The COVID-19 pandemic has brought about turbulent times across the globe. People often choose to look at the glass half full, focusing on the bright side, such as nature having a chance to “hit the reset button”. The world has witnessed dolphins and fish returning to the clearer canals in Venice, goats grazing through Llandudno in Wales, and coyotes have been spotted on the Golden Gate Bridge in San Francisco.

COVID-19 has triggered many lockdowns which have led to huge reductions in air and road travel, and as a result, we are set to see the largest ever annual fall in CO2 emissions (cf. 1). However, despite this slash of CO2 emissions, the Climate Progress Dashboard projects that global temperatures are nevertheless on course to rise by 3.9°C this century, almost twice the target established in the Paris Agreement. The Intergovernmental Panel on Climate Change (IPCC) has recommended the target of keeping global average temperature increases below 1.5°C beyond pre-industrial levels by 2100, however this will require a 7.6% reduction of global emissions each year between 2020 and 2030.

Figure 1: Global daily fossil C02 Emissions (ICOS)

As a result, climate action will require more assertive and proactive policies, quicker re-allocation of capital and beefed-up financial incentives, among other measures. The COVID-19 crisis has turned the global economy and political priorities upside down. It is more important now than ever before that the scramble to address short-term impacts is untangled from structural changes that will be the foundation for long-term climate change solutions.

Clarifying CO2 Emissions

During the period of strictest lockdown regulation, the global economy was brought to a near halt and the world experienced the sharpest drop in carbon output since records began, with some countries’ CO2 emissions falling by just over 26% on average. Moreover, daily emissions of greenhouse gas dived by 17% by early April 2020 in comparison to the previous year, as stated in the first definitive study of global carbon output this year by Nature Climate Change (cf. 2).

Figure 2: Temporary reduction in daily global CO2 emissions during the COVID-19 forced confinement (ICOS)

This unprecedented decrease in CO2 emissions in 2020 is likely however to have only a small impact on climate change. Global energy demand may only fall by 6% and CO2 emissions by 7% if current lockdown restrictions continue on the current trajectory. In fact, we are still emitting approximately 80% as much CO2 as we would in usual circumstances. Evidently, even when life feels devastatingly different, staying home is not nearly enough to solve the climate crisis.

Worryingly, there is a temporary trend when looking at the correlation between economic downturns and the reduction in emissions. For example, during the 2008 financial crisis there was a fall in greenhouse gas emissions, however this was followed by a resurgence that exceeded pre-recession emission levels (cf. 3).

Figure 3: CO2 Emissions and Past Economic Crises (1960 – 2014), (The World Bank)

Increased post-lockdown production and lower availability of investment capital for low carbon energy may result in a similar emission trend. However, citizens expect environmental solutions such as climate action to be prioritized in the imminent recovery packages according to opinion surveys across sixteen countries, and in the UK, a climate litigation charity warned the government of legal action against inadequate investment in a “green” recovery.

How can Recovery Packages Rescue the Economy and Environment?

COVID-19 economic recovery packages have the potential to develop strong alignment between the economy and the environment. Evidence suggests that green projects create more jobs, deliver higher short-term returns per dollar spent and lead to increased long-term cost savings, in comparison to traditional fiscal stimulus. A post COVID-19 economic recovery plan that incorporates policies to cut greenhouse gas emissions and prioritizes growth in low-carbon industries while increasing jobs could prevent more than half of the warming expected by 2050. Fossil fuels and low-carbon investments are under considerable stress, with both oil and electric car sales having fallen sharply. As a result, policies have an unprecedented opportunity to shift the balance towards more sustainable energy sources. Clearly, public policies play a crucial role in ensuring that people’s well-being, economic restoration and a low-carbon transition is at the centre of a post COVID-19 recovery. Success in achieving such deliverables will boost political and social support for more ambitious climate mitigation action, and overcome the barriers to climate change.

Considerations to be integrated in relief packages:

  • Pre-recovery support for firms and industries to assist with the low-carbon transition: Diluting environmental rule enforcement, disassembling carbon markets or lowering vehicle fuel efficiency standards for short-term economic recovery must be avoided. The uncertainty caused by undoing climate policies could reduce incentives for research and development, innovation, investment, and harm employment in low-carbon sectors.
  • Green stimulus packages to support the longer-term recovery: Investing in low-carbon infrastructure, start-ups and technology will be the key to combating the climate challenge. The COVID-19 crisis will bring about high public debt in many countries. When entering economic recovery, emphasis will need to be placed on spending money in ways that are most effective in reigniting growth, generating jobs and meeting emission reduction pledges.

Fiscal Factors to Sustain Structural Changes

The International Monetary Fund predicts that the global economy could shrink by as much as 5.2% in 2020 alone, with a 3% reduction in global Gross Domestic Product (GDP) – this would mark the deepest recession since the Second World War. In this context, the term “green is good” does not only apply to the planet but to our financial systems too. Global action required to meet the 1.5°C Paris Agreement target is estimated to deliver an economic benefit of $264 trillion to $610 trillion by the year 2100.

Already, companies have reshaped their business development strategies to adapt to the existing, ever-changing environment that has gone into overdrive. For instance, supply chains, which can often be the largest contributor to a company’s carbon footprint, are evolving. Firms are now either adding domestic suppliers to their mix or giving those who already operate in their local environment a bigger share of their business. Using local suppliers and re-shoring manufacturing can lower CO2 emissions, as well as make countries and sectors more independent and resilient. Take for example a €24 billion investment in low-carbon technologies and efficiency, which generated a net reduction in operational costs of €41 billion for European companies.

In conclusion, dealing with the COVID-19 pandemic and its economic impact is, rightly so, the priority, and the transition to a low-carbon economy is essential – while the pandemic will eventually end thanks to the development of vaccinations, the effect of rising greenhouse gas emissions will continue to wreak havoc on our planet. Climate change could end up being our next COVID crisis if we do not begin to utilise policy measures and institutional and retail assets for climate action solutions in order to fast-track energy transition and achieve net zero emissions.