Coronavirus has ravaged the global economy, triggering the worst recession since the Second World War. Global GDP contracted 3.5% in 2020, compared to a 0.1% fall during the recession of 2008–9.

A silver lining to this downturn is that energy-related CO2 emissions fell 5.8% in 2020, says the International Energy Agency, after primary energy demand dropped nearly 4%. There is now a broad consensus amongst economists that this context presents governments with a unique opportunity to “build back better” by reorienting the global economy towards more sustainable growth that can give countries a fighting chance of meeting the Paris Agreement goals.

French President Emmanuel Macron visits an industrial site belonging to ArianeGroup, set to receive new funding for hydrogen projects. (Photo by Christophe Ena/AFP via Getty Images)

To mark one year since the world locked down in March 2020, Energy Monitor has analysed stimulus packages across major European economies to assess the extent to which policymakers really are “building back better“.

The results suggest that while economies are investing in green stimulus measures, they are also investing substantial amounts in the fossil fuel economy. There is little evidence so far to suggest that most governments are making decarbonisation a number one priority in their coronavirus recovery packages.

Energy Monitor analysed policies recorded by Energy Policy Tracker, an online database maintained by environmental think tanks.

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“We differentiate from some other trackers because they usually look at all policy packages, irrespective of whether or not they have been adopted,” says Lucile Dufour from the International Institute for Sustainable Development, which helped gather the data. “We only look at approved policies, which means the tracker doesn’t reflect yet to be adopted packages – for example, the majority of those so far submitted at an EU level.”

Not a fully green recovery

Energy Monitor has arranged the recorded policies into three categories: clean energy, fossil fuel and nuclear. A policy aligned with the fossil fuel economy includes any measure that supports traditional business, energy or transport infrastructure without any environmental strings attached.

Across six major European economies, $161.1bn is being directed towards clean energy policies, versus $105.9bn that is being spent on the fossil fuel economy. A further $1.01bn is being spent by France and the UK to support nuclear energy.

Germany is spending the most on clean energy policies, with a total of $42.4bn going towards building back in a more sustainable way. The most expensive measure is a $12.6bn fund designed to lower the cost of the renewables surcharge placed on German domestic energy bills. The second most expensive measure is a $10.2bn bailout of Germany’s flag carrier Lufthansa, which is listed under fossil fuels.

The UK, meanwhile, is spending the most overall and the most on fossil fuel policies out of the six countries analysed. However, this figure is skewed by a massive $35.1bn road-building programme. This policy has been listed under fossil fuels because any new roads will largely be supporting petrol and diesel cars until the government’s ban on new petrol and diesel cars comes into place in 2030.

Major UK clean recovery packages include a $4.1bn fund for building energy-efficient homes, a $3.6bn fund for electric vehicle (EV) infrastructure and a $2.6bn fund for bike lanes.

“We have seen some really encouraging examples of countries moving ahead with a green recovery,” says Felix Heilmann from climate think tank E3G. “The trends so far are good, but not great. It is a recovery with green elements, but it is not yet a fully green recovery. Upcoming decisions in the coming weeks will be crucial for defining the actual shape of Europe’s recovery.”

Dufour is less optimistic. “What we have seen so far is quite consistent across the board since the beginning of last year,” she says. “Public money is still skewed towards fossil fuels. It is a global trend, we can see it taking place inside and outside Europe. Although recent decisions show a progressive greening of recovery figures, there is an urgent need to shift recovery funds from fossil fuels towards clean energy, and the data shows that.”

Outside Europe, Covid recovery packages tend to favour fossil fuels. Japan, Canada, India, Brazil, Australia, South Korea and Russia are directing a total of $64.6bn towards fossil fuels, compared with $47.3bn being spent on clean energy.

Betting heavily on hydrogen

One major trend evident in the recovery polices adopted by European countries is support for hydrogen. Across Germany, France, the UK, Spain and Poland, $23.3bn is being invested in new hydrogen projects versus $13.2bn in renewables projects and $9bn in supporting fossil fuels.

“The use of hydrogen raises many of questions,” says Dufour. “So does the kind of hydrogen that is used, which is not always specified in the policies themselves.”

Only green hydrogen, whereby renewable power is used to convert water into hydrogen via electrolysis, is considered by many as compatible with climate action. It is often unclear in recovery packages whether green hydrogen is the immediate priority or rather blue hydrogen from natural gas with carbon capture and storage.

All hydrogen projects are listed as clean in Energy Monitor’s analysis. Nevertheless, while Germany and France are clear they plan to invest billions in green hydrogen projects, the UK simply says it will spend £500m on “low-carbon” hydrogen that includes “trialling for cooking and heating”.

“We know hydrogen will have to play a role in a net-zero economy, but it won’t play the role natural gas is playing today,” says Heilmann. “In principle, it is good to spend money on green hydrogen, but often it is uncertain whether money is actually going to green hydrogen or natural gas. The way the measures will be implemented in the coming months has to be really scrutinised. It is surprising how much money is going into hydrogen relative to mature solutions like renewables or energy efficiency measures.”

Gregor Vulturius, a research fellow at Stockholm Environment Institute, says hydrogen could be “vital” for decarbonising industrial processes like steel and cement-making. “It is good that countries invest in the sector, but for green hydrogen, we will need a huge amount of electricity, which needs to be developed alongside,” he says.

Transforming transport

Elsewhere in the Covid recovery packages, governments are investing huge amounts of money in EV infrastructure and research. Germany, France, the UK, Spain and Poland are collectively spending $19.8bn on support for EVs versus $13.1bn that has been spent bailing out car manufacturers like Renault (in France), Ford (in Spain) and Nissan (in the UK) with no or uncertain obligations towards electrification.

In addition to the UK’s phase-out of petrol and diesel vehicles, France and Spain have set similar goals by 2040.

“In general, the state of electric transport and investment in EVs is positive, but we also know that money which is going to support hybrid vehicles alongside EVs can effectively end up supporting internal combustion engines and diesel,” says Heilmann. “Once again, the devil is in the detail.”

Out of a total of 39 policies in the EU directed towards supporting EVs, at least six include support for hybrid vehicles. This includes $1.1bn for offering German consumers rebates for EVs and hybrid vehicles, and a $1.4bn French scheme subsidising EVs and hybrid vehicles.

Beyond the car industry, European governments have directed significant sums towards bailing out the aviation industry. Air travel demand fell 65.9% in 2020 compared with 2019, says the International Air Transport Association. Across Germany, France, the UK, Spain, the Netherlands and Poland, a total of $33.04bn had been spent supporting cash-strapped airlines at the time of the data being extracted from the Energy Policy Tracker.

In Spain, Poland, the UK and Germany – where, by the summer of 2020, Lufthansa was losing an estimated €1m an hour – there are no notable environmental strings attached to the bailout deals. The French and Dutch government’s collective $11.9bn bailouts of the Air France-KLM group came with limited obligations to reduce night flights from Schiphol Airport in the Netherlands by 20%, and to end some short-haul routes.

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The final total for airline bailouts is likely to be much higher than the figures recorded here, given flight demand has remained depressed into 2021. Campaign group Transport & Environment estimates the current value of airline bailouts without environmental strings attached to be €43.7bn across the EU and the UK.

“With aviation, a lot of bailouts were just a blank cheque,” says Heilmann. “This was a missed opportunity, but it is also important to distinguish between initial emergency measures and long-term recovery measures.”

Both Germany and France have designated funds for clean aviation research, worth $1.1bn and $1.7bn, respectively. In addition, several policies supporting hydrogen include mentions of clean aviation research, but hydrogen aircraft remain a long way off. European aerospace manufacturer Airbus recently highlighted significant challenges around producing sufficient levels of green hydrogen, as well as difficulties developing hydrogen flight technology and infrastructure.

“We should be careful when comparing airline bailouts directly with clean aviation research because we are talking about different kinds of mechanisms that require very different amounts of money to have an impact,” says Dufour. “But it is still very striking that most of the bailouts were without any kind of environmental strings attached. Very few of those plans looked at how the industry could transition.”

While “aviation is a well-known enemy of environmentalists that causes an awful lot of emissions”, Vulturius would prefer to see more focus on highly polluting sectors such as “cement, steel, heating and agriculture”, since collectively they produce more emissions.

While varying amounts of money have been designated for industry and heating, Vulturius suggests policymakers suffer from “numerical illiteracy” when faced with their needs.

Heating buildings is one area where monetary handouts remain vastly below what is needed. Across the Covid recovery packages of Germany, France, the UK, Spain and Poland, $26bn has been set aside for domestic energy efficiency measures. By contrast, estimates put the total cost of decarbonising heating in buildings in the UK alone at £450bn.

“Heating needs a lot more attention,” says Vulturius. “It is a massive source of emissions. It will require huge amounts more money to decarbonise than is currently on the cards.”

Heating and cooling contribute to around half of the EU’s final energy consumption. Only 15% of the energy directed towards heating and cooling currently comes from renewable energy sources, with most originating from natural gas.

Waiting for Brussels

While a useful indicator, the national economic policies announced in Europe only represent a fraction of what will finally be spent on post-Covid stimulus. This is to a large extent down to the EU’s forthcoming €672.5bn post-Covid recovery and resilience facility, part of the Next Generation EU recovery fund, of which at least 37% has to be spent on projects that support climate objectives.

The plan was agreed in December, but it remains unclear where the money will be directed in different EU states because this decision is in the hands of national governments. It is also unclear exactly how the European Commission will decide what exactly are “clean energy” projects.

“There are certainly doubts to be had about letting countries submit their own plans to use the money when it is not really clear what exactly the eligibility criteria might be,” says Vulturius. “The key question will be if, and under what conditions, natural gas will be allowed to be subsidised in recovery plans.”

Advocates of gas argue that it is well-suited as a transition fuel for coal-reliant countries like Poland and Germany as they decarbonise. Critics say gas is too polluting to have any role as Europe transitions, given the pressing need to decarbonise. In December, when the EU adopted a new 55% greenhouse gas reduction target for 2030, the European Council highlighted gas as a transitional technology to reach net zero.

Biden to the rescue

Vulturius says he is “neither optimistic nor pessimistic” about the measures announced so far, but the opportunity Covid presents to instigate a green recovery is still not being fully grasped, he believes.

There is nonetheless one final factor that has the potential to turbocharge a global clean recovery.

The EU recovery plan is the largest green stimulus package ever announced, but this could soon be trumped by US President Joe Biden’s $2trn ‘Build Back Better’ national infrastructure plan, which Democrats are trying to pass through Congress.

The plan involves pouring hundreds of billions of dollars into projects like electric high-speed railways and clean energy installations. The theory is that in addition to helping the US economy adapt to a low carbon future, it will provide nearly ten million jobs and help revitalise declining industrial communities.

“Biden’s stimulus plan is changing the global green recovery landscape,” says Heilmann. “The EU has been a frontrunner so far – but if Biden’s plan makes it through, its potential leadership role will no longer be uncontested.”

Related content:

Energy Monitor is running a special series of analyses of post-Covid climate and energy-related spend and policies, to determine whether countries really are building back better.

The data behind this series is based on Energy Monitor’s interpretation of work done by Energy Policy Tracker. This tracks public money commitments and policies that could impact a green recovery post-Covid-19. Policies are assigned on the criteria of which energy technology they benefit and whether they have environmental strings attached. While the original source had five categories, we have opted to distinguish solely between whether a measure benefits fossil fuels or clean energy (or nuclear power).

The measures are very different in nature and include countries’ Covid-19 recovery strategies, national climate policies and bailout measures for companies. We brand the whole package of measures as Covid-19-related government policy responses from an energy and climate perspective. 

Our measurement of a country’s performance may not be fully complete as certain measures, such as tax incentives or new taxes, may not be included in our methodology.

The data covers the period from March 2020 to 10 February 2021.