The IEA’s sustainable recovery plan

The International Energy Agency(IEA), in conjunction with the International Monetary Fund has joined the chorus of those calling for a “sustainable recovery” from COVID-19. Perhaps conscious of the optics of unelected transnational bodies pushing policy plans, they are at pains to stress  that the analysis is “in response to calls from governments around the world” and that the plan is “not intended to tell governments what they must do. It seeks to show them what they can do.”

The plan is structured around 6 themes:

  1. Electricity – grid modernisation and expansion, new low or zero emissions generation
  2. Transport – vehicle efficiency, electric vehicles, high-speed rail, urban transit
  3. Building and appliance efficiency
  4. Industrial process efficiency and recycling
  5. Fuels – carbon footprint reduction such as fugitive gas reduction or increased biofuels
  6. Innovation – especially in technologies that either balance the electricity system (hydrogen, batteries) or deliver dispatchable power at low/zero emissions such as small modular nuclear reactors (SMR) or carbon capture and storage (CCUS).

At a high level, why would anyone object to these. Die hard fiscal conservatives might worry about the level of government spending and intervention the plan entails, but realistically any government that can will be developing fiscal stimulus plans to pull their economy out of its current nose-dive. So, if government is going to be throwing cash around, why not spend it on sustainable initiatives?

On the other hand, there is always a lot of devil in the detail. Well-intentioned stimulus packages can go badly awry, as Australians know all too well from the pink batts debacle. It would be a shame if Australian governments simply avoided efficiency schemes such as the home insulation scheme because of this, rather than learn the specific lessons of this tragic episode. As the IEA report shows, efficiency upgrades are relatively labour intensive and have low barriers to entry, and so if one of the goals of fiscal stimulus is to boost employment, then this is the place to go.

By contrast innovation expenditure is likely to provide a small number of highly qualified jobs but has the potential to deliver greater benefits in the longer term.

While the IEA claims its report has been devised with the specific circumstances of individual countries in mind, this has to be taken with a pinch of salt.

Take one of the transport recommendations – investing in high-speed rail. There is no doubt still several routes that link a small number of large metropolitan areas over short-medium distances – in other words where high speed rail could plausibly run at capacity and compete with short haul flying. But there are plenty of others where this is unlikely. Spain is an example where overinvestment in “sexy” high-speed rail has come at the cost of boring old urban mass transit. If it doesn’t pay off in Spain, then the chances of it paying off in Australia with much greater distances between our metropolitan areas remains fanciful.

Even the more obvious proposal to invest in wind and solar needs to come with some caution. Governments need to ask themselves: what is the problem I’m trying to solve here? What is the best way to solve that problem? It’s clear that in Australia, for example, rooftop PV continues to go from strength to strength as shown by the latest Carbon Markets report from the Clean Energy Regulator (CER). This indicates a 41 per cent increase in rooftop PV installations year-on-year for the period April-June. The CER is also “glass half full” on utility scale renewables, noting that their pipeline of “probable” projects – those close to financial commitment – is the highest they have recorded, at 2.8GW. By contrast, much of the industry is “glass half empty”.