The coronavirus pandemic will almost certainly trigger a global economic recession, and the recession may have already started with major economies grinding to a standstill.
The U.S. government has rapidly lurched from rather paltry containment measures last week to nearly full-blown lockdown orders at the state level, with restrictions multiplying each day. Similarly, the pressure in Washington to act on the economy is mounting, and politicians in both parties have shifted from circumscribed paid leave proposals, to a major economic stimulus package that could exceed $1 trillion.
As mass quarantine grows, the Overton Window is shifting by the hour. Republicans in Congress have resisted the idea of paid leave. By Tuesday, the Trump administration was looking at around $850 billion in economic aid, but one that would rely heavily on tax credits or exemptions, plus industry-specific bailouts. That idea has received a ton of criticism because a payroll tax holiday doesn’t do much for a business that can’t make payroll or an individual who isn’t even on a payroll.
At the same time, the Trump administration was warming to the idea of simply mailing checks to every American. “Americans need cash now,” Secretary of Treasury Steven Mnuchin said. “And I mean now — in the next two weeks.”
When asked how large the checks might be, Mnuchin said that they were working out those details but that it “may be a little bit bigger than what’s in the press.”
Senator Mitt Romney (R-UT) had suggested $1,000. At the time of this writing, a group of Democratic Senators were proposing a package that included a $2,000 payment immediately to every individual, to be followed by another $1,500 check in July if the economy was still in bad shape, and then again in October. Related: Saudi Arabia’s Oil War Could Bankrupt The Kingdom
The short-term emergency is obvious, and Washington is moving quickly to provide emergency help. But the economic damage could linger, likely necessitating subsequent and perhaps broader stimulus measures.
The executive director of the International Energy Agency, Fatih Birol, said on Saturday that any major economic stimulus package should have a heavy focus on clean energy. He noted that while everyone is rightly focused on the pandemic, the threat of climate change continues to grow.
“These stimulus packages offer an excellent opportunity to ensure that the essential task of building a secure and sustainable energy future doesn’t get lost amid the flurry of immediate priorities,” Birol wrote.
The IEA has long received criticism from environmentalists for favoring fossil fuels, so the full-throated statement for what sounds like a version of the Green New Deal, at a time when the oil and gas industry is in a historical crisis, is remarkable.
It’s also a no-brainer with the global economy heading for a recession. “Large-scale investment” in solar, wind, batteries and other clean technologies “will bring the twin benefits of stimulating economies and accelerating clean energy transitions,” Birol wrote. “The progress this will achieve in transforming countries’ energy infrastructure won’t be temporary – it can make a lasting difference to our future,” he said. Related: Is $10 Oil On The Horizon?
The solar industry is heading for a crisis as supply chains face substantial disruption and demand takes a hit as projects suffer delays or cancellation. “It’s really across the board a pretty significant crisis in the solar industry in addition to a significant crisis in the overall economy,” Abigail Ross Hopper, president of the Solar Energy Industries Association, told Reuters.
A broad economic recession could morph into a deeper and more prolonged downturn. At the same time, interest rates are near zero, so massive borrowing for a Green New Deal-style program makes sense now more than ever.
Governments around the world already directly or indirectly drive more than 70 percent of global energy investments, Birol noted, so the clean energy transition needs to be “front of mind.” The once-in-a-generation stimulus package that could soon come out of Washington is a “historic opportunity” to “steer those investments onto a more sustainable path,” he said.
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“The coronavirus crisis is already doing significant damage around the world,” Birol concluded. “Rather than compounding the tragedy by allowing it to hinder clean energy transitions, we need to seize the opportunity to help accelerate them.”
By Nick Cunningham of Oilprice.com
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