The perfect storm and the silver lining: The potential role of renewables in restarting the Canadian economy

11 minute read
24 April 2020

There is no sugar-coating it. As the world economy ground to a halt under the heel of COVID-19, so too did much of the world's progress on renewable energy project development. Supply chain disruptions, sidelined workforces, plummeting energy demand, a rapid decline in world fossil fuel prices and a nearly universal shift in the focus of government policy makers created significant challenges across the renewable and distributed energy resource sector.

Despite present adversity and uncertainty, the medium and long-term forecast for the sector remains positive. When the clouds part, we expect clean energy to be a significant part of the economic recovery story. Indeed, in 2019, nearly three-quarters of the new electricity generation capacity built was renewable. With rapidly declining costs and demonstrably stable returns, low-carbon energy solutions continue to win the investment of government agencies, big banks, investment funds and global corporations around the world. Just before the globalization of the COVID-19 crisis in late January, business readers read about the aggressive climate change mitigation stance taken by several of the world's leading companies, including BlackRock, the world's largest money manager, which announced that it would exit investments with high associated climate risks and begin launching new investment products which screen for fossil fuels. On April 6th, right in the midst of the COVID-19 crisis, even long-time renewable energy sector stalwarts were amazed to learn the results of the 1.47 GW Saudi solar procurement, where shortlisted bid prices fell to USD $0.0161/kWh (i.e. CAD $0.0225/kWh).

Priming the economy

To avert an economic depression, new federal economic stimulus will be required in the coming weeks and months. With it, may be an opportunity -perhaps an imperative- for Canadian government agencies to invest in resilient, low-carbon energy infrastructure. Gone are the days when renewables were an economic indulgence undertaken only by rich economies. In 2020, renewable energy technologies are not only price competitive, but reliable job creators and a key part of the world's energy future and the readiness of any country to participate in that future.

After the financial crisis of 2008, governments around the world launched Keynesian-style economic stimulus packages, basically using the build out of needed generating capacity as a lever to create economic activity. Ontario's Feed-in Tariff program, for instance, was a by-product of the Green Energy and Green Economy Act, a broad array of regulatory, red-tape reduction and economic stimulus measures designed to jumpstart the provincial economy while simultaneously continuing to build out renewable generating assets to replace the province's aging coal fleet.

In the United States, the United Kingdom, Japan, China, South Korea and other leading national and subnational economies, similar measures were undertaken across a broad array of industry sectors. America's $800 billion economic stimulus package at the time, implemented through the American Recovery and Reinvestment Act, included $90 billion for clean energy in the form of renewable energy cash grants, loan guarantees, home retrofitting incentives, and funding for jobs in energy efficiency and clean energy. In the decade since, US wind power capacity has tripled while solar photovoltaic production has grown by a factor of 76. The costs of both have declined precipitously.

While the United States' recent $2.2 trillion bailout package left renewables out of the picture, the European Union is considering repurposing its 'Green New Deal' within a broader economic stimulus package, and South Korea has recently passed a 'Green New Deal' of its own as part of their COVID-19 response.

Judging from the early oil and gas sector aid package from the Canadian government – which focuses on orphan well remediation and investment in sustainable resource development - and considering the Canadian government's longstanding objective to actively fight climate change, it is easy to imagine Canada following suit. With a view to economic recovery, Canadian Infrastructure Minister (and former Environment Minister) Catherine McKenna recently announced her intention to frontload the existing $180 billion infrastructure budget towards "shovel-ready" projects, in addition to funds that may arise in an eventual stimulus bill. McKenna is already overseeing the deployment of a $21.9 billion 'Green Infrastructure' Fund and, as Environment Minister, had spearheaded the $2 billion Low Carbon Economy Fund aimed at delivering clean, sustainable economic growth and job creation. Assuming Canada stays the course on its decarbonization objectives, a COVID-19 stimulus package might target:

Science may have made a comeback

COVID-19, like the climate crisis, is caused by an invisible, invidious enemy. Both problems demand behavioural and economic change on a global scale. It remains to be seen whether COVID-19 will influence Canadian public opinion about the urgency of the climate response, but one likely outcome of the COVID-19 crisis is that public trust in science has made a comeback. The hard realities of the recent health crisis bore out their own truth. Elected officials, medical experts and other leaders who spoke plainly, admitted uncertainty, cited evidence and corrected previous errors were the ones who gained loyal followings. Those citing comforting but inaccurate information lost the thread of the public discourse.

Good policy, like good science, publishes its data and welcomes scrutiny. Public trust in experts matters –a lot. Much of the uncertainty about COVID-19 relates to the misinformation that is circulating about it. Misleading predictions have particularly powerful and disturbing effects when they run counter to reason. Scientific findings and projections about the disease, however unnerving, have been the best planning resource for policy makers and members of the public throughout the COVID-19 crisis to date.

COVID-19 has not and will not change everything, and it is far too early to discount the unsettling power of misinformation and the 'politics of doubt' weaponized by populist and authoritarian governments worldwide. If public trust in science and scientific leadership has been rescued from the historic lows of the last decade, then governments across Canada may find themselves with the political capital for more aggressive climate change mitigation action. However, any aggressive action on climate change must be undertaken alongside targeted and compassionate initiatives to take care of those who will be put out of work or otherwise affected by the change, and with due regard to the broader energy-economic impacts, particularly in Canada.

A more Canadian response

The advent of low-cost renewable technologies in the energy sector represents a fundamental challenge to major portions of the Canadian economy with truly national economic implications. Before the price declines of 2018-2019, Canadian oil and natural gas represented $108 billion to Canada's gross domestic product (GDP), supported almost 530,000 jobs across the country and provided $8 billion in average annual revenue to multiple levels of government. Importantly, although the province of Alberta is particularly reliant upon the oil and gas sector, virtually every other province and territory in the country relies heavily upon the oil and gas sector for jobs, income and government revenue. If the world shifts away from its current reliance on fossil fuels, the Canadian economy will be impacted.

Blackrock, Microsoft, Google, Goldman Sachs, Amazon, BP, Shell, Total and many other global industry sector leaders are on record with stated climate action goals to achieve. The one common takeaway from the variety of climate-related announcements made by industry leaders in recent years is that GHG reductions are not going to happen overnight.

For Canada, there is time to pivot. There is time to plan to support and take care of the individuals, families and communities who will be impacted by a global shift toward low-GHG energy solutions. The recent announcement by the Government of Canada of its intention to dedicate $1.7B to help get Alberta oil and gas workers back to work –not drilling, but, cleaning up orphaned and abandoned oil and gas wells across the economically hard hit province- represents, from an initial glance, a good example of a targeted and creative policy response to a challenging political and environmental predicament. If Canada is going to successfully navigate the transition to a cleaner energy future, highly creative solutions will be needed to drive change while simultaneously supporting and taking care of those who will be most affected by the shift.

Taking care of those impacted by change and misfortune is something we do well in Canada. Let's apply the lessons learned from COVID-19 to the other existential crisis of our time.

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