Well Built Green Stimulus Packages Can Revitalize Economies, Help the Climate

Governments are unveiling trillions of dollars of stimulus measures to revive the economy from a potentially deeper downturn than the 2008-09 financial crisis. Amid great uncertainty, there are known knowns: post-lockdown life will be different from what came before; and the world still needs to reduce greenhouse-gas emissions and adapt to the effects of climate change. But which specific ideas can most effectively drive clean growth?

BloombergNEF examined this question in a recent Research Note previously available only to BNEF clients (at: web | the Terminal), but downloadable here now. Under BNEF’s definition, effective green stimulus should: be ready for quick roll-out, provide value for money, create jobs, increase private-sector consumption and participation, contribute to CO2 cuts, improve resilience and fit government budgets.

In the power sector, governments will get more bang per stimulus buck by investing in solar PV and onshore wind, BNEF concludes. These technologies are the cheapest sources of new-build generation for at least two-thirds of the global population, based on BNEF’s recent analysis, and have more job creation potential than fossil fuels.

In ‘shovel-ready’ terms, 387GW of wind/solar projects have permits in hand and are ready to advance globally. To expedite, governments can accelerate, expand or implement existing or planned incentive schemes such as auctions for power-delivery contracts and tax credits. Administrations concerned about outlays could award feed-in premiums (ie, top-ups on wholesale power prices) instead of fixed tariffs, or ‘subsidy-free’ contracts-for-difference. They could also implement programs to tackle a consistent problem for renewables developers: public acceptance.

Utility-scale and behind-the-meter batteries make key contributions to meeting increasingly spikey power demand but still find it tough to undercut new-build gas plants on cost grounds alone. Governments can reward batteries more by providing bonus dollars, renewable energy certificates or tax credits for discharging at important hours of the day. Training programs, as Germany and Spain have planned, can transition workers away from legacy areas of power (coal) toward new energy jobs. Such programs must provide workers with all the skills and knowledge they need to succeed going forward, however, and should address the growing need for training in digital technologies.

In transport, electric vehicles (EVs) are approaching cost parity on a total cost of ownership basis in a number of markets and green stimulus such as purchase subsidies can help, as can attaching ‘green strings’ to automaker bailouts. Proper scrappage schemes should be designed to ensure consumers switch to an EV rather than a more efficient diesel- or gasoline-fueled vehicle.  Public-procurement programs can tackle one of the biggest barriers to EV deployment – lack of charging infrastructure. Governments can also invest directly in local manufacturing capacity for EVs and batteries, which are expensive and tricky to transport. ‘Active mobility’ incentives can make it cheaper and easier for commuters to walk, bike or scoot, to alleviate pressure on roads that will otherwise be caused by commuters avoiding public transport due to Covid-19.

Energy-efficiency programs for buildings can be rolled out relatively quickly to create jobs. To ensure timeliness, public-procurement programs could renovate state-owned buildings, while a pipeline of retrofits for private buildings can be incentivized through grants and loans. Funding for training and certification would help to ensure the quality of implementation.

The development of decarbonized or ‘green’ gases like biomethane (or ‘renewable natural gas’) and renewable hydrogen today appear crucial to achieving longer-term climate goals. Together with carbon capture, use and storage, these can also enable the natural gas industry to evolve and deliver low-carbon growth. The biggest downside from a stimulus perspective is shovel-readiness. Government should therefore focus on increasing and speeding up funding for planned programs and projects, as Germany has done for renewable hydrogen.

Policy makers could also tackle the growing challenge of waste management by incentivizing companies to build industrial composting, anaerobic digestion, or recycling facilities. These can be rolled out relatively quickly and jobs. Composting projects can mitigate methane emissions, and the biogas produced via anaerobic digestion can be used to displace carbon-intensive and potentially imported fuels or feedstock.

Find the full report here.

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