During 2020, Covid-19 devasted our lives and our economies. Gross domestic products (GDP) and energy consumption shrank by 4%, dwarfing the impact of previous crises, as in order to find similar effects we need to go back to World War II.
Different experts expressed different views on the patterns of economic recovery and associated energy demand when, at the end of the pandemic, the world would “go back to normal”.
Some experts believed that the decrease in energy consumption and emissions during 2020 had been temporary. They recalled that after the financial crisis of 2008, emissions rebounded above the pre-crisis level, and 2010 recorded the highest year-on-year increase in emissions of the decade.
They argued that people released after months of lockdown would consume more and more, leading to a substantial increase in energy demand. This would result in a steep rise in emissions, a phenomenon dubbed as “pollution revenge”.
Other experts expressed the view that Covid-19 would induce a structural reduction in energy consumption and emissions particularly in the transport sector. For example, teleworking would reduce commuting which accounts for 10% of global oil demand, business travel would also be reduced as teleconferencing progressively replaces face-to-face meetings. A poll published in the Guardian, surveyed business travellers and shows that almost half of them would be flying less often in the future.
Preliminary data for 2021 indicates that unfortunately the first category of experts is right. The International Energy Agency (IEA) energy review anticipates that in 2021 global GDP will rebound by 6%. This implies a full recovery of the economic disruption of 2020 leading to a 2% increase above the pre-pandemic GDP of 2019.
Likewise, in 2021 energy demand will increase by 4.6%, more than offsetting the 4% reduction of 2020.
Uneven developments in different countries?
Different countries have been impacted unevenly by the pandemic and the IEA report indicates that this will affect the pace of their economic recovery in 2021.
- During 2020, China was able to control Covid-19 faster than other economies. Thus in 2020, the country was able to achieve a 2% growth and anticipates a two digit increase in GDP for 2021.
- In 2021, the USA expects a growth of 5% overachieving losses of 2020. The recovery will take advantage of the multi-trillion-dollar stimulus package and a successful vaccination campaign, with 230 million Americans already vaccinated.
- The European Union has experienced a strong second wave of Covid during the first part of 2021, which has prolonged the lockdown and hindered the economic recovery. For 2021, the IEA anticipates a growth close to 4% which will leave the economy 2% below the 2019 levels.
Uneven developments by energy sources
In 2020, global energy demand shrank by 4% but the expected increase of 4.6% in 2021 will push consumption slightly above the pre-Covid level of 2019. However, the various paces of economic recovery around the world will result in different increases of energy demand for various countries and energy sources.
In 2020, the confinement reduced mobility and since the transport sector relies for more than 90% on oil, consumption of crude dropped by 10%. In 2021, despite a recovery, oil consumption will be 3% lower than the pre-pandemic level of 2019.
During 2020, coal demand shrank by 4% but, unfortunately for the environment, 2021 coal consumption will completely offset the reduction of the previous year. China will account for more than half of the increase in coal consumption at global scale. Despite its green narrative, the country completed almost 40 GW of new coal power plants in 2020, with hundreds of additional plants under construction. China’s objectives of carbon neutrality by 2060 seem, therefore, unrealistic.
Natural gas, the cleanest member of the fossil fuels family, benefitted from a competitive price making it more resilient to the pandemic than other fossil fuels. After a mild decrease in 2020, during 2021 natural gas will post an increase of more than 3%, completely offsetting the reduction of the previous year.
Renewable sources have been somewhat immune to the Covid-19 virus and grew by 3% in 2020. This positive trend is expected to continue, particularly in power generation where their contribution will increase by 8% in 2021. However, the increase of renewables will not be sufficient to contain the rise in emissions due to increased consumption of fossil fuels.
During 2020, CO2 emissions decreased by 6% but, due to the rebound of fossil fuels, the IEA foresees that in 2021 emissions will rise by 4%. This will imply a surge of 1.5 billion tonnes in 2021 the second-largest increase in history – reversing most of last year’s decline caused by the Covid-19 pandemic.
The world is not yet out of the pandemic but there are forerunners of recovery, particularly in China. The magnitude of the economic recovery will depend on the deployment of vaccinations as well as on the amount and the effectiveness of the stimulus packages implemented by major economies.
The pace of the economic recovery will then affect the global energy consumption and related emissions.
In 2021, the following megatrend can be anticipated for energy:
- Renewables, the only energy sources posting growth in 2020, will continue to rise. Unfortunately, their contributions will not be enough to offset increased demand for fossil fuels.
- For fossil fuels the game is not over since, with the exception of oil, they will recover, or more than recover, the reductions of 2020.
- China is the elephant in the room. In 2020, the country commissioned 40 GW of new coal power plants and will account for more than half of the increase in coal consumption at global scale during 2021.
- Despite widespread declarations of climate neutrality for 2050, in the short term, the world is on track to increase its emissions.
- The EU and the USA set laudable objectives of reduction of greenhouse gas emissions above 50% by 2030 but, they represent around 20% of global emissions. Similar commitments for 2030, must be taken by other countries to avoid a climate disaster.
In November this year, at the Conference of Parties (COP26) in Glasgow, countries will submit their individual ENDC (Enhanced National Determined Contributions) outlining their commitments for reduction of emissions. Such Enhanced National Determined Contributions will be the acid test to see how serious nations are in tackling climate change.
The opinion expressed by the author of this article are personal and do not represent the view of ISPI or other organisations for which the author worked in the past.