Climate Change

COVID-19: How far will green stimulus to combat climate change go?

COVID-19 disruptions caused shocks to power and oil sector that will cause drop in carbon emissions. However, long-term implications are uncertain

By Pratha Jhawar, Tarun Gopalakrishnan
Published: Thursday 04 June 2020

The article is the third part in series COVID-19: Energy sector dynamics and climate change

The novel coronavirus disease (COVID-19) has had a positive impact on carbon emissions due to reduction in energy demand. In fact, 2020 has seen the largest ever annual decline in energy-related carbon-dioxide emissions.

Annual change in energy-related CO2 emissions. Source: Carbon Brief

COVID-19 disruptions caused shocks to the power and oil sector that will lead to a significant drop in carbon emissions. However, the long-term implications of this are still uncertain.

Historically, the world has responded to economic crises in a way that adversely impacts climate change policy developments and implementations. Environmental issues tend to take a backseat. Can the response to this crisis be different?

Global political pressure is rising to ensure a green stimulus. International Monetary Fund chief executive Kristalina Georgieva called on governments to invest emergency loans in green sectors, scrap subsidies to fossil fuels and tax carbon.

European Commission President Ursula von der Leyen promised to put the European Green Deal at the center of the continent’s recovery, which is good news despite that deal’s limitations. German Chancellor Angela Merkel has reminded developed countries of their climate finance responsibilities to the developing world even through the present crisis.

There are many political headwinds to the green recovery push, not least the United States president and his unprecedented interventions on behalf of the oil industry.

Nevertheless, some analysts believe that the social imperative to drive down greenhouse emissions is going to play its part in business decisions. More directly relevant to the bottom-line, there are emissions reductions technologies (especially in sectors such as oil production) that can deliver reductions in operational cost, which could be make a difference in these lean times.

Apart from this, several oil companies are betting on their diversification into renewable energy to soften the blow, especially since the IEA projects that renewables are likely to be one of the stronger sub-sectors in the current crisis. However, this kind of thinking is more prevalent in Europe than in the US, which suggests that the domestic climate policy environment is a strong driver of such diversification.

Coal is becoming costlier and unviable. The think tank Carbon Tracker projects that 46 per cent of coal plants globally will run at a loss in 2020; that number will increase to 52 per cent by 2030.

The Intergovernmental Panel on Climate Change indicated that to stay within 1.5 degrees Celsius of warming, coal power needs to be completely phased out by 2050 (with an 80 per cent reduction required by 2030).

Despite this, lobbying thrives in China to expand the number of coal power plants.

The Indian government is trying to project confidence in the coal sector even after the 46 gigawatt coal power was shut down in 20199, construction of new plants has halted and financing for new coal plants is drying up (making them unviable without subsidies).

This is a time of great flux for the energy industry and some clear signals need to be sent. The best way to do that is if countries submit their Nationally Determined Contributions (NDC) as early as possible this year, as required by the Paris Agreement.

If these NDCs are treated as a way to promise little and deliver nothing, they are a distraction when distractions are unaffordable. If they lay out a five-year programme of multi-trillion-dollar global investment in emissions-free energy, sustainable industry, climate finance to developing economies, and an end to economically unjustifiable fossil subsidies, they will be the core of a historic global resurgence.

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