Green stimulus after the 2008 crisis

The Covid-19 epidemic led to an unprecedented macroeconomic and energy shock. Given the urgent need for proactive policies both to help the economy recovery and to accelerate clean energy transitions, several countries are interested in combining these policies to create green stimulus programmes. In this context, the experience of the green stimulus programmes implemented in the wake of the 2009 financial crisis provide useful lessons for policy design.After the financial crisis, the most effective green stimulus programmes focused on scalable, modular technologies by expanding existing investment frameworks and addressing the financial weakness of key actors. However, stimulus funding for large, complex engineering projects tended to produce disappointing results. In some cases the technological maturity or the competitiveness of the industrial value chain was misjudged, deployment targets and policy support were applied too early, and hopes for a manufacturing value chain did not materialise.Energy efficiency policies were and should remain one of the focus areas of green stimulus programmes. The most successful examples combined ambitious policy funding with standardisation, “plug and play” efficiency options and an appropriate consideration of the availability of skilled labour and industrial capability. The overall policy design needs to pay attention to broad impacts on energy security and social inequality. Executive summary The 2008-09 global financial crisis led to a global squeeze on credit and fragile financial markets, which brought about a deep economic recession. At the same time, public concerns about climate change intensified in the run‑up to the 15th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP15) in Copenhagen in 2009. As a result, several governments linked part of their economic stimulus to investment in clean energy. The United States set the direction with a large clean energy component in an early stimulus package as well as temporary, targeted state aid and bailouts. The European Union placed energy security, global competitiveness and low-carbon industrial growth at the heart of its stimulus packages.Greenhouse gas emissions have been rising since 2009, and there is a new understanding of climate science. In consequence, climate concerns are much more pressing and decarbonisation objectives have become more ambitious, notably in the European Union.Today, the coronavirus crisis and related containment measures have temporarily constrained economic activity around the globe. The world economy is expected to enter a recession deeper than that of 2008-09, with large-scale job losses, comparable to the Great Depression of the 1930s. During the lockdown phase, the focus has been on addressing the health impacts, providing quick economic support to the most vulnerable citizens, small and medium-sized enterprises, and supporting financial stabilisation. At the same time, governments have started working on stimulus programmes to foster economic recovery. Many countries want to maintain momentum with stimulus programmes that support green measure like renewables and energy efficiency.As the lockdowns ease, economies face a difficult recovery in stages, which might be hindered by financial stress and weak confidence in the private sector. To complement monetary measures, recovery policy is likely to centre on direct fiscal intervention to stimulate demand. Clean energy is already being discussed as a focus area for such financial support.Lessons from the response to the 2008-09 crisis can enable policy makers to design green stimulus efforts that achieve maximum macroeconomic and employment impact while successfully steering the energy system in a more sustainable direction. It helps that key technologies are now more mature, affordable and scalable.The International Energy Agency (IEA) was among the first organisations to call for actions to make the economic recovery from Covid-19 an environmentally sustainable one and to build on the lessons learnt from the global financial crisis of 2008‑09.This paper provides an overview of the various stimulus programmes in response to the financial crisis, notably those of the United States and the European Union, and it analyses their impacts on economic growth, competitiveness and support for a green, low-carbon future. Based on the lessons learnt, key recommendations are set out for policy makers that can guide the development of recovery packages in response to the Covid-19 crisis.Lessons from the 2008-09 crisis can teach us how to expand and take advantage of successful components of previous green stimulus efforts, while reducing the risk of repeating unfavourable experiences. Stimulus funding is most successful where funding programmes:

Are based on proven policy schemes.

Target technologies that are ready for deployment.

Consider the wider benefits, including social, energy security and industrial policy objectives.

Tackle the structural barriers of investments.

Introduction In response to the financial crisis of 2008-09, large green stimulus programmes were implemented by the People’s Republic of China (“China”), Japan, Korea, the European Union and many of its member states, and the United States.Broad components of green stimulus packages included renewable electricity production; building retrofits; efficiency technology upgrades; incentive schemes for low-carbon vehicles (such as scrapping schemes); energy network expansion; green transport infrastructure, including rail and mass transit; and clean energy research and technology investment. Stimulus programmes were layered over a multitude of policy and funding instruments. The 2008-09 green stimulus programmes Main investment areas of green stimulus programmes Open expand