The G20 Agreement the World Needs Now
April 8, 2020
Two weeks ago, the heads of the G20 held an emergency summit that yielded a modest result. The summit communique included an important expression of global solidarity, some sub-leader level taskings to have ongoing consultations, and no mention of the critical segments of the economy like energy. While the outcome was a much-needed recognition of the need for global collaboration, it lacked the concrete action plan and true coordination that came in the wake of the 2008-2009 financial crisis. Borne out of the inability to strategize toward a solution to the coming oil price collapse, the G20 energy ministers will meet later this week to broker a potential solution. Three important and tangible things can come from this meeting and possibly lead to the G20 agreement the world really needs right now.
The first—and quite likely not most important—step is for the energy minister to reorient the global energy conversation away from the unproductive “oil price war” dynamic that has taken over the conversation and steer it toward oil market stability and strategic planning. The former is about which country blinks first—Russia or Saudi Arabia—and whether the United States will join the Organization of the Petroleum Exporting Countries (OPEC). These are soap opera worthy discussions but hardly rising to the level to warrant a dialogue on global economic stability. By contrast, an oil market stability conversation is about what to do with cratering oil demand, rapidly filling global oil storage, and acute near-term financial pressure in oil-producing nations (and regions). It also is about the potential for longer-term structural damage to the industry due to underinvestment or the bankrupting of critical parts of the supply chain. These are the things the G20 conversation can put on the table that an OPEC+ (plus whoever else) conversation could not. Given that producers and consumers of oil are all likely to take some emergency measures to deal with the oncoming crisis, it makes sense to coordinate those efforts—and in the G20 context, almost everyone can put something on the table.
Major consumers like China, India, and the United States can agree to purchase crude for their emergency stockpiles. Major producers can provide estimates of what the market will do to their forecast production for the coming months and into next year, an exercise that will undoubtedly show production cuts for anyone responding to market forces. The group can then discuss what types of developments should be flagged for further attention, such as a lack of investment or loss or critical capacity or infrastructure. They should answer the question of where are the potential energy security threats from this situation? The groups should also outline ways that seem acceptable versus less desirable for supporting a country’s domestic oil industry. Tariffs and trade measures should be highlighted as less desirable as this can constrain and distort the ability for quick response to a changing market environment. Government measures to artificially support production should also be less desirable. Things like rationalizing oil-sector subsidies should be more desirable, as is the International Monetary Fund’s support for developing countries that rely heavily on oil revenue for their stability. Waving environmental restrictions and safety regulations should also be listed as less desirable policies except in situations where safety or limited operational conditions warrant it. These types of measures could make up a robust and ongoing oil market stability dialogue worthy of the G20 energy ministers.
Second, the energy minister should touch on more than just oil market stability. They should recognize that a pandemic-induced economic downturn will yield a multitude of stimulus efforts in G20 countries. At a very high-level, the governments should agree that economic stimulus measures could strengthen or set back clean energy transition efforts. At the very least, all available measures should be taken not to lose ground on the progress to deploy clean energy technologies and reduce greenhouse gas emission and local air pollution. Where possible, governments should incentivize greater progress toward a clean energy transition and work with the private sector to advance their own stated objectives to position for the clean energy transition.
The International Energy Agency can be tasked with coming up with a plan for how the G20 can do this and some principles for clean energy smart stimulus. This recognizes that stimulus during a time of crisis should not only build economic opportunity but should do so in a way that provides additional co-benefits to taxpayers by being strategic about that stimulus spending. China, the European Union, Korea, and the United States have all begun conversation about stimulus packages that could include implications for their respective energy sectors. Coordination on common principles for clean energy stimulus will bolster support for those initiatives within each of those countries and regions. Common principles and a commitment of support will also send a strong signal to other countries that the energy transition that the energy industry knows is underway deserves to be sustained through this economic downturn. The G20 should also work to head-off any trade-related disputes that might emerge in clean energy markets as governments choose to invest in and incentivize those sectors in the coming months.
Third, energy poverty alleviation has been a goal of the international community and the G20 for many years. The impact of Covid-19 on many of the world’s poorest countries will be severe. Energy is a critical component of global health systems. To the extent that it falters during this pandemic, emergency measures can and should be considered for developing countries. The lack of access to basic energy systems to support the health care sector in many of these countries deserves special attention and focus during this time, particularly to the extent that those systems will be necessary to advance therapeutic measures and eventually a vaccine to bring this virus outbreak to an end. Damilola Ogunbiyi, CEO and special representative of the UN Secretary-General Sustainable Energy for All highlighted the importance of reliable electric power systems and other forms of energy, particularly during a pandemic. For instance, she noted that estimates indicate only 28 percent of health facilities in sub-Saharan Africa have access to electricity. The government, the philanthropic community, and multilateral organizations, including international financial institutions, all have a role to play in making sure the developing world is not forgotten. Lest these efforts be regarded as charity or development-related assistance, it should be noted that failure to effectively deal with a highly contagious virus such as Covid-19 anywhere in the world can have damaging repercussions for everyone.
The G20 initiative to take a proactive and strategic stance on energy during a crisis is an important development. Energy is not the only sector that needs a much more robust G20 action agenda. Multilateral institutions were made for a global crisis like this one, and failure to use these organizations to their fullest will only set back global pandemic management and recovery efforts. The G20 should address global pandemic response on a variety of fronts, global financial stability, broader economic stimulus measure, standards of free trade, the global aid agenda, and much more. At the same time, the group should also build on the G20 track record of crucial energy initiatives it has supported for a number of years. This weeks’ G20 energy ministers meeting is an opportunity to put our collective multilateral muscle memory back to work and find some concrete ways to make the whole greater than the sum of our collective efforts.
Sarah Ladislaw is senior vice president and director and senior fellow of the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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