G20 Recovery Packages Benefit Fossil Fuels More Than Clean Energy

This blog was originally published  by IISD-GSI on 7 July 2020. The estimates of public money commitments for different energy types have been updated on July 15 2020 due to both the issue of new government policies and additional research.

Decisions taken in response to the COVID-19 crisis today will lock in the world’s development patterns for decades. With policy decisions made on a daily basis, information about how public money is being spent can be hard to follow. That is why a consortium of 14 expert organizations came together to track energy-specific responses by G20 governments.

Early findings from our research show that, between the beginning of the COVID-19 pandemic in early 2020 and July 15, 2020, G20 countries have committed at least USD 151 billion to fossil fuels and at least USD 89 billion to clean energy in their stimulus and recovery packages. Another USD 28 billion went to “other energy” that is not straightforward to categorize.

This public money flows to energy production and consumption through direct budgetary transfers, tax expenditure, loans, loan guarantees, transfers induced by government regulations, and various hybrid mechanisms. It is in addition to many other government policies that are, and were, supporting different energy types before the COVID-19 pandemic and the collapse of energy commodity prices earlier this year.

These numbers, reported as of July 15, 2020, are a work in progress based on analysis of official government documents. They speak only for measures specific to both energy production and consumption as already approved by governments. More stimulus and recovery packages are still being discussed as proposals for later release, but several important trends are already evident.

Pre-COVID Trends Continue

The COVID-19 crisis and governments’ responses to it have expedited trajectories that existed before the pandemic struck. National and subnational jurisdictions, which heavily subsidized the production and consumption of fossil fuels in previous years, are once again throwing lifelines to oil, gas, coal, and electricity. Meanwhile, economies that had already started the transition to clean energy are now using stimulus and recovery packages to continue this.

According to the consortium’s estimates, as of July 15, 2020, the only G20 countries where national and subnational-level public money commitments to clean energy exceeded those to fossil fuels are Brazil, China, Germany, Japan, and the United Kingdom. The opposite holds true for Australia, Canada, France, Indonesia, India, Italy, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, and the United States. For Argentina,  there was not enough data to quantify support measures specific to the energy sector. Finally, in the European Commission’s pledges, it was difficult to disentangle support to fossil fuels from support to clean energy, and these public money commitments were “other energy”—a large category in other G20 countries as well.

Green Strings Attached and Different Shades of Green

The recovery picture is not black and white, or, rather, grey and green. While USD 121 billion (80% of the total USD 151 billion) is going to support fossil fuels with no environmental conditionality, some countries have attempted to attach at least some green strings to the public money being funnelled toward high-carbon assets. For example, the French government made its bailout of Air France conditional on reducing the airline’s emissions.

The “fossil conditional” category of public money commitments includes support to airlines, car manufacturers, fossil fuel companies, power plants, and producers of “blue” hydrogen (hydrogen-based on fossil fuels but with carbon capture and storage), with the requirement that they must reduce their overall environmental footprint. While such conditionality is a step in the right direction, the bottom line is that governments are still providing significant funding to fossil fuels and are also violating the “polluter pays principle.” The research consortium estimates the value of “fossil conditional” measures at USD 30 billion (20%) out of the total USD 151 billion committed to fossil fuels in the G20 countries as of July 15, 2020.

Similarly, there are different shades of green. According to the 14 expert organizations, solar, wind, energy efficiency, small hydro, “green” hydrogen (hydrogen based on renewables), cycling, and walking are “clean unconditional” and account for USD 16 billion (19%) out of the total (nearly USD 89 billion) committed to clean energy. The bigger chunk (81%) is over USD 72 billion in support for “clean conditional” energy realities such as electric cars, rail, public transport, “advanced” biofuels, large hydro, grids, and storage—these have great potential to reduce carbon emissions but can still cause environmental harm depending on how the energy is sourced.

Finally, at least USD 28 billion has been committed to “other energy”—a category including support for multiple energy types (e.g., in power generation or hydrogen of unspecified origin), which are impossible to disentangle. Researchers included nuclear, “first generation” biofuels, and waste in this category due to their predominantly negative impact on the environment over time.

Tip of the Iceberg

Our bottom-up estimates are possible for only about 3% to 5% of the total stimulus and recovery commitments. A considerably larger amount of public money committed to supporting the G20 economies in response to the crisis may also benefit different elements of the energy sector. However, these values are not available from official sources and are therefore not included in the consortium’s estimate. Countries such as Italy and Japan are deliberately designing their recovery packages in an industry-neutral way. However, in reality, even support from central banks through mechanisms such as quantitative easing is not entirely neutral and benefits the incumbents, which, in the energy sector, are predominately fossil fuels.

The first wave of stimulus and recovery packages has been rushed out. In fact, some G20 countries face difficulties efficiently disbursing the funding they have committed to recovery. Now is the time for more strategic responses to the COVID-19 crisis, and G20 governments still have an opportunity to green their stimulus and recovery packages to help create a low-carbon future for generations to come. The staggering amounts of public money already committed in this recovery show that, when governments need to mobilize fast, they can—an attitude that should be applied to climate action. We will continue to monitor these funding flows to ensure that our leaders are held accountable for their decisions.