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The IEA’s Sustainable Recovery Plan Is Not Sustainable


Governments of the world, take note. The International Energy Agency has a plan for you. If you take the sagely advice of the agency’s technocrats, you will do your citizens a huge favor as you struggle to recover from the ravages of the global Covid-19 pandemic. You will not only boost economic growth and increase employment but also push global greenhouse gas emissions into structural decline. Government planners of the world, unite! Help your people become richer while saving the world from climate change. Get your free copy of the plan, hot off the press (published June 18th).

Alas, some of the world’s more skeptical citizens might be forgiven if they reach for their book of President Ronald Reagan’s quotes and come up with this: “The most terrifying words in the English language are: I’m from the government and I’m here to help.” While it is right to be wary of plans that promise a world where ‘all good things go together’, the considered views of the IEA – the world’s leading source of energy data and analysis — deserve our careful attention.

The plan comes with clear instructions (even if batteries are not included). Planners should “integrate” energy policies into government responses to the economic shock caused by the Covid-19 crisis. By integrating energy policies into governments’ recovery plans, they would “accelerate the deployment of modern, reliable and clean energy technologies and infrastructure”.  What exactly are these energy policies that need to be integrated in the “Sustainable Recovery Plan”? Lets get into the weeds a bit.

Most of the “millions of new jobs” created through the plan “would be in retrofitting buildings to improve energy efficiency and in the electricity sector, particularly in grids and renewables.” Other employment generators would lie in promoting energy efficiency in industries and supporting low carbon vehicles and transport infrastructure. The IEA notes that “the costs of leading clean energy technologies such as wind and solar PV are far lower, and some emerging technologies like batteries and hydrogen are ready to scale up”.

This is not the place to delve into detailed assessments of these energy policies touted by the IEA. But an overview serves to put across the point that the “science” of energy policy is neither straightforward nor consensual. Lets start with that hardy perennial “energy efficiency”, ceaselessly emphasized in countless “roadmaps” published by the many agencies and thinktanks working on energy affairs over the past few decades. Perhaps the first question that arises to anyone that does business for a living is why would businesses not be “efficient” in energy use or in any other area in which money can be saved? Why would businessmen not be aware of “efficiency” when their very survival in competitive markets depends on being able to maximize their output at least cost of inputs?  

Is it true that there is under-investment in cost effective energy-conservation technologies? For good reason, economists are sceptical that unexploited profit opportunities can exist for long. Twenty dollar bills can indeed be found on sidewalks but it is unlikely to be a common occurrence. Like nature abhorring vacuums, the continued existence of unused but profitable options to save on energy is precluded by competitive markets. Rational choice suggests that observed behaviour could well be optimal despite apparently “expert” cost-benefit calculations. Entrepreneurs betting their own money on energy technologies would, one would presume, be intelligent adopters of technology choice in a competitive world. It is unlikely that otherwise savvy businessmen are clueless on how to save money on energy choices. If that were not to be the case, one would have to re-write the history of capitalism not as the achievements of entrepreneurs risking their capital and skin but as plans carried out by the prescient salariat of bureaucratic organizations.

We are told of the “tremendous energy savings” that “leading clean energy technologies such as wind and solar PV” offer us. This is in keeping with the endless stream of green success stories pervading the media with assertions that wind and solar power are already competitive with gas and coal-fuelled power plants. Rigorous economic analyses of the hidden costs of unreliable, weather-dependent solar and wind power have countered such claims. Energy analysts would be hard put to cite examples of wind and solar energy projects that do not require government subsidies. Indeed there would be no need for the IEA’s exhortations for governments to support technologies that are allegedly already competitive with fossil fuels. Warren Buffet explained in refreshingly honest terms that “on wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.” The average consumer also rightly balks when asked to bear heavy financial burdens of retrofitting homes and buying electric vehicles to cut emissions.

It would seem that the IEA’s sustainable recovery plan for governments intent on extricating their economies from the world’s sharpest downturn since the Great Depression will not have much impact on Asia’s planners. Just last week, the Indian government announced a radical reform initiative aimed at attracting global investments in the long over-regulated coal mining sector. According to government spokesmen, opening the coal sector to private investment will generate jobs, reduce dependence on fuel imports and stimulate the economy towards a targeted US$ 5 trillion GDP. In neighbouring China, authorities intent on jump-starting an economy stricken by the Covid-19 lockdowns approved nearly 10 gigawatts of new coal-fired power generation projects in the first quarter of 2020. This capacity roughly matches the amount approved for all 2019. Coal-based power projects will play a similarly important post-Covid-19 economic recovery role in other parts of Asia such as Pakistan, Indonesia, Vietnam and even in wealthy Japan. The case for cheap coal-based power generation in emerging Asia, as in other developing countries, remains robust.

The call for sustainability, the rallying battle cry in the anti-fossil fuel crusade, permeates the social discourse everywhere. Private companies signal their commitment to it in advertisements, annual reports, management speeches and glossy PR brochures. Thinktanks and “development experts” dedicate a voluminous literature to the concept while environmental NGOs and activist shareholders shrilly proclaim its centrality to business investments and government policy. “Green” recovery programs may be all the rage among government planners in Western Europe, the UK and in Democrat-held states in the US. Yet they have no such purchase among their counterparts in developing countries who are well aware that true sustainability means delivering higher standards of living for the striving masses. Economic growth performance is what retains legitimacy for governments in office, not expensive bets on avoiding complex model-based predictions alarmingly described in the West as “climate emergencies”. For governments in developing countries, the IEA’s “sustainable recovery plan” is anything but sustainable.

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