Silent skies. Empty motorways. Billions locked indoors unable to work or operate production lines. The coronavirus shutdown is likely to cause the biggest drop in emissions ever recorded. Analysts at Carbon Brief estimate worldwide carbon pollution will by plunge more this year than the combined reductions seen during the global financial crisis, World War II and the Spanish flu. But the lockdown could, paradoxically, mean even higher levels of global warming gases as the pandemic’s grip wanes.
The fall in demand for energy has seen fossil fuel prices hit record lows, with oil prices in the US turning negative for the first time ever. Prices were pushed cheaper still because of moves by Saudi Arabia and Russia who, keen to grow their share of the remaining supply market, have kept production at the usual level, thus exacerbating the glut. Cheaper oil prices and the approach taken to stimulate the global economy could mean that, when lockdown begins to end, demand for oil and gas may skyrocket, meaning the concentration of warming gases in the air would be higher than if we had continued on our pre-pandemic trajectory.
Unless there are concerted efforts by governments to ensure this does not happen, our current global tragedy could sow the seeds for the next one. As we have seen, no global problem exists in isolation. The pandemic has affected the economy and, similarly, we know the changing climate was already having a financial impact: Lloyds of London reports that disruptions to the delivery of goods and services due to environmental disasters are up by almost a third since 2012. Morgan Stanley says climate disasters cost the US economy a record $309 billion in 2017.
Though the current conditions in the energy market could derail climate progress, they might equally spur a massive pivot to a clean recovery, whereby our economy bounces back but pollution doesn’t. Lower demand and cheaper prices mean lower returns for shareholders on oil and gas projects. As Larry Fink, the chairman of the world’s largest investment manager Blackrock, put it, “We’ve seen sustainable portfolios deliver stronger performance than traditional portfolios during this period. When we emerge from this crisis, and investors rebalance portfolios, we have an opportunity to accelerate into a more sustainable world.”
The extraordinary loss of value of the oil majors in the last few weeks has seen many of them go to President Trump to beg for a bailout. That situation creates a dilemma for incumbent energy companies like BP and Shell. Having made some tentative pledges to go green, do they roll back their spend on carbon-cutting as well as other capital investments in order to protect dividends for shareholders? Or do they diversify into cleaner new technologies that can offer a route to long-term survival?
Right now oil and gas companies are responsible for just 2 per cent of global renewable energy investment, but one Barclays analyst told The Times that the current situation could mean “bringing forward the point at which the companies are prepared to let oil and gas production start to decline”. So when BP boss Bernard Looney says “the current crisis has reinforced my belief in reimagining energy and reinventing BP,” perhaps this time BP really could mean Beyond Petroleum.
Governments should intervene to ensure firms and private investors make the right choice. Does anyone really think it is sensible to respond to a respiratory pandemic by making our air dirtier again? Ultimately a switch is in the public interest, not only to mitigate climate and health risks, but also because the public purse would benefit from the opportunities arising from new jobs and sources of tax revenue.
Predictably, Trump has responded in exactly the opposite fashion. He has signalled he will throw American oil majors public money and effectively offered a licence to pollute, by rolling back environmental protections in an attempt to deliberately stimulate more short-term fossil-fuelled growth. But, ultimately, global demand for oil and gas may well have peaked already. As one FT commentator put it “If the short-term outlook for the industry is, frankly, a hellscape, the long-term outlook is arguably not that much better.”
By contrast, the clean energy market is only getting bigger. Energy consultancy Wood Mackenzie reports renewable energy projects are already delivering better returns than oil and gas. China is already ramping up solar production capacity to meet the anticipated global growth. Meanwhile, companies with an overdependence on fossil fuels have lost value at an epic scale. Over the last few years alone, the value of Centrica is down 90 per cent, Exxon by 70 per cent, and BP is back to the value it was at in 1995.
To protect jobs and tax income for the long term, and to pay down the debts created by emergency spending on the NHS and household incomes, the Covid-19 crisis requires ministers fast-track new climate policies. This means re-evaluating infrastructure investment priorities to ensure Britain benefits from a jobs boom from broadband, batteries, electric cars and home upgrades.
For the Treasury it means new well-designed pollution taxes, and using the state’s new influence as a shareholder to build resilience into the economic recovery. The alternative is to pursue a dead-end strategy, which would worsen public health, shackle workers to dying industries, derail efforts to build a Net Zero economy, and expose the country to ever worsening pandemic-style shocks in future.
Joss Garman is an enviromental and humanitarian campaigner
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