Exploring the impacts of the Covid-19 pandemic on global energy markets, energy resilience, and climate change

An unprecedented global health and economic crisis

The coronavirus (Covid-19) has created the biggest global crisis in generations, sending shock waves through health systems, economies, and societies around the world. Faced with an unprecedented situation, governments are focused on bringing the disease under control and reviving their economies.  

The energy sector was severely affected by repeated lockdowns in 2020, with slowed transport, trade and economic activity across the globe pushing energy use down by 4%. But even as waves of the pandemic continued to roll across the world in 2020, stimulus packages and vaccine roll outs allowed much economic activity to return, and global energy demand was seen rebounding by 4.6% in 2021, taking it above pre-pandemic levels. 

The implications of the pandemic for energy systems and clean energy transitions are still evolving but three areas in particular stand out:

Energy security remains a cornerstone of our economies especially during turbulent times;

Electricity security and resilient energy systems are more indispensable than ever for modern societies;

Clean energy transitions must be at the center of economic recovery and stimulus plans, and renewables were a major bright spot, with wind and solar installations continuing to expand even during the pandemic.

In all these areas, the IEA is focused on bringing data, analysis and real-world solutions to help governments navigate these challenges and build secure and sustainable energy systems.

An unprecedented decline in demand for mobility

Despite the rebound, demand across 2021 is expected to remain 3.2% below 2019 levels.

Covid-related restrictions on mobility continue to suppress oil demand for transport in the first half of the year, even if the impact is much less than a year earlier. Demand rose progressively in the second half of 2021, as vaccination campaigns ramp up and travel returns. Nonetheless, oil demand is not projected to reach pre-crisis levels with demand in the fourth quarter of 2021 expected to be 1.4 mb/d lower than pre-crisis levels. International aviation's oil use is the slowest area to rebound and is expected to be 20% below 2019 levels even in December 2021. Excluding international aviation, oil demand is expected to return to 2019 levels in the last months of 2021.

Government spending is increasingly concentrated on a handful of sectors

Most government spending on clean energy and sustainable recovery measures has been designed to crowd in additional private sector investment through direct spending, favourable regulations, standards or price mechanisms

Based on IEA estimates as of October 2021, policies implemented worldwide since the pandemic could mobilise around USD 400 billion a year on average during 2021-2023 in clean energy and sustainable recovery investment by. Accordingly, government spending now represents nearly 28% of the 2021-2023 clean energy and sustainable recovery investments – roughly in line with the 30% share of public investment recommended in the Sustainable Recovery Plan.

Energy investment is set to pick up by 8% in 2022 but almost half of the increase is linked to higher costs

Our updated tracking, across all sectors, technologies and regions, suggests that world energy investment is set to rise over 8% in 2022 to reach a total of USD 2.4 trillion, well above pre-Covid levels. Investment is increasing in all parts of the energy sector, but the main boost in recent years has come from the power sector – mainly in renewables and grids – and from increased spending on end-use efficiency.

Almost half of the additional USD 200 billion in capital investment in 2022 is likely to be eaten up by higher costs, rather than bringing additional energy supply capacity or savings. Costs are rising due to multiple supply chain pressures, tight markets for specialised labour and services, and the effect of higher energy prices on essential construction materials like steel and cement.