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Global electricity demand is growing faster than renewables

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Renewables are expanding quickly but not enough to satisfy a strong rebound in global electricity demand this year, resulting in a sharp rise in the use of coal power that risks pushing carbon dioxide emissions from the electricity sector to record levels next year, says a new report from the International Energy Agency.

After falling by about 1% in 2020 due to the impacts of the Covid-19 pandemic, global electricity demand is set to grow by close to 5% in 2021 and 4% in 2022 – driven by the global economic recovery – according to the latest edition of the IEA’s semi-annual Electricity Market Report released today. The majority of the increase in electricity demand is expected to come from the Asia Pacific region, primarily China and India.

Based on current policy settings and economic trends, electricity generation from renewables – including hydropower, wind and solar PV – is on track to grow strongly around the world over the next two years – by 8% in 2021 and by more than 6% in 2022. But even with this strong growth, renewables will only be able to meet around half the projected increase in global electricity demand over those two years, according to the new IEA report.

Fossil fuel-based electricity generation is set to cover 45% of additional demand in 2021 and 40% in 2022, with nuclear power accounting for the rest. As a result, carbon emissions from the electricity sector – which fell in both 2019 and 2020 – are forecast to increase by 3.5% in 2021 and by 2.5% in 2022, which would take them to an all-time high.

Renewable growth has exceeded demand growth in only two years: 2019 and 2020. But in those cases, it was largely due to exceptionally slow or declining demand, suggesting that renewables outpacing the rest of the electricity sector is not yet the new normal.

“Renewable power is growing impressively in many parts of the world, but it still isn’t where it needs to be to put us on a path to reaching net-zero emissions by mid-century,” said Keisuke Sadamori, the IEA Director of Energy Markets and Security. “As economies rebound, we’ve seen a surge in electricity generation from fossil fuels. To shift to a sustainable trajectory, we need to massively step up investment in clean energy technologies – especially renewables and energy efficiency.” 

In the pathway set out in IEA’s recent Roadmap to Net Zero by 2050, nearly three-quarters of global emissions reductions between 2020 and 2025 take place in the electricity sector. To achieve this decline, the pathway calls for coal-fired electricity generation to fall by more than 6% a year.

However, coal-fired electricity generation is set to increase by almost 5% this year and by a further 3% in 2022, potentially reaching an all-time high, according to the Electricity Market Report. Gas-fired generation, which declined 2% in 2020, is expected to increase by 1% in 2021 and by nearly 2% in 2022. The growth of gas lags that of coal because it plays a smaller role in the fast-growing economies in the Asia Pacific region and it faces competition from renewables in Europe and North America.

Since the IEA’s last Electricity Market Report in December 2020, extreme cold, heat and drought have caused serious strains and disruptions to electricity systems across the globe – in countries ranging from the United States and Mexico to China and Iraq. In response, the IEA is establishing an Electricity Security Event Scale to track and classify major power outages, based on the duration of the disruption and the number of affected customers. The Texas power crisis in February, where millions of customers were without power for up to four days because of icy weather, was assigned the most severe rating on this scale.

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Structural Reforms Needed to Put Tunisia on Path to Sustainable Growth

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Decisive structural reforms and an improved business climate are essential to put Tunisia’s economy on a more sustainable path, create jobs for the growing youth population and better manage the country’s debt burden, according to the Winter 2021 Edition of the World Bank’s Tunisia Economic Monitor.

Titled “Economic Reforms to Navigate out of the Crisis” (in French, “Réformes économiques pour sortir de la crise”), the report estimates a slow economic recovery from COVID-19, with projected growth of 3% in 2021. Weighing on this recovery is rising unemployment, which increased from 15.1% to 18.4% in the third quarter of 2021, affecting the youth and people in the western regions hardest.

The report outlines how the weak recovery puts pressure on Tunisia’s already strained public finances, with the budget deficit still elevated at 7.6% in 2021, despite a small contraction from 9.4% in 2020.  The budget deficit is projected to gradually decline, reaching 5% to 7% of GDP in 2022-23, helped by lower health-related expenditures and provided that the moderately positive trajectory of spending and revenue are maintained. However, Tunisia’s rising public debt will be hard to finance without decisive public finance and economic reforms, the report noted.

“Just like everywhere else, COVID-19 has adversely affected Tunisia’s economy and the report strongly highlights the need to address longstanding challenges to sustainable growth, including improving the business environment,” said Alexandre Arrobbio, World Bank Country Manager for Tunisia. “To emerge from this crisis, Tunisia needs to adopt decisive reforms to promote private sector development, boost competitiveness and create more jobs, especially for women and youth.”

The first chapter of the report analyzes potential reasons behind Tunisia’s slow economic recovery and highlights two specific factors: the country’s reliance on tourism and transport services; and the rigidity of the business climate, including restrictions on investments and competition which constrain the reallocation of resources in the economy.

The second chapter elaborates on key barriers to competition, arguing that Tunisia’s current regulatory environment restricts competition and discourages the development of new businesses. Looking ahead, the report recommends that policy reforms to ensure a level playing field in every sector are essential in order to boost employment for Tunisians and to increase purchasing power.  

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Lebanon’s Crisis: Great Denial in the Deliberate Depression

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The scale and scope of Lebanon’s deliberate depression are leading to the disintegration of key pillars of Lebanon’s post-civil war political economy. This is being manifested by a collapse of the most basic public services; persistent and debilitating internal political discord; and mass brain drain. Meanwhile, the poor and the middle class, who were never well served under this model in the first place, are carrying the main burden of the crisis.

According to the World Bank Lebanon Economic Monitor (LEM) Fall 2021 “The Great Denial”, Lebanon’s deliberate depression is orchestrated by the country’s elite that has long captured the state and lived off its economic rents.  This capture persists despite the severity of the crisis –one of the top ten, possibly top three most severe economic collapses worldwide since the 1850s; it has come to threaten the country’s long-term stability and social peace. The country’s post-war economic development model which thrived on large capital inflows and international support in return for promises of reforms is bankrupt. In addition, the collapse is occurring in a highly unstable geo-political environment making the urgency of addressing the dire crisis even more pressing.

The LEM estimates real GDP to decline by 10.5 percent in 2021, on the back of a 21.4 contraction in 2020. In fact, Lebanon’s GDP plummeted from close to US$52 billion in 2019 to a projected US$21.8 billion in 2021, marking a 58.1 percent contraction—the highest contraction in a list of 193 countries.

Monetary and financial turmoil continue to drive crisis conditions, under a multiple exchange rate system which poses valuable challenges on the economy. The sharp deterioration in the Lebanese Lira persisted in 2021, with the US$ banknote rate and the World Bank Average Exchange rate depreciating by 211 and 219 percent (year-on-year), respectively, over the first 11 months of the year. Exchange rate pass through effects on prices have resulted in surging inflation, estimated to average 145 percent in 2021—ranking 3rd globally after Venezuela and Sudan. Inflation is a highly regressive tax, disproportionally affecting the poor and vulnerable, and more generally, people living on fixed income like pensioners. Food inflation remains concerning as it forms a larger proportion of the expenses incurred by poorer households who are struggling to make ends meet with their deteriorating purchasing power.

Government revenues are estimated to almost halve in 2021 to reach 6.6 percent of GDP, marking the 3rd lowest ratio globally after Somalia and Yemen. The expenditure contraction was even more pronounced, led partially by drastic cutbacks in primary spending, which has reinforced the economic spiral. Meanwhile, gross debt is estimated to reach 183 percent of GDP in 2021, taking Lebanon to the 4th highest ratio in the world preceded only by Japan, Sudan and Greece.

A rare relative bright spot in 2021 has been tourism, which helped hold the current account deficit-to-GDP ratio steady.

Starting Spring 2021, a disorderly termination of the foreign exchange (FX) subsidy commenced and was in full force by the summer. The path authorities followed to the subsidy removal was opaque, inadequately coordinated and lacked timely pro-poor alleviation measures. As a result, subsidy removal mostly benefited importers and smugglers while precious and scarce FX resources were drained.

“Deliberate denial during deliberate depression is creating long-lasting scars on the economy and society. Over two years into the financial crisis, Lebanon has yet to identify, least of all embark upon, a credible path toward economic and financial recovery,” said Saroj Kumar Jha, World Bank Mashreq Regional Director. “The Government of Lebanon urgently needs to move forward with the adoption of a credible, comprehensive and equitable macro-financial stabilization and recovery plan and accelerate its implementation if it is to avoid a complete destruction of its social and economic networks and immediately stop irreversible loss of human capital. The World Bank reconfirms its readiness to continue to support Lebanon in addressing the pressing needs of its people and challenges affecting their livelihoods.”

As detailed and called for in previous issues of the LEM, this strategy would be based on: (i) a new monetary policy framework that would regain confidence and stability in the exchange rate; (ii) a debt restructuring program that would achieve short-term fiscal space and medium-term debt sustainability; (iii) a comprehensive restructuring of the financial sector to regain solvency of the banking sector; (iv) a phased, equitable, fiscal adjustment to regain confidence in fiscal policy; (v) growth enhancing reforms; and (vi) enhanced social protection.

Particularly, initiating a comprehensive, well-structured and swift reform of the electricity sector is critical to address the long-standing and compounding challenges of this sector which is at the center of Lebanon’s economic and social recovery. In addition, Lebanon needs to step-up efforts to ensure efficient and prompt delivery of social protection assistance to the poor and vulnerable households struggling under the continuing economic crisis.

The Special Focus section of the LEM “Searching for the External Lift in the Deliberate Depression” examines the reasons for the weaker than expected increase in exports considering the Lebanese Lira’s sharp depreciation; it analyzes the failure thus far for the external sector to sufficiently benefit from increased price competitiveness and become a more robust driver of growth. The Special Focus finds that Lebanon’s exports are inhibited by three factors (outside of the crisis itself): (i) (pre crisis) economic fundamentals; (ii) global conditions; and (iii) political/institutional environment.

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Nearly half of City GDP at Risk of Disruption from Nature Loss

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Cities contribute 80% to global GDP – but they also account for 75% of global greenhouse gas emissions. Integrating nature-positive solutions can help protect cities from growing risks associated with extreme weather while driving sustainable economic growth.

In collaboration with the Alexander von Humboldt Institute and Government of Colombia, the World Economic Forum’s BiodiverCities by 2030 Initiative published a report addressing the urgency of cities’ untenable relationship with nature. The Initiative’s goal is to reverse this existential global threat and move forward with a plan that will result in cities and nature co-existing in harmony by the end of the decade.

The report is a call for multistakeholder action to integrate nature as infrastructure into the built environment. In making the economic case for BiodiverCities, Nature-based Solutions (NbS) for infrastructure and land-sparing are found to be cost-effective ways for cities to innovate and meet current challenges. Spending $583 billion on NbS for infrastructure and on interventions that release land to nature could create more than 59 million jobs by 2030, including 21 million livelihood-enhancing jobs dedicated to restoring and protecting natural ecosystems.

“In the conventional paradigm, urban development and environmental health are like oil and water,” said Akanksha Khatri, Head of Nature and Biodiversity, World Economic Forum. “This report shows that this does not have to be the case. Nature can be the backbone of urban development. By recognizing cities as living systems, we can support conditions for the health of people, planet and economy in urban areas.”

The report finds that by incentivizing investments in natural capital, cities can unlock the benefits of nature. Nature-based Solutions are on average 50% more cost-effective than man-made alternatives and deliver 28% more added value. This capitalization, in turn, instils and nurtures nature-positive values and fosters bio-inspired innovations that will ultimately optimize economic competitiveness and prosperity.

“As cities think about building for the post-pandemic future, they have a priority to provide their citizens with a more equitable and prosperous quality of life by protecting their natural resources,” said Mauricio Rodas, Co-Chair of the Global Commission on BiodiverCities by 2030 and former mayor of Quito, Ecuador. “In this report, we offer actionable solutions to heal the relationship between cities and nature. We need all stakeholders to invest in urban nature.”

“Cities don’t need to be concrete jungles in conflict with nature in and outside their boundaries,” said Jo da Silva, Arup Global Sustainable Development Leader. “They should be places where all people and nature co-exist and thrive together. Nature-based solutions offer wider benefits than traditional engineered ‘grey’ solutions – such as improving resilience, increasing citizens health and wellbeing and moving cities to net zero. Using powerful new digital mapping tools to help us understand cities as complex systems, we are increasingly adopting nature-based solutions in our projects – this needs to be accelerated on a global scale.”

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