Climate Change

15 Apr 2022

Governments Need a More Strategic Approach to Clean Energy Spend – IEA

15 Apr 2022  by   

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Clean energy spend by governments responding to the COVID-19 crisis has risen by 50% over the past five months, mostly in developed nations, according to the International Energy Agency’s Sustainable Recovery Tracker.

This $180 billion spend worldwide is more than 40% larger than global green spend in stimulus packages enacted by governments after the 2008 global financial crisis.

Advanced economies account for the bulk of the current green spend with more than $370bn intended to be spent before the end of 2023. The IEA thinks this level of short-term government spend will keep the door open for the global pathway it suggests to get the world to net-zero emission by 2050.

The Sustainable Recovery Tracker examines and makes public more than 1,000 national policies that have been enacted to accelerate clean energy transition as part of fiscal measures to limit the economic fallout from the COVID-19 pandemic. The Tracker was first published in July 2021 and updated after a request by G20 leaders in November 2021.

The total amount of money dedicated to sustainable recovery measures across emerging and developed economies though is only a tenth of the amount earmarked in advanced economies. This reflects some very different financial and economic circumstances. In emerging economies around $52bn is earmarked for sustainable recovery spend by end of 2023. This falls short of what is needed to reach net-zero emissions by 2050.

This gap is unlikely to narrow any time soon as governments with limited fiscal means now face the added challenge to maintain food and fuel affordability as commodity prices surge thanks to Russia invading Ukraine.

Advanced economies’ clean energy splurge not without its problems

Dr Fatih Birol, IEA Executive Director said countries who put clean energy at the heart of recovery plans are keeping alive the possibility of reaching net-zero emissions by 2050. “But challenging financial and economic conditions have undermined public resources in much of the rest of the world.

“International cooperation will be essential to change these clean energy investment trends, especially in emerging and developing economies where the need is greatest,” said Birol.

Even the advanced economies’ great spend is not without its problems. Some of the earmarked funds risk not reaching the market within planned timelines. Delays in setting up government programmes, ongoing supply chain disruptions, labour shortages and financial uncertainty dog project pipelines.

In addition, consumers facing measures – such as incentives to build retrofits and electric vehicles – are struggling to reach a wider audience because of red tape and lack of information.

“Governments who can remove red tape and quickly set up effective programmes will be the ones to reap the benefits and position themselves in the new global energy economy that is emerging. While the latest update of the Sustainable Recovery Tracker does point to promising signs in advanced economies, the world still needs to massively expand its clean energy deployment efforts throughout this decade, first and foremost in developing economies, if we are to preserve the hope of limiting the global temperature rise to 1.5°C.”

Governments tend to throw money at energy affordability issues instead of supporting cost-effective measures

Rising fossil fuel prices, exacerbated by the Russia Ukraine conflict, are pushing governments to enact immediate measures to make energy more affordable. The IEA’s tracking shows emergency affordability support by governments worldwide for households and businesses has reached around $270bn since the winter heating season started in the northern hemisphere in 2021. But, many of the measures that would be most effective to reduce oil and gas demand – such as installing heat pumps and expanding the use of public transport, bike lanes and high-speed rail – are not received the necessary level of government support.

Overall, public spending on sustainable energy is still a small proportion of the unprecedented $182 trillion in fiscal outflows that governments globally are dedicating to counter the economic impact of COVID-19. But, the IEA estimates that government spend earmarked to be disbursed by 2023 could support $1.6 trillion worth of sustainable investment if more private sector participation was encouraged.

While the energy transition in developed nations is about changing the source of electricity from fossil-fuel based to greener technologies, the challenge in Africa is creating first-time energy access. Globally, the number of people without access to electricity did decline from 1.2 billion in 2019 to 759 million in 2019, according to World Bank figures.

Globally, the concept of electrification through decentralised renewable-based solutions is gaining momentum. The number of people connected to minigrids grew from five million in 2010 to 11 million in 2019. But, under current and planned policies the World Bank estimates around 660m people will still lack energy access by 2030, most of them in sub-Saharan Africa.

The African Solar Industries Association’s second Annual Solar Outlook pointed out that national grids across Africa are not suited to large scale utility-sized builds because grids cannot absorb the quantity, not because there isn’t a demand for electricity.

This is driving the take-up of Solar Home systems across the continent in a very different way to what is happening in the rest of the world and companies across Africa are innovating new ways to use renewable energy, such as solar, to create decentralised first-time energy access faster than governments can expand their national grids.

Expanding private sector participation in Africa’s clean energy sector

Jeff Schnurr, clean energy start-up Jaza Energy CEO, says one of the biggest challenges to the clean energy sector across Africa is everything needs to be built from scratch. “The bar is high, higher than in most markets because the market has yet to be proven,” said Schnurr.

Jaza Energy was named EEP Africa’s 2021 Scale Up Project of the Year for its battery rental services and network of women-operated solar energy hubs in Tanzania. They deliberately use an employee-centric approach as the company seeks to increase energy access across Africa from the ground up. “We had to make that shift and have only hired women to run our service. This move has become our ‘why’ as a company and what is good for our employees, is good for the business,” said Schnurr.

Going forward the Sustainable Recovery Tracker will broaden what government energy spend it monitors and include how governments use fiscal means to ensure security of supply, maintain affordability and advance clean energy transitions against the benchmark of the Net Zero emissions by 2050 Scenario.


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