Green stimulus: what it could look like in the various areas of the economy

The economic policy responses to the upcoming recession in Germany and many other countries due to the coronavirus pandemic will have a major impact on climate action. Governments have drawn up unprecedented aid packages to keep businesses and workers afloat. Now they are discussing stimulus packages worth hundreds of billions of euros that could lock in investments and technological developments in key areas for the energy transition for years after the corona crisis has passed at a time when many companies face future-defining decisions on their decarbonisation strategies.

Environmental think tanks, economists, climate researchers and others already weighed in on the debate about how mistakes made in the wake of the 2008 financial crisis that let fossil fuel intensity spike could be avoided this time. Many also say the corona crisis offers an opportunity to leapfrog transition steps that otherwise could take years, as the comprehensive economic lockdown caused by the outbreak allows policymakers as well as individual citizens to reflect on ingrained habits and procedures.

Think tank Green Budget Germany (FÖS), for example, published a snap report (in English) commissioned by Greenpeace that summarised its findings on possible measures in individual sectors. In a discussion paper, the Wuppertal Institute for Climate, Environment and Energy advocated a Three-Stage-Model to respond to the economic impact, divided into short-, medium- and long-term approaches.

While virus containment and financial survival of business clearly take precedence, longer lasting measures also had to be initiated now to ensure they take effect, the researchers argued. Energy policy think tank Agora Energiewende* has proposed a 100-billion-euro investment package to ensure the relaunch of the economy after the coronavirus pandemic in a way that supports the fulfilment of the country's energy and climate targets.

Economic cooperation body OECD cautioned that any stimulus response to the virus could only unfold its full potential if it is internationally coordinated and not pursued by each state individually.  The European Commission has illustrated this approach in its call for a European "Marshall Plan" for economic recovery that is supposed to orchestrate responses across the bloc.

The World Bank commented making sure that these approaches do not run counter to climate policy aims could be achieved by using Nationally Determined Contribution plans in the context of the Paris Agreement as a starting point. In Europe and Germany, governments are able to draw on measures outlined in the Green Deal and the national Climate Action Programme, respectively.

The Clean Energy Wire will collect and update fresh proposals made for green stimulus measures in different economic areas in the list below.

Already before the coronavirus outbreak, Germany's most important renewable power sources, solar PV and onshore wind, were grappling with regulatory hurdles to expansion. Even though the country concluded its first quarter with more than half of all electricity produced by renewables, expansion in Germany is far off of required levels to meet the energy demand of a growing e-car fleet and increasing electrification across all sectors, a prerequisite of most decarbonisation efforts.

An energy transition summit in mid-March that was supposed to provide a remedy for the current expansion slump was one of the first major political events that fell prey to the virus outbreak, when the government and federal states reshuffled the agenda to prepare their pandemic response. Initial investor reactions to the lockdown measures suggested that renewables are seen as a sort of 'safe haven,' as their value is relatively constant and unrelated to other asset classes. But like most other sectors, the renewables industry rather faces severe difficulties due to the crisis, as supply chains become disrupted and construction or maintenance activities are obstructed by containment constraints.

Germany's Association of Energy and Water Industries (BDEW) said continued investments in renewable energies were made even more pressing by the corona crisis and an important contribution to supply security in the future. Likewise, the Renewable Energy Federation (BEE) said a roadmap for the steady expansion of renewable energy sources could be an important contribution to the requisite economic stimulus measures that come with the added benefit of distributing funds across many regions in the country. It called for repurposing the over four billion euros the government set aside for decommissioning premium payments for coal plant operators to investment premiums for renewables to ensure that support money becomes effective locally rather than going to shareholders.

Michael Liebreich, founder of Bloomberg New Energy Finance, argued that boosting renewables expansion through direct support measures would be misplaced this time. Given the structural importance of renewables in a low-carbon energy system and considering the fact that costs for wind and solar power installations have plummeted in recent years, he instead called for addressing the need to better integrate them with storage devices, electric cars and heating systems to enable a "deep penetration into grids."

The Energy Watch Group, a Berlin-based network of scientists and parliamentarians, proposed that operators of innovative renewables systems that guarantee continuous energy supply day and night, for example by combining generation, storage, digital management and sector coupling, should receive a special feed-in tariff of eight cents per kilowatt-hour. They aruged this would allow for a faster exit from coal, an end to gas-fired power-generation. "Real climate action could be taken fast and a quick recovery after the end of the corona pandemic would become possible together with the necessary switch to a sustainable energy supply," they said.

Putting renewable power expansion at the centre of stimulus measures in the energy sector proved to be a highly rewarding decision in the USA after the 2008 crisis, according to the US administration under President Barack Obama. It had led to a clear boost for the national wind and solar power industries, creating about 900,000 jobs by 2015, and helped make renewables competitive with fossil power sources.

Agora Energiewende says about 13 billion euros would be needed for a green stimulus in the energy sector, up to 10 billion of which could be mobilised through Germany's renewable energy surcharge.

Wind Power

Germany's onshore wind industry saw a massive drop in expansion levels in 2019 due to regulatory challenges and lawsuits against new projects and a swift 2020 recovery has been made unlikely by the economic lockdown.

But the German Wind Energy Association (BWE) warned that the virus must not overshadow sustained challenges to the technology's expansion, which had already been addressed for two years prior to the crisis. The BWE welcomed the removal of bureaucratic hurdles by the national grid agency BNetzA and urged the government to relax other regulations as well. "Our industry doesn't need money to get going again, but merely administrative support," BWE head Hermann Albers argued.

In order to maximise the contribution of offshore wind to a green stimulus, Germany's expansion targets at sea could be ramped up to 25 GW by 2030, Agora Energiewende proposed. Moreover, investments in joint European projects, for example a wind power island-hub in the North Sea or boosting hydrogen production projects, could increase offshore wind's contribution to economic recovery.

Solar PV

The solar power industry has lobbied the government since mid-2019 to remove a capacity cap on guaranteed support payments that it said would be reached in the first half of 2020 and choke off investment in a key industry of the energy transition that has just begun to regain some strength after years of decline due to much cheaper competitors from China soaking up business volumes.

Lobby group SolarPower Europe said that solar power is "the most job intensive, low-cost and easily deployed renewable technology" that could help jump-start productivity across Europe. The group said it will work out concrete proposals on how the entire value chain of solar power could be exploited to this end by targeted investments. 

Besides housing, infrastructure construction also offers ample potential for coupling economic stimulus and climate action targets. After the financial crisis of 2008, the rebound in emissions was to a large extent due to spiking cement and steel production for large construction projects, which was often powered with fossil fuels. Investments in lowering carbon emissions in basic material industries therefore would be part of avoiding mistakes made after 2008 from a climate perspective.

According to Agora Energiewende, investments to the tune of 15 billion euros are needed to get the industrial sector on a sustainable growth track after the pandemic. While a significant drop in business appears unavoidable due to collapsing demand at home and abroad, the German industry with its roughly 5.6 million employees could use the interruption to improve its long-term competitiveness by improving the energy efficiency of steel furnaces or chemical steam crackers. The think tank proposes to invest five billion euros out of industry support funds into ramping up Germany's hydrogen production capacity, which would suffice to reach a production capacity of 10 gigawatts by 2030. The currently still very high cost of necessary power-to-gas production could be reduced substantially by Europe-wide tenders, Agora added.

The World Bank noted that large infrastructure projects often take a long time to prepare, which would make them less adequate for crisis response. However, the corona crisis's "unique nature" would allow the creation of a "green infrastructure pipeline" that could start generating growth as soon as circumstances permit it.

Giving households and companies higher liquidity through tax cuts is a traditional stimulus measure to quickly increase spending. Instead of reducing taxes, think tank Agora Energiewende proposes to reduce the stubbornly high power price for German customers by drastically reducing the renewables surcharge by five cents/kWh, which would cut the bills for private households by 20 percent and for business customers even by 25 percent.

A smaller power bill would especially help small and medium-sized companies and allow them to step on a level playing field with other European countries. However, at an estimated 22 billion euros, the price tag for the state of this measure would be substantial.

Due to the crisis-induced drop in energy demand and other factors, allowance prices in the EU ETS have dropped quickly and made the use of fossil power relatively cheaper. At the same time, the market price of oil has also plummeted. This would offer an opportunity to cut subsidies to oil and other fossil sources without inflating the bill for customers, the FÖS argued.

Finance think tank carbon tracker also said the price drop on fossil fuel markets provides an opportunity to cut subsidies and review fiscal approaches to emissions-intensive businesses.