since these measures allocate small amounts of funding dedicated to very specific small areas, such as recycling, environmental improvement, biofuels, semiconductors, marine transport and hydrogen refuelling infrastructure. Source: OECD Low-Carbon Technology Recovery database (interim version October 2022).
Figure 7. Distribution of recovery spending to various economic sectors across countries
Percentage of total recovery spending in the country, focusing on single-technology measures
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Buildings Energy genera�on Industry Other Transport
Note: Results are provisional and should be interpreted with caution. The figure does not include recovery funding related to measures that support multiple technologies or to measures where the technology cannot be determined (20% of the database). For this reason, Argentina is not included since almost 100% of the country’s recovery funding targets multiple technologies. Source: OECD Low-carbon Technology Recovery database (interim version October 2022).
WILL POST-COVID-19 RECOVERY PACKAGES ACCELERATE LOW-CARBON INNOVATION?
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30. As for technologies related to the reduction of greenhouse gas emissions from energy generation, transmission, or distribution, over half of the recovery funding is channelled towards renewable electricity, such as solar and wind power, close to 20% towards hydrogen production, either by electrolysis (green hydrogen) or from natural gas with carbon capture (blue hydrogen). A similar share supports power transmission – such as flexibility measures, general resilience and strengthening of transmission infrastructure – and energy storage such as batteries. Finally, investments in nuclear power capacity also stand for a substantial part of recovery funding in the energy production sector (10%). China, Israel, and Germany dedicate a significant portion of their recovery funding to technologies related to energy generation and transmission. In China, this is roughly equally spread across renewable electricity support, investment in transmission/distribution and in nuclear. In Germany, hydrogen investments play a significant role, and in Israel investments in solar energy capacity is a major priority (Figure 7). 31. In the buildings sector, the majority of recovery funding is dedicated to energy efficiency measures such as renovation (for example insulation or improved glazing of windows) and renewable energy related to buildings, such as solar PV on rooftops (85%). A smaller percentage is dedicated to clean construction materials in the U.S. (9%), and to green housing measures (6%), which is heavily prioritized in Japan, including support to zero-emission buildings, which is a priority in Korea. 32. Lastly, policies targeting low-carbon solutions in manufacturing industries, such as direct emission reduction and the use of renewables, stand for around 70% of the recovery funding dedicated to climate change mitigation technologies in the production and processing of goods. Policies targeting CCUS (11%) and hydrogen use in industries (20%) stand for the remaining part. A significant portion of recovery funding in Korea is related to emerging low-emission technologies in industry. In Germany, a significant portion is dedicated to hydrogen in industrial processes.
Support for emerging technologies
33. Funding dedicated to supporting emerging technologies amount to close to 20% of all low-carbon technology recovery funding (ca. USD 200 bn). Among emerging technologies, hydrogen has been the main priority (6% of total recovery funding targeted at a single technology). In addition, approximately 2% of low-carbon recovery funding supporting was channelled to CCS and to smart grids respectively, and 1% to large-scale storage. Lastly, significantly smaller portions dedicated to nuclear innovation and zeroemission buildings (Figure 8). 34. Figure 9 looks more closely at how each country has prioritised various emerging technologies within their national green recovery package. Hydrogen has been the main priority in France, Germany and Austria, while CCUS and smart grid technology are of significant importance in the UK, the U.S. and Italy. Support to zero-emission buildings plays an important role in the support to emerging technologies in Korea. Finally, long-duration storage is mainly a priority in the U.S.
WILL POST-COVID-19 RECOVERY PACKAGES ACCELERATE LOW-CARBON INNOVATION?
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Percentage of recovery funding dedicated to emerging technologies as a share of the low-carbon recovery funding targeting single technologies
7%
6% 6.15%
5%
4%
3%
2% 2.76%
2.31%
1%
0% 1.01%
Hydrogen Smart grids CCUS Large-scale storage 0.52%
Zero-emission buildings 0.02%
Nuclear innovation
Note: Results are provisional and should be interpreted with caution. The figure does not include recovery funding related to measures that support multiple technologies or to measures where the technology cannot be determined (20% of the database). Source: OECD Low-carbon Technology Recovery database (interim version October 2022).
Figure 9. Recovery funding to emerging technologies across countries
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USD billions
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Nuclear innovation
Smart grid
Hydrogen (all uses)
Zero-emission buildings
Storage (batteries, longduration) CCUS (all uses)
0
United States France Germany Italy Korea United Kingdom Australia Austria
Note Note: Results are provisional and should be interpreted with caution. The figure does not include recovery funding related to measures that support multiple technologies or to measures where the technology cannot be determined (20% of the database). Due to the inclusion of single technology measures only, the actual amount of recovery spending related to emerging technologies could be higher in some countries. Source: OECD Low-carbon Technology Recovery database (interim version October 2022).
WILL POST-COVID-19 RECOVERY PACKAGES ACCELERATE LOW-CARBON INNOVATION?
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35. Based on the overview of the prioritization of emerging technologies in green recovery spending in Figure 8, a majority of total green recovery funding prioritized funding to scaling up of existing technologies, as opposed to the early stages of technology development such as R&D and demonstration. However, this prioritization varies significantly across countries (Figure 9). Figure 10 shows that overall, roughly 9% of total green recovery funding is channelled towards support for R&D and demonstration projects, while 56% targets scale-up and adoption of existing technologies. The development stage could not be determined for the remaining funding, mostly because of measures targeting several stages for technology development. Among measures for which the innovation stage could be determined, around 85% of the measures target the adoption phase, and 15% the research, development and demonstration phase.
Figure 10. Low-carbon recovery spending by innovation stage
Low-carbon recovery spending targeting different innovation stages, as a percentage of total low-carbon recovery spending.
60% 56.53%
50%
40%
30%
20%
10% 9.44% 34.04%
0%
R&D and demonstration Adoption Not specified and multiple
Note: Results are provisional and should be interpreted with caution. The figure does not include recovery funding related to measures that support multiple technologies or to measures where the technology cannot be determined (20% of the database). Source: OECD Low-carbon Technology Recovery database (interim version October 2022).
3.2 Comparison with investment needs in low-carbon technology to reach net zero emissions by 2050
36. This section compares funding for low-carbon technologies in post-covid recovery packages to global investment needs to reach the carbon neutrality target by mid-century, in order to assess the remaining "investment gaps" between investment needs and the amounts mobilized within the framework of the post-covid recovery packages. Various studies have quantified the investments needed to ensure the deployment of low-carbon technologies at the necessary scale. These models however differ in several respects, for example in the choice of methodology (top-down versus bottom-up approaches), full versus
WILL POST-COVID-19 RECOVERY PACKAGES ACCELERATE LOW-CARBON INNOVATION?
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incremental costs and the exclusion or inclusion of consumer-level investments (IPCC, 2022[2]). These differences can generate different levels of investment needs in low-carbon technologies and innovation. 37. The IEA Investment Data Explorer (IEA, 2022[4]) suggests that a total of USD 2.3 trillion needs to be invested in clean energy on average annually by 2025, to be within reach of the net zero emissions by 2050 target (NZE). The Stated Policy Scenario (STEPS) by IEA (2022[37]) suggests that annually by 2025 this investment may already reach USD 1.3 trillion globally, based on the energy- and climate-related policy measures that have already been announced. This means that USD 1 trillion in additional annual investment in clean energy is needed towards 2025, including private and public financing. 38. Figure 11 depicts the annual additional needed clean energy investment by 2025 by sector and technology, to be in line with the NZE 2050 scenario. It shows that the majority of additional needed investments in clean power generation will need to come from renewables, while investments in electrical vehicles and energy efficiency together make up the majority of investment needs in end-use of clean energy. Furthermore, the investment needs in electricity networks play an important role in supporting the future energy system with high levels variable renewable energy.
Figure 11. Additional annual investment in clean energy needed by 2025 in the Net Zero Scenario
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Power generation investments End-use Clean fuel supply Electricity networks investments CCUS (excl. industry)
Renewables
Batteries
Nuclear
EV charging
CCUS industry
Other renewables
Electric vehicles
Energy efficiency
Clean fuel supply
Electricity networks investments
Note: The additional investment needs are calculated by subtracting the investment needs in the NZE scenario from the projected investments in the STEPS, withing each category and technology. Note that “CCUS (excl. industry)” in this figure is the represents the category “fossil fuels with CCUS” in the investments estimates by IEA. Source: (IEA, 2022[4])
39. Figure 12 compares the low-carbon recovery funding by technology to the additional annual investment needed to be on track according to the Net Zero Emission 2050 scenario, depicted in Figure 11. It is important to keep in mind that the comparison is between a one-off public investment via recovery packages (which will most likely be smoothed over a small number of years) with annual investment needs, so that a value of 100% corresponds to 1 year of investment need in the respective technology. 40. For electricity network investments, energy efficiency and clean fuel supply, which includes hydrogen investments, the tracked recovery spending stands for about 50% of the additional average annual spending needed by 2025 to be on track with the net zero emission target in 2050. For EV charging infrastructure and CCUS in industry, this percentage is 20% to 30%, and merely 1% for batteries. However, low-carbon technology recovery investments related to energy efficiency is significantly higher (85%), and
WILL POST-COVID-19 RECOVERY PACKAGES ACCELERATE LOW-CARBON INNOVATION?
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for nuclear power, CCUS15 and electric vehicles, the low-carbon recovery funding could cover 144%, 154% and 218% of the average annual investment needs, respectively. This means that covid recovery packages represent respectively 1.4, 1.5 and over 2 years of investment needs in these technologies.
Figure 12. Contribution of low-carbon recovery spending to annual investment needs in clean energy
Low-carbon recovery spending targeting different technologies, as percentage of additional annual investment needs (100% = 1 year of investment need in the respective technology).
Batteries 1%
EV charging
CCUS industry
Electricity networks investments
Renewables 21%
27%
50%
51%
Clean fuel supply
Energy efficiency
Nuclear 53%
85%
144%
CCUS (excl. industry)
Electric vehicles 154%
218%
0% 50% 100% 150% 200% 250%
Note: Results are provisional and should be interpreted with caution. The figure does not include recovery funding related to measures that support multiple technologies or to measures where the technology cannot be determined (20% of the database). The additional investment needs are calculated by subtracting the investment needs in the NZE scenario from the projected investments in the STEPS, withing each category and technology. Note that “other renewables” is missing from the figure, as this percentage is zero, and when comparing the lowcarbon recovery funding to “fossil fuels with CCUS” in NZE, we include the CCUS-related low-carbon recovery spending that is not specified for any sector. Finally, note that the low-carbon recovery funding in the “electric vehicle” category in this figure is mainly constituted of electric vehicles support (including direct purchase support but also support to the manufacturing of electric vehicles), and also some funding related to other types of low-emission vehicles, such as hydrogen-fuelled vehicles. Source: (IEA, 2022[4]), OECD Low-carbon Technology Recovery database (interim version October 2022).
41. At the more aggregate level, low-carbon recovery funding represents approximately 60% (i.e., 7 months) of the additional annual investment needs in power generation (including renewables, nuclear, batteries and CCUS) and 100% (one year) in end-use technologies (including mostly electric vehicles and energy efficiency). Therefore, while recovery packages make a welcome contribution, in particular for electric vehicles, CCUS, nuclear and energy efficiency, the recovery funding falls short of filling the investment gap which need to be filled to be on track with net-zero targets. 42. According to IEA (2022[4]), privately financed investments would stand for 64% of total needed investments, with variation across technologies depending on the level of technological development. This
15 Note that a significant portion of the recovery funding targeting CCUS does not specifically mention industry use, and therefore this portion is left in the technology category “other” (Figure 6). However, we cannot exclude the possibility that parts of the recovery funding targeting CCUS without explicitly mentioning industry as end-use, will not eventually target the industrial sector.
WILL POST-COVID-19 RECOVERY PACKAGES ACCELERATE LOW-CARBON INNOVATION?
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could make the role of recovery packages in filling the public funding “investment gap” in low-carbon substantial in several areas. However, the additional public funding would need to be sustained annually past 2025 and increased further, as investment needs in low-carbon energy will need to increase towards 2030. It also remains that the ability for recovery investments to mobilize further private finance seems critical.
WILL POST-COVID-19 RECOVERY PACKAGES ACCELERATE LOW-CARBON INNOVATION?
