There are striking analogies between the impact of COVID-19 and climate change. The novel coronavirus has shown us that we are all connected globally. The same applies to climate change. Viruses and greenhouse gases do not respect borders.
Both COVID-19 and climate change are going to hurt economic growth globally and as in every crisis the weakest will suffer the most. This should convince decision-makers that initiatives to fight these challenges must be implemented swiftly and should be globally coordinated.
There are, however, diverging views on how to address these problems.
Some argue that we need to put our efforts against climate change on hold and use the recovery plans to get out of the economic recession.
Others see the recession and climate change as two sides of the same coin and as an opportunity to address both challenges in a synergetic way.
Covid-19 impact on energy consumption and greenhouse gas emissions
In its Global Energy Review 2020 the International Energy Agency estimated that global energy demand in 2020 will be 6% lower than in 2019. Coal will drop by 8%, oil by 9%, and gas will be slightly reduced. Renewables have been, so far, the only winner, posting an increase of 3% in the first quarter of 2020.
As a result, in 2020, energy related greenhouse gas emissions are anticipated to be 8% lower than in 2019. This reduction will be seven times higher than the drop caused by the financial crisis of 2008.
Some experts express the view that the falls in energy consumption and emissions will be temporary. They recall that, after the financial crisis of 2008, emissions rebounded above the pre-crisis level and 2010 recorded the highest year-on-year increase of emissions in the past decade.
Others believe that the COVID-19 crisis will have long-term effects. As Bill Gates said The Economist: “When historians write the book on COVID-19, what we have lived through will take only the first third […], many hope things will return to the way they were. Unfortunately, that won’t happen.”
The influential Executive Director of the International Energy Agency, Fatih Birol, indicated that, although it was still too early to determine the long-term impacts of COVID-19, the energy industry that will emerge from this crisis will be significantly different to the one that we had before.
Climate change and economic growth: two goals, one action
If decision-makers, both political leaders and industry CEOs, take the right decisions, the recovery packages under discussion could address climate change and the economic recession concurrently.
To do that, governments should propose stimulus packages that are going to deliver economic growth, but also ensure that part of the recovery funds is earmarked for projects steering the economy towards reduction in emissions.
Pushing the energy sector toward low carbon sources, the so called “clean energy transition”, is not a “U” turn but a consolidation of a trend which is already happening.
According to the International Energy Agency, the world economy expanded by 3% in 2019 while its energy-related carbon emissions stopped increasing. In 2019 low-carbon sources outstripped the coal-fired power generation. Over the past years, as with other technologies, the cost of wind and solar power dropped. Today, a flat screen TV will be four-times larger and four-fold cheaper than its ancestor bought 15 years ago. The same trend applies to solar and wind; demand goes up and cost goes down. The penetration of wind and solar power, however, brings its own challenges as days are not always windy and sunny. Solutions are needed to address the variability of these renewables.
Besides using low carbon sources, the best way to reduce emissions is to consume less energy. With 40%, the building sector accounts for the lion’s share of our energy needs. Recovery packages should support energy saving renovation of old buildings and the construction of “near or zero emission buildings” which could save up to 90% of the energy needed for a “standard construction”.
All in all, the clean energy transition is happening. The recovery packages should increase the pace of the transition supporting projects that make our economy greener. There is a role for industry too.
Oil has been the lifeblood of our economic growth but CEOs of oil and gas companies must realise that the good old days of fossil fuels are over. In the past decade, oil demand increased by a modest 1% per year. Such an increase has been almost wiped out by the effects of the COVID-19 pandemic. In future, hydrocarbon producers will compete in a business with a very limited growth.
Moreover, institutional investors will be reluctant to invest in companies not engaging in climate change. The best option for oil and gas companies, as well as petrostates, would be to diversify their production and transform themselves into energy companies.
Some have already started. DONG, the former Danish oil and gas company, divested completely from the hydrocarbon business and became Oersted – a 100% renewable energy company. Equinor, the Norwegian energy giant, will invest $6.5 billion in the next three years to expand its wind energy portfolio. Other European companies, although at a slower pace, are diversifying their investment in low-carbon technology.
To the contrary, most USA majors remain focused on the oil and gas business, reflecting to a certain extent the different views of the European Union and the United States vis-à-vis climate change and the clean energy transition. An additional factor is the behavioural changes induced by COVID-19.
In a post COVID-19 scenario there will be a widespread use of teleworking which will create structural modifications to our working model. Facebook and Twitter indicated that working remotely will be a permanent option for their employees. Commuters could save time, money and energy by working from home. Before COVID-19 almost 10% of oil consumption was used by people commuting.
Furthermore, air travel has been severely affected by the lockdown and it is unlikely to recover in the short term. If – and it is a big if – the level of air traffic recovered to pre-pandemic levels, planes will consume less as companies are scrapping the old and less efficient air carriers.
In the fight against both the economic recession and climate change there is a role for both political leaders as well as for industry CEOs.
Politicians should implement policies simultaneously tackling the recession and the climate change challenges. Governments should make their recovery packages greener.
Fossil fuel producers should transform themselves into energy providers. If they evolve into sustainable energy companies, they will not be part of the climate change problem but will become part of the solution.
In our fight against the economic recession and climate change we must be able to turn the two problems into an opportunity. Decision makers should follow Winston Churchill’s recommendation: “Never let a good crisis go to waste”.