While the world continues to deal with the crisis caused by Covid-19, already there is significant commentary and debate questioning what the pandemic means for the fight against climate change and whether it represents a positive or a negative development
This is a particularly important question when one considers that the impact of adverse climate could be many times worse than what we are currently seeing with Covid-19. An easy assumption is that Covid-19 may put the climate agenda on the back burner for a number of years, especially given the resulting financial crises and rapidly declining price of oil. In fact, I think it is a much more complex issue with many different implications for the climate change agenda.
However, before looking at the implications for the climate change agenda, it is instructive to note the uncanny similarities between Covid-19 and climate change:
- Each crisis represents a global catastrophe that will require unprecedented global coordination where economic considerations become of secondary importance;
- In the case of both crises, there have been many warnings from experts which were not taken seriously until disaster struck;
- Each crisis will involve capital investment by the public and private sector totalling into trillions in order to achieve a positive outcome;
- Each crisis is a global public health issue. While this is obvious in the case of Covid-19, climate change will result in diseases that peak in the warmer months of the year, particularly vector borne infections. For example, the WHO estimates that, between 2030 and 2050, climate change will cause approximately 250,000 additional deaths per year from malnutrition, malaria, and heat stress (World Health Organization). In addition, rising temperatures are leading to the melting of permafrost, in turn unleashing an untold number of sequestered pathogens each with their potential for pandemic implications (Newsweek).
- In recent years, many argued that climate change is not just a physical risk, but also represents a fundamental risk to our financial system (the so-called combination of physical and transition risks). It is now obvious that the implications of COVID-19 are not just physical and health related, but also financial.
All of the similarities beg the question, are we going to see a more urgent response from all levels of society to climate change once the more immediate threat of Covid-19 passes, particularly given the potential scale of devastation and disruption caused by climate change. While it is difficult to speculate in these uncertain times, here are some thoughts on the immediate implications for the climate change agenda as a result of Covid-19:
One thing that is becoming increasingly obvious is the ease with which people are becoming accustomed to a new working environment which will mean reduced need for air travel, as well as less travelling to and from work resulting in noticeable decreases in carbon emissions. As people become more familiar with the exciting technological solutions enabling us to more easily work from home, these short-term behavioural responses to Covid-19 are likely to have longer-term implications, including a surprising positive impact on global carbon emissions.
If we compare the reaction to the 2008 financial crisis it is possible that the corporates who recently embraced the climate change and decarbonisation agenda are likely to take a step back in the short-term given the impending economic slowdown. Businesses struggling through a global recession will likely cut back on any expenditure that is not business-critical.
However, this might only be a short-term challenge and in the longer term, corporates will decide that climate change continues to pose an existential risk to shareholder value. Driven by this risk, the climate issue will quickly resurface and possibly with greater impetus. In particular, investors exposed to the financial implications of Covid-19, will be all too aware of the climate-related financial risks and will hopefully be at the forefront of driving a renewed corporate push to develop and implement decarbonisation strategies.
This is where we see the greatest opportunity for change. The similarities outlined above between the two different crisis will not be lost on governments and institutions like the EU and UN. Unlike Covid-19 where the solution will be found in parallel with the outbreak of the disease, this opportunity is not available for climate change. The actions to mitigate the effects of climate change need to be taken immediately to prevent the most problematic long-term impacts from occurring. Worrying signs are already appearing — some EU member country governments have started to argue that the EU Green Deal should be watered down or delayed.
Also as Governments embark on various forms of stimulus packages around the world to deal with healthcare and the Covid-19 related job losses, consideration may be given to some spend on building infrastructure for climate resilience, eg, on grid infrastructure. Already we are seeing a push for these stimulus packages to focus on climate resilient solutions and to use the opportunity to invest in low carbon economy solutions.
One casualty of the current crisis is the deferment of COP26 event planned for Glasgow in November 2020 until 2021. This event is critically important, especially given the outcome of the Madrid conference. Given the focus on the current crisis, it is the right decision to delay the event until sometime in 2021. This event needs to be the centrepiece of the long-term global reaction to the climate crisis, building on the 2015 Paris Agreements and the planning work done leading up to the event is crucial.
Renewable energy and energy efficiency
For all the reasons stated above, this current crisis can only lead to greater impetus for renewables becoming a greater part of the energy mix over the next 20 years and ultimately being a critical solution in delivering a net-zero carbon future. It is already interesting to note that variable renewable power has become a greater part of the energy mix during the current crisis.
However, the crises will cause significant short-term problems for many renewable developers. Firstly, the drop in energy demand and in oil prices is likely to result in much lower corporate PPA pricing in the short term. Secondly, access to capital, which is a fundamental issue for many developers, is going to become much more challenging and we are likely to see major utilities to looking to acquire smaller cash-constrained developers.
However, fossil fuel-based utilities and oil and gas companies are also facing many new challenges as a result of Covid-19 and the medium to long term prognosis for the renewable industry remains very positive. Thirdly many renewable projects under construction are going to experience short term supply chain issues.
The position of energy efficiency is less clear given the likelihood of consumers wishing to reduce expenditure in the short-term. Implementing energy efficiency will not be regarded as a necessary expenditure given the drop in electricity demand. However, this may be a short-sighted response, particularly given the cost savings that can be achieved through the implementation of energy efficiency measures and this is a message that needs to be reinforced continually.
This is the constituency that has received the least attention during the climate debate in recent years. However, my view is that this will change dramatically. Once the connection between Covid-19 and climate change is articulated and broadly understood, I can envisage a future where global citizens increasingly demand and expect that both governments and corporations take the necessary actions to achieve a net-zero future.
Some commentators have taken the position that it will be easier to make the case to invest in solutions for climate change adaptation and resilience in a post Covid-19 world. I have a lot of sympathy for this view.
In conclusion — the climate change agenda is far more advanced and accepted globally than it was at the time of the last financial crises. It is this writer’s view that while there will be short term adverse consequences from Covid-19, the climate issue is so important to our future well-being that it is likely to come back stronger and will take a role at the forefront of the global geopolitical agenda alongside healthcare.
At the outset, I asked about the implications of the Covid-19 crises as it relates to action on climate change. The more fundamental question is whether it will take a major climate calamity to force the type of global reaction we are seeing with Covid-19 and whether lessons will be learned from this current experience.
One quote from Vladimir Lenin seems apt to conclude: “There are decades where nothing happens; and there are weeks where decades happen.”
Mike Hayes is global head of renewables at international accountancy firm KPMG.