Will the pandemic pause the energy transition? It is a question many are asking as the energy industry is hit hard by the impact of Covid-19 on demand and supply chains. Industry shutdowns, enforced lockdowns and travel bans have seen load shift and demand drop dramatically – Italy’s electricity use fell 18% in just two weeks when strict restrictions were introduced in March, with similar reductions seen across Europe, India and the US. Meanwhile, the economic shocks of the virus are further contracting demand as business activity slows and markets brace for an almost inevitable recession.
The disruption follows and exacerbates the crash of oil prices in March and April, which saw US prices drop into negative territory and European prices fall to their lowest level since 1999. Now, with global economics facing significant headwinds, some are concerned that cheap oil may have a negative impact on the nascent electric vehicle (EV) market. Sales were already slowing in some key markets, including China and the US, though continuing to grow in Europe. More troubling, perhaps, is the impact of a disrupted supply chain and labour force on EV and battery production in China, the world’s EV powerhouse. The output of Chinese battery manufacturers is expected to fall by around 26 gigawatt hours in 2020.
At the same time, the effects of the pandemic raise concern that oil and gas majors will divert capital away from renewables and that the growth of solar and wind investment will slow. Already, some analysts have declared that, with supply chains disrupted, global growth in solar and wind will be effectively “wiped out” in 2020, and energy consultancy group Wood Mackenzie has scaled back its forecast for behind-the-meter batteries in the US by 31% (this still marks a rise from last year’s installations).
CLIMATE CHANGE DEVASTATION WILL DWARF COVID-19 IMPACTS
While a temporary pause in decarbonisation efforts may be unavoidable, the longer-term momentum towards renewables remains strong, largely due to the improving economics that underpin them and expected demand from electrification and from developing nations. The critical factor may not be what policy makers and investors do now, but how they plan for recovery and their ability to think beyond this immediate crisis to one with much larger, broader impacts.
This pandemic is first and foremost a human tragedy, but one that will also wreak unprecedented damage to our economy for years to come. As economists grapple with the fallout and look for clues as to the shape of the recovery, we must not ignore the fact that even the devastating impacts of this current crisis will be dwarfed by the ramifications of unchecked climate change:
Yet initiatives to limit global warming have been anything but radical with prevaricating governments, ambiguous policies, a lack of meaningful international collaboration and the continued subsidisation of carbon-intensive industries. Despite rampant growth in renewable technologies, fossil fuel generation remains at the same level it was 20 years ago. Many cities have declared climate emergencies but, in an emergency, time is of the essence. Can you avert an impending crisis with a timeline for change that stretches to 2050?
LEARNING FROM THE COVID-19 RESPONSE
In contrast, the response to Covid-19 has shown that governments can mobilise resources and respond at speed when needs dictate. Two key actions taken to fight the pandemic can teach us better ways to fight climate change:
• Bigger, bolder, faster actions can avert disaster. Within hours, borders have been locked, entire industries shutdown and policy changes enacted to protect lives and livelihoods. These drastic actions have shown us that bold government decisions are critical to drive meaningful changes and that the agility to update policies quickly as situations change is possible. Importantly, Covid-19 has taught us that policies can be designed to safeguard both our health and economic livelihoods. In the face of a health challenge that will eventually be far greater than that presented by this pandemic, we need the same urgent, courageous action from governments.
• The ability of countries to come together can make or break responses. International collaboration to fight the pandemic has been too little, too late. An absence of cooperation and inconsistent responses in the early days of the outbreak, it can be argued, not only delayed efforts to contain the virus but exacerbated its spread and impact. As governments start to reshape for recovery, now is the time to rethink priorities, work together and prioritise green stimulus packages to accelerate our move to net zero.
RECOVERY MUST PRIORITISE THE CLIMATE
But what if Covid-19 could actually accelerate its progress? It is possible if governments take the opportunity to tie economic stimulus to investment in low carbon projects. To date, we’ve seen worrying signs of decarbonisation rollbacks — in March, China approved more new coal plants than it had in all of 2019. That same month, the US’s $2.2 trillion stimulus package excluded support for renewables.
But economic recovery and climate action can go hand in hand. UN Secretary-General António Guterres argues leaders must act decisively to deal with both Covid-19 and the climate crisis, and that recovery packages should deliver new jobs and businesses that can drive a clean energy transition. In 2009, the US Government’s post-financial crisis stimulus package included a $4 billion investment in smart grids, which fast-tracked the country’s renewables industry.
By directing post Covid-19 investment to clean energy initiatives, governments can advance a more sustainable economy while accelerating decarbonisation, expanding capacity in renewables and accelerating deployment of smart meters. Environment and climate ministers from 17 EU countries have backed European Commission plans to place climate action and pursuit of the EU’s net zero emissions target at the heart of the bloc’s recovery plans.
At the same time, any economic support for carbon-intensive industries should be contingent on their adoption of energy efficiency initiatives. Car manufacturers must agree to additional focus on producing affordable, accessible EVs and developing the infrastructure to support them.
While the severity and duration of the Covid-19 pandemic is still unknown, it will eventually recede. But climate change is ongoing, with long-term impacts on all of us. The decisions investors and governments make now to recover from one crisis may determine how many more we will have to navigate in the future.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.
For the latest EY insights and analysis on the energy transition, visit https://www.ey.com/en_gl/nextwave-energy.
The views expressed in this opinion are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
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