Four Reasons to Allocate Public Funds to Low-carbon Sector
Here are four arguments why public funds should be prioritized for low-carbon sector over carbon intensive industry.
1. Stranded assets are a real risk, as peak oil demand may already have passed.
Amid speculations that oil demand may have peaked already in 2019, even oil majors Shell and BP announced predictions that the peak has been pushed forward due to COVID-19. Before the pandemic, demand growth for fossil fuels had already slowed to just 1% a year, with nearly 40% of the world fossil demand falling, according to Carbon Tracker. Oil and gas companies face a continued, significant deceleration in industry exploration and production: BP wrote off USD 17.5 billion of its assets by adjusting its long-term oil and gas price and warned that it will be laying off about 15% of its workforce, while Shell has warned that it may cut USD 22 billion from the value of its assets.
As COVID-19 continues to impact, it is clear that pandemics and climate change are similar in that they represent systemic threats. Due to stranded assets risks, climate change is an even bigger threat to financial systems, according to research published by Finance Watch. In response to the threat of undisclosed financial risks, a group of investors managing about USD 2.2 trillion in assets are asking companies outside of low-carbon sector, such as oil and gas, to include climate risks in their forecasts.
2. The electrification of transport has scaled up and is in rapid growth.
Compared to 2008 when electric vehicles (EV) technology was still nascent, today’s electric transport sector is in rapid growth globally. The sales of EVs have increased exponentially over the last decade – from a few thousand cars in 2010 to over 2 million in 2019 – and EVs will likely reach price parity with internal combustion engine (ICE) cars within this year. More than 7 million passenger EVs, over 500,000 e-buses, 400,000 electric delivery vans and trucks, and 184 million electric three-wheelers are now on the road worldwide, according to Bloomberg New Energy Finance (BNEF).
In contrast, the global auto industry has been on a downward trajectory since sales peaked in 2017, and it may never recover as EVs chip away at its market share. Green stimulus can help speed up the deployment of electric charging infrastructure and other support measures, and so accelerate the transition of the transport sector.
3. Renewable energy is already cheaper than fossil fuels in two-thirds of the world, and in 2020 renewables are winning in Europe.
In the first half of 2020, renewables generated 40% of the EUs electricity, whereas fossil fuels generated 34%. Renewables have become cost-competitive with fossil fuels over the last decade, growing at a faster rate than expected in many forecasts. The falling cost of clean technologies, decreasing cost of capital for renewable projects due to investor confidence, and increasing policy support have all driven the sector’s rapid expansion globally. The cost of solar photovoltaics fell 81% since 2010 and the cost of onshore wind by 46%, while renewable power capacity additions have been growing exponentially at an annual rate of 8% over the last decade.
IEA projects renewables to be the only growing energy sector this year, and the share of renewables in electricity generation will rise to almost 5%. Demand for solar and wind will increase by 16% and 12% respectively, whereas gas (-5%), coal (-8%) and oil (-9%) demand will decline in 2020, according to the agency. The cost of renewables has in fact fallen so far that it is already more cost-efficient to build new renewable energy capacity, including battery storage, than to carry on operating 39% of the world’s coal capacity, according to Carbon Tracker.
4. Low-carbon sectors have significantly higher job creation effects than fossil fuel sectors.
As clean energy infrastructure is particularly labour intensive, several studies show that green stimulus creates more jobs in the short-term when jobs are scarce due to economic recession. Per dollar invested in energy efficiency or in the renewable sectors creates more than twice as many jobs compared to fossil fuel sectors
According to new estimates by the International Renewable Energy Agency (IRENA), every million dollars of COVID-19 stimulus investment in renewables will create 25 new jobs, while the equivalent investment in energy efficiency will create 10 jobs. Deeper decarbonisation will also double the number of energy jobs in the future: in 2017 the energy sector (all energy types) employed 58 million people, with about 11 million in the renewables sector. According to IRENA the low-carbon transition promises new patterns of socio-economic development that will lead to 100 million energy sector jobs by 2050, plus environmental and health benefits as well as broad improvements in people’s welfare.
This job creation effect is seen in developed as well as developing economies. In China, research showed that in 2010, for every 1% increase in the share of solar PV generation there was an 0.68% increase in total employment, a larger job impact than any other power generation technology.