COVID-19 has put a lid on carbon emissions, and some experts think it could eventually help slow climate change.
By Sue Landau
Could the coronavirus crisis turn out to be the nemesis for some of the world’s heaviest carbon-emitters?
Conventional wisdom says that recovering from lockdown, and from the economic depression we will likely experience, will mean turning the spigots on full to stimulate economic activity, effectively sabotaging efforts to fight the impending climate catastrophe.
That could well be the case in the short term.
“There are reasons to fear that we will leap from the COVID frying pan into the climate fire,” five leading economists wrote in an article for the Oxford Review of Economic Policy this month, referring to the disease the new coronavirus causes, COVID-19.
But a different story for the longer term is unfolding already, one in which fossil fuels decline as renewable energy emerges as a viable competitor. The economic fall-out from the coronavirus crisis seems to be speeding that decline, to the point that some analysts are now saying fossil fuel demand may have peaked last year.
That means the virus could accelerate the shrinking or demise of the most polluting industries. Market forces, not climate campaigners, are driving this change.
Short term, a resumption of business as usual
What’s happening now?
In regions of the world where most climate-warming gases are emitted, the signs are not very positive for addressing climate worries.
- China, emerging first from lockdown, is giving more regions the green light to build coal-fired power plants under the next five-year plan, which will run from 2021 — despite overcapacity in the industry.
- The United States has set a $2 trillion stimulus package for recovery from the lockdown that will allow the Trump administration to push federal funds towards fossil fuel firms and explicitly exclude helping renewable energy firms.
- In Europe, lobbyists have wasted no time in seeking delays for introducing stricter emissions standards, even though France has said bailouts for airlines and car-makers would be conditional on reducing their environmental impact.
- Striking a different stance, India continues to favor renewable energy over coal for new power plants during lockdown.
The moves in China, the United States and Europe suggest a resumption of business as usual there, a scenario that climate scientists calculate could push average temperatures across the globe 5°C above pre-industrial levels by 2050. That far exceeds what is needed to avert a climate catastrophe.
To avoid a climate doomsday, by mid-century we need to keep average temperatures within a range of +1.5°C to +2°C over pre-industrial levels. That means cutting emissions of warming gases — chiefly carbon dioxide (CO2) — from power stations, factories, transportation and homes to net zero at least.
COVID-19 has cut demand for fossil fuels.
This is where economics kick in. Despite appearances, fossil fuels are on the decline. This was bound to happen once wind and solar power began producing electricity more cheaply than fossil fuels, despite receiving far less in subsidies.
Historically, once a new technology reaches critical mass, it begins to undercut the incumbent, at first imperceptibly. Demand for the incumbent will then reach a peak and inexorably diminish.
Analysts had been predicting a peak in fossil fuel demand for the mid-2020s, while fossil fuel companies tended to place it in the mid-2030s.
“We should not be surprised to see this peak even as we are surrounded by fossil fuels in our daily lives,” Kingsmill Bond, an analyst at energy think-tank Carbon Tracker, wrote in a recent blog on the subject.
“Horse demand peaked when cars made up just 3% of their number, gas lighting demand peaked when electricity was in its infancy, and we had Nokia phones before the iPhone came along,” Bond wrote. “This is just another technology transition, albeit in the world’s largest sector of energy.”
Given the sudden, massive contraction in energy use during the lockdown, Bond and some others are suggesting that fossil fuel demand — including for oil — in fact peaked last year and cannot recover to previous levels.
In the first quarter of this year, world demand fell 8% for coal, 5% for crude oil and 2% for natural gas, according to the International Energy Agency (IEA). Coal was already declining, albeit not at this rate, but oil has not known anything similar in its century of existence.
The steep drop will likely erase the past 10 years of oil’s growth, the IEA said. Crude oil prices are now idling at their lowest level in two decades, around $20 a barrel compared with around $50 before the coronavirus pandemic.
As the world emerges from lockdown, for the first time ever fossil fuels face a profound recession with a cheaper competitor snapping at their heels. Renewable energies were not yet operating commercially in the wake of the 2008 financial crisis.
“If demand for fossil fuels bounces back in 2021 by half the amount it fell in 2020, and grows at 0.5% a year, it would take eight years to get back to where the industry started,” Bond argued. Meantime, renewable energy will take up the slack.
The extent of the damage to American coal and oil is telling, given that the current U.S. administration is taking steps to prop up these industries. The country is the world’s second biggest carbon polluter in absolute terms and the biggest polluter per inhabitant.
Half of U.S. oil and natural gas wells are shut, and drilling and fracking are sharply down, Bloomberg reported in early May.
Fossil fuel’s unsteady finances
In a bizarre twist, the price of West Texas Intermediate, the benchmark for American crude, collapsed to minus $38 a barrel on April 20 as a dearth of customers meant producers had no spare storage left and wanted to pay customers to take their oil away.
For the first time in its history, the United States is on track to produce more electricity from renewables than from coal this year.
Meanwhile, the American fossil fuel industry’s finances are unsteady. It is heavily indebted and offering investors diminishing returns, according to the Institute for Energy Economics and Financial Analysis (IEEFA).
Coal plants are increasingly becoming unprofitable. Even in China, which produces and consumes half the world’s coal, some 60% of its fleet operates at an underlying loss, according to research from Carbon Tracker.
Worldwide, 46% of coal plants will run at a loss this year, up from 41% in 2019, it found. India’s coal industry has become unfundable, according to IEEFA.
Are we in a definitive transition to cleaner energy?
Transportation, another major source of carbon emissions, is also emerging from the lockdown in a severely weakened state.
Airlines are struggling, and commercial aviation’s low-cost sector is under threat. Some analysts are saying the social distancing restrictions will likely spell the end of cheap air travel, with a return to the time when flying was mainly for the rich.
The aviation industry’s emissions rose 26% from 2013 to 2019, making it the fastest-growing source of emissions and putting it firmly in environmentalists’ sights. Because the low-cost business model has ramped up aviation’s carbon profile, its woes could point to a drop in emissions.
The car industry is facing the worst crisis in its history, the European Automobile Manufacturers’ Association said in March.
It’s not clear whether the woes of the energy and transportation sectors portend a respite for the climate, or whether contractions in carbon-intensive industries can provide an incentive to turbo-charge green investment to alleviate economic pain.
Nine decades ago, the Italian Marxist philosopher Antonio Gramsci wrote about the process of change using words that resonate today. “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear,” he wrote in 1930 while imprisoned under Italian dictator Benito Mussolini.
Are we living in an interregnum, or interval, between fossil fuels and green energy sources?
Sue Landau is a retired journalist and translator based in Paris, France. Her editing and reporting career was mainly in financial and business journalism at the International Herald Tribune, Reuters and the Investor’s Chronicle. Among other topics, she covered energy, new technologies, media and advertising, corporate and industry issues, wealth management and investment, and regional development. She now contributes articles on climate change issues to News Decoder. For a profile of Landau, click here.