Deep in the throes of a deadly pandemic, nations everywhere are grappling with the grim reality of a global community on lockdown. Travel bans and restrictions have soared; businesses and schools have closed shop, public events have been put on hold while remote work and telecommuting have become the new norm. The global economy is facing its worst disruption since the 2008 financial crisis, with scores of governments scrambling together stimulus packages to prevent a complete meltdown.
The silver lining, though, is this: A slowing economy is leading to a significant reduction in harmful carbon emissions.
The bad news, however, makes that silver lining somewhat duller: The effect is likely to be only temporary, with the pandemic expected to hamper the ongoing transition to clean energy and climate action.
Undermining Clean Energy Investments
With many nations restricting or banning international travel outright with overall economic activity remaining depressed, it was only a matter of time before the effects began to be felt.
Now the IEA says the economic fallout of Covid-19 will slash global demand for oil, gas, and coal, which will obviously lead to a reduction in harmful emissions. And the reduction could be huge if China is any indication.
Last month, Carbon Brief reported that the global epidemic had cut China’s CO2 emissions by a staggering 100 million metric tonnes just two months after the first infections were reported in the country’s sprawling city of Wuhan. That’s about a quarter of the country’s average emissions (or the entire output by Chile) with reductions of 15 percent to 40 percent in industrial output recorded by key sectors.
China was the epicenter of the novel coronavirus but has recently been superseded by Europe with Italy’s current tab of 23,073 active cases dwarfing China’s 8,965. With nearly 170 nations now affected, the global reduction in emissions as a direct result of the virus is bound to be substantial.
Related: Oil Plunges As Saudis Boost Exports To Record High But that’s about where the good news ends.
The coronavirus will end up doing more harm than good for the environment and clean energy sector. The IEA has warned that the reductions in emissions are only likely to be short-lived, with the pandemic likely to adversely impact long-term investments in the clean energy sector.
The IEA says that multi-billion-dollar investments in clean energy are likely to evaporate into thin air, with the current year set to record the first fall in solar energy growth in four decades.
Meanwhile, sales in electric vehicles - commonly viewed as the lynchpin to the electrification drive and transition from ICEs - are expected to come to a standstill for the first time in more than a decade. Even more worrying is the fact that the global energy watchdog sees a dramatic reversal in the incremental shift away from coal-fired power plants - something that lowered harmful emissions from the global electricity grid by 2 percent in 2019 - happening in the current year.
Although clean energy and ESG have become the latest megatrends in investment circles, they have not been spared the ongoing turmoil with the sector’s benchmark, the iShares Global Clean Energy ETF (ICLN), crashing 25 percent year-to-date.
Source: CNN Money
Scrap Fossil Fuel Subsidies
All is not lost, though.
IEA executive director Fatih Birol says some of the stimulus packages being rolled out by governments should be invested in clean energy technologies.
“We have an important window of opportunity. Major economies around the world are preparing stimulus packages. A well-designed stimulus package could offer economic benefits and facilitate a turnover of energy capital which will have huge benefits for the clean energy transition,” he said.
And it appears there will be plenty to go around.
After a dramatic rate cut and launch of a $700 billion QE program by the Fed, the Washington Post has reported that the Trump administration wants Congress to approve a huge stimulus package of around $850 billion. Meanwhile, Australia has announced a $17.6 billion package to keep the economy afloat while New Zealand followed suit by doling out a stimulus package equivalent to 4% of GDP
Birol has also urged governments to use the ongoing oil price collapse to scrap subsidies on fossil fuels. A 2019 report by the Global Subsidies Initiative (GSI) contends that just 10 to 30 percent of the $370 billion spent by governments annually on oil, gas, and coal subsidies could be enough to pay for renewable projects worldwide.
By Alex Kimani for Oilprice.com
More Top Reads From Oilprice.com:
- The Most Destructive Oil Price Crash In History?
- Saudi Arabia To Flood Oil Markets With An Extra 2.6 Million Bpd
- The First Casualty Of Tanking Oil Prices