Cite report
IEA (2020), The Covid-19 Crisis and Clean Energy Progress, IEA, Paris https://www.iea.org/reports/the-covid-19-crisis-and-clean-energy-progress, Licence: CC BY 4.0
Industrial activity slowed in the first quarter of 2020
The Covid-19 crisis has led to a considerable slowdown in industrial activity around the world. Demand growth for some bulk materials, such as cement, was projected to decelerate in 2020 even before the crisis, but the sudden halt in construction and other activities has had an acute effect.
Generally, industrial production was lower in Q1 of 2020 than in Q1 of 2019. For example, global manufacturing declined 9% and cement production in China fell 24%. Although there are some early signs that industrial production in China may already be recovering following the lifting of lockdowns in March-April, the speed of global recovery is difficult to predict and will depend on whether additional lockdowns are required.
| Production in Q1/2020 (% y-o-y) | World | China | India | EU-28 | United States |
|---|---|---|---|---|---|
| Industry | -5.4% | -9.4% | -3.3% | -5.8% | -2.1% |
| Steel | -1.4% | 1.2% | -5.3% | -10.0% | -1.0% |
| Cement | -4.4% | -23.9% | -4.9% | -0.5% | 7.7% |
| Petrochemicals* | -2.7% | -5.0% | -11.7% | -4.4% | -0.2% |
| Manufacturing | -9.2% | -7.7% | 0.5% | -5.6% | -4.3% |
*Ethylene is taken as a proxy for petrochemicals. Note: When no reported data is available, estimates have been made. Sources: Trading Economics (2020), OECD (2020), FRED (2020), World Steel Association (2020), CEMNET (2020), CEIC (2020), Platts (2020), Quandl (2020), Statista (2020), FXEMPIRE (2020a; 2020b), Investing.com (2020).
The slowdown in industrial activity will likely be accompanied by a temporary decline in overall industrial energy consumption. A reduction in emissions would therefore also be expected, although multiple factors can affect the magnitude of this reduction.
For example, the low oil and gas prices being seen in several markets around the world make renewable heating fuels and technologies less cost-competitive, potentially leading to the postponement or cancellation of planned investments in this area, especially in the absence of stronger policy action. Thus, any temporary decline in energy demand and emissions should not be mistaken for progress towards long-term emissions reduction objectives.
Careful government consideration is required to avoid locking in emissions-intensive assets
The Covid-19 crisis could in fact impede clean energy transition progress, particularly in heavy industries with tighter margins and fewer scalable technologies available to abate emissions, as attention is focused on reviving production levels and keeping companies financially buoyant. Given the long investment cycles associated with heavy industry (>25 years), the risk of locking in emissions-intensive production equipment is considerable if recovery-period investments do not prioritise low-emissions technologies and better performance for existing assets.
Furthermore, the various innovative-technology pilot and demonstration projects currently under way – many of which involve CCUS and hydrogen – are needed to shift the industry sector towards near-zero emissions. Long delays or cancellations of even a small number of these projects could prevent the technologies from reaching the commercialisation stage in the next 5 to 15 years. This is therefore a major threat to the readiness of technologies that are vital to achieve the emissions reductions required in the industry sector, many of which are still in the demonstration or prototype phase of development.
Stimulus packages and other relief efforts for heavy industry will thus be critical, and they should be made contingent upon the reduction of emissions from production processes. Key targets for stimulus that have the short-term advantages of both job creation and emissions cuts include:
- Energy efficiency and electrification: includes direct financial incentives, tax relief, accelerated depreciation and government-backed lending directed towards, for example, electric motor efficiency improvements, energy management systems, heat pumps and waste heat recovery.
- Recycling: includes new waste collection, sorting and recycling systems where needed and improvements to those that already exist, as well as realigned financial incentives for increased recycling, for example the removal of levies on scrap to increase the potential for secondary production.
- Innovative technologies: includes ready-to-go infrastructure and pilot and demonstration projects related to hydrogen and CCUS industrial applications, to avoid delaying the long-term transition to net-zero emissions. Strategic manufacturing capacity such as battery and electrolyser factories should also be scaled up to expand experience, spur cost reductions and boost industry value-added. These priorities can ideally be combined with demand-pull measures to strengthen demand for hydrogen in industrial and other applications.