The spread of the COVID-19 pandemic had not hastened the decarbonization process despite the energy sector being shaken to its core bythe economic shock triggered by the virus, Laszlo Varro, Chief Economist at the International Energy Agency, said Oct. 13, adding that investment in the energy transition was instead set to fall by a fifth this year.
"Climate change is still very much with us," Varro told delegates at the 2020 Flame conference.
Global carbon dioxide levels in 2020 will still be at the same level seen in 2010/2011, which, according to Varro, is not enough.
"In 2010/2011 we were already concerned about climate change," the economist said.
According to the Chief Economist, the coronavirus pandemic has triggered a reduction in carbon emission but for the wrong reasons -- due to an economic recession, rather than investment in real energy transition.
"We should hope for emission reduction through investment in sustainable energy," Varro said.
While the coronavirus pandemic had a big impact on mobility and therefore on oil demand -- which is declining globally 15 times more than global GDP -- electricity consumption remained relatively sustained, with just a 2% year-on-year decline, the Chief Economist said.
"Residential use of electricity actually increased," Varro said, mostly because of the use of home air-conditioning during the summer but also because power consumption is "very much linked to a digital economy," he added.
At the same time, while solar production saw in 2020 a good year, with new installations and increased production, these gains were offset by a 5% decline in nuclear generation, with the result that one type of low carbon production substituted another type of low carbon production without contributing to the overall emission reduction, according to Varro.
"The wind and solar revolution alone won't be able to fulfill the energy transition needs," he added, also pointing to the fact that the pandemic could bring societal changes that increase emissions such as fostering the use of private transport rather than public.
On a positive note, historically low gas prices contributed to a strong decline in carbon-heavy coal production.
More investment needed
Investment in the energy transition will fall by 20% globally in 2020, compared with the previous year, and by around 14% in Europe, according to IEA estimates.
By collaborating with the International Monetary Fund, the IEA has prepared a sustainable recovery plan consisting in a 'Three years -- 3 billion dollars' comprehensive effort to put the economy back on the path to stabilization, Varro said.
According to the IEA and IMF, investment in the energy transition needs to be at the core of this program since it will have a positive impact on the rest of the economy, especially the construction and industrial sectors.
"With the IMF we estimated that this [program] will lead to a 4.5% recovery of global GDP which is less that what was lost in the crisis but still meaningful recovery," Varro told delegates.
While investment in energy infrastructure and energy efficiency will need to come from governments, the private sector should be able to cover two-thirds of the investment needed, the economist said, noting that quantitative easing programs launched by major central banks were now offering a good opportunity to invest.
Resilient infrastructure needed
While the COVID-19 pandemic has not so far advanced energy transition, it had forced global societies to face another problem strongly correlated to climate change -- the resilience of our energy infrastructure.
"Coronavirus is very weakly correlated to [energy transition] but has highlighted the importance of having a resilient society which is prepared to have infrastructural risks," Varro said.
This has shown that global investment in energy networks are very much needed to face any potential disruption coming from the effects of climate change, especially because these investments have been falling for several years even before the pandemic, he added.
"[We need] roughly a $100 billion annual increase in investments in the electricity networks," Varro told delegates. "Without rebuilding the network infrastructure, the wind and solar revolution alone won't be able to fulfill what we hope for."
Carbon taxes
Asked weather the IEA sees carbon taxes as a valid instrument to boost energy transition, Varro told delegates that governments around the globe should use every opportunity they have to reinforce carbon taxes. However, this can't be the only instrument in place.
"Carbon taxes can't be an excuse to avoid doing the rest," he said.
Instead, the transition needs to be driven by a combination of elements including for example the introduction of efficiency targets, innovation policies and investment in renewables.
