The Day After Could Be Either Green or Grey
Date: April 16th 2020
Author: Janez Kopač
The economic crisis resulting from the coronavirus-induced economic downturn has sadly exposed the unreformed energy sector. In cases where an electricity market monopolist was only able to survive due to coal-based electricity production subsidies, the crisis caused such companies to be even more reliant on the state budget. In addition to payment delays, unrealistically low electricity prices for households additionally weakened supplier liquidity. Distributors who have not had smart meters installed are at the mercy of the consumers’ information. Unreformed feed-in tariff systems for renewable energy sources have therefore become even more expensive and unbearable during the crisis.The greatest dilemma in terms of the intervention by the states and international financial institutions will be whether to focus exclusively on saving jobs or to go the extra mile despite the time pressure, for instance by promoting the transition to sustainable energy. The Energy Community Secretariat sees this crisis as an opportunity to employ a better energy policy that builds on energy efficiency and renewable energy sources. However, the chances of this happening are perhaps less than 50%. In such a heated political situation, wisdom does not always take precedence.
During the 2008-09 financial crisis, CO2 emissions saw a significant drop, however, they have been constantly increasing since 2010, even reaching record historic levels before the current crisis. More than a decade ago, the then U.S. president Barack Obama was able to make the bold step of making the state aid for the automotive giant Chrysler conditional on the launch of the electric car production. If all the governments and international financial institutions followed suit then, the new European Commission’s Green Deal would now be the general global development trend.
The EBRD recently issued a recommendation that all the companies whose post-crisis recovery will be supported by public money should commit to lowering their carbon footprint. This does not necessarily relate to production, as even the organisation of business or the supply chain can have a greater or smaller carbon footprint. This footprint can be lowered by any party. Without having a financial crisis, the Energy Security Secretariat recently decided to become registered with EMAS, whereas we learned that many of our meetings could be carried out without hundreds of flights carrying participants and employees, even after the lockdowns. Albeit negligible, our carbon footprint will provide at least a small part of the picture.
We can only hope that the EBRD’s call will become the general guideline for international financial institutions and wealthy governments. A single bank can quickly adapt when it comes to competing with others for a market share. According to the EBRD: “Climate change, biodiversity loss, and financial collapses share some similarities with COVID-19: they do not observe national or even physical borders and they can be managed only through collective action.”
The assistance of the international community is now essential and should be twofold – short term and long term. In the short term, we need to ensure liquidity for traders, distributors, and producers, starting indirectly with small and medium-sized companies which need to pay for the delivered energy. Commercial banks can help in this regard – the EBRD and KfW could contribute directly, along with other international financial institutions that provide credit to domestic commercial banks. In terms of short-term assistance, risk-sharing instruments are especially needed (portfolio guarantees, etc.), along with cheap loans for working capital and guarantees supporting state guarantees. Some international financial institutions (for instance the IMF) offer macro-fiscal support to help ensure the liquidity of state budgets that have suddenly lost a lot of taxpayers. In the short term, we simply need to assist and survive, regardless of the energy sectors structure.
However, in the long run, assistance will have to take the form of cheap long-term loans, both for budgets and for development projects. This offers a great opportunity for a content shift in the development policy and I hope that the decision makers will take it. In the Energy Community members, I would like to see every energy poverty eradication programme focus not on low electricity prices, but instead on replacing old wood or fuel oil stoves with new high-quality wood stoves and housing insulation. The currently low electricity prices in the market provide an excellent opportunity to start taxing CO2 and to eliminate regulated electricity prices. Intervention support for the energy sector should be conditional on the systematic elimination of illegal state aid for coal. The announcement of a force majeure is the perfect opportunity to reform wasteful renewables support systems that rely on feed-in tariffs.
Whether or not this opportunity will be missed will depend on all the parties allocating public money to the post-crisis economic renewal in the next weeks and months. I remain an optimist.
Janez Kopač is the director of the Energy Community Secretariat.
The opinions expressed by the author do not necessarily reflect the opinions of Energetika.NET.
This article is available also in Slovene.