#SDGstimuli: Sustaining the energy and transport components of recovery packages in developing countries

In June and July 2020, the LEDS Energy Working Group hosted a three-part online discussion series on assisting developing countries in their efforts to recover from the global Corona pandemic, and the resulting economic crisis. The key objective was to understand how short-term recovery efforts, particularly in the energy and transport sectors, can support long-term transitions towards climate objectives and the Sustainable Development Goals (SDGs). This blog summarizes the discussions of the first session, which focused on rationales and priorities for sustainable stimulus packages and lessons learned from past experiences.

Part 1: Understanding challenges and opportunities

Key messages

  • As we advance the energy transition, we must take care of vulnerable communities and exercise global solidarity.
  • We need to move to innovative markets that stimulate the economy while advancing social development and environmental protection, such as energy efficiency, renewables, sustainable mobility, water management, circular uses of resources, and recycling.
  • Developing countries need not just an economic recovery program, but rather a socio-economic and sustainable reform plan.

Amid a global pandemic and a resulting unprecedented economic crisis, governments across the world are currently tying up trillion-dollar recovery packages to revive national economies and stimulate employment as quickly as possible. At the same time, the planet faces another crisis that arguably is of an even greater magnitude and more enduring: the climate emergency. COVID-19 and climate change both put the 2030 Agenda for Sustainable Development in jeopardy.

Despite its severity and complexity, this challenge provides policymakers with an enormous opportunity: to use stimulus money to advance a deep transition of the transport and energy sectors toward climate-compatible and sustainable development. Developing countries are hit particularly hard by COVID-19, as commodity prices crash, capital flees to developed economies, and much-needed remittances vanish. According to Palesa Shipalana, an economist at the South African Institute of International Affairs (SAIIA), the massive public infrastructure deficit in developing regions, notably Africa, intensifies the impact of COVID-19. At the same time, countries in the Global South face devastating impacts of climate change, further exacerbating the crisis.

This socioeconomic crisis might be our last chance to initiate the deep transitions needed to achieve our climate and sustainable development goals.’’

Alexander Ochs, SD Strategies.

We are in a pivotal moment of history, teetering on the cusp of two pathways. The first is an enormous effort including substantial financial and time resources to lead us back to the unsustainable pre-pandemic state; the other looks at the crisis as an opportunity to move to a better world, a more sustainable, environmentally friendly and climate-compatible economic system – and ideally one that is more equitable and socially fair as well.

The analysis of historical events can guide our next steps into the future. The fiscal stimuli following the 2008 financial crisis was funneled, to a large extent, into carbon-intensive sectors. As a result, emissions bounced back rapidly, and the economic results of those investments were mixed at best. Back then, it was frequently argued that clean energy cannot deliver substantial economic benefits and create jobs. However, Julian Popov from the Regional Centre for Energy Policy Research (REKK) insists this has been proven otherwise. And this is for past investments. Today, renewables are cheaper than fossil fuels in most parts of the world, a trend that continues. As international development policies are profoundly more focused on climate action, public awareness on the issue rises.

‘‘Immediate recovery must be combined with long-term sustainability.’’

Julian Popov, REKK.

Leading experts underscore the potential of green investment to catalyze economic stimulus. Investments in innovative markets such as clean energy infrastructure, energy efficiency, building retrofits, sustainable transport, water management, and the circular economy would result in short-term job creation and have a crucial mid-term macroeconomic impact. They can also be important stepping stones toward long-term structural reform. Michael Renner, representing the International Renewable Energy Agency (IRENA), says massive energy transition-related investments could create up to 15 million additional jobs by 2030.

To prevent history from repeating itself, stimulus packages must be carefully and comprehensively thought through and bailouts of emissions-intensive businesses must be contingent on climate conditionality. Mobilizing private capital is essential for a green recovery with a long-lasting impact. To transform ideas into actions, policy-makers must ensure that taxpayers’ money is channeled in the right direction, with the ultimate goal to support public goods and social objectives. They must design regulatory frameworks with targeted policy and financial instruments that provide clear signals to investors and adequately price environmental and social externalities.

Economist Claudia Kemfert from the German Institute for Economic Research (DIW Berlin) believes that governments in the developing world should aim to achieve the ‘‘4Ds’’ – that is, the goals of decarbonization, digitalization, democratization, and decentralization. Professor Kemfert stresses the importance of the latter as an enabler of achieving SDG 7, the universal access to clean, modern, sustainable energy. Renewables – owing to their decentralized characteristics – increase the resilience of public infrastructure, improve general living conditions, and create opportunities for education.

‘‘We can do both: come out of the COVID-19 crisis and tackle climate change.’’

Claudia Kemfert, DIW Berlin.

Investments in clean energy and transport solutions, apart from their pivotal role in saving the climate and the environment, have vast social and economic potential. They can support democratization and abate inequalities in developing countries. They must be the key pillar of post-COVID recovery efforts. Only if they are, economic “recovery” packages will become much-needed “reform” packages – and stimulate development along the pathways and towards the goals that the world community has set for itself. Public investment and international cooperation to tackle the economic crisis should strengthen worldwide agreement on climate-compatible and sustainable development, rather than make it less likely because of a short-sighted focus on competitiveness and established business models.

Learn more about the three-part online discussion series here.

Learn more about this session by checking out the recording on YouTube:

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Apostolis Valassas and Alexander Ochs, SD Strategies, for the LEDS GP Energy Working Group (LEDS EWG). Launched in 2011, the EWG is the LEDS GP’s longest standing work stream. By providing opportunities for learning, information exchange, and greater cooperation, the LEDS EWG assists countries around the world in designing and implementing successful climate-compatible energy-sector development strategies.

Disclaimer: The information and opinions expressed on this blog post does not necessarily reflect the views of the LEDS GP Global Secretariat or of the LEDS regional platforms, working groups, communities of practice, and membership.