Bruegel – Recessions, The Energy Mix and Environment

This introductory passage discusses the impact of severe recessions on the energy generation composition and the potential for a greener energy mix. The paper examines how recessions, like those caused by the Global Financial Crisis and the COVID-19 pandemic, influence the balance between green and dirty energy sources. It also explores whether the process of creative destruction during recessions leads to a long-term shift towards cleaner energy. The empirical analysis presented in the paper reveals that recessions and crises do lead to permanent but marginal improvements in energy efficiency, as well as an increase in the proportion of renewable energy in total electricity generation. However, these effects can be amplified when coupled with robust environmental policies. Both market-based measures such as taxes on pollutants, trading schemes, and feed-in tariffs, as well as non-market measures like emission and fuel standards, R&D investment, and subsidies, play a crucial role in incentivizing and accelerating the transition to renewable energy sources. Overall, the paper suggests that recessions have a modest positive impact on energy efficiency and the share of renewables in the energy mix. However, the transformation can be significantly enhanced with the implementation of comprehensive environmental policies that create economic incentives and promote the adoption of cleaner energy sources.