While the world addresses the impact of COVID-19 and takes actions to mitigate its spread, already there are significant questions around what the pandemic may mean for the fight against climate change once the immediate danger to public health is over.
An easy assumption is that COVID-19 may put the climate agenda on the back burner for a number of years, especially given the resulting financial issues and rapidly declining price of oil. In fact, the two issues are much more complex and intertwined:
- Each represents a massive global challenge requiring unprecedented coordination, where economic considerations become secondary.
- Many warnings from the scientific community have gone unheeded until the impact is seen and felt locally.
- A positive outcome requires trillions of dollars in capital investment by both the public and private sector.
- Both are global public health issues—COVID-19 immediately, and climate change ultimately leading to diseases that peak in the warmer months of the year. The World Health Organization estimates that between 2030 and 2050, climate change will cause approximately 250,000 additional deaths per year from malnutrition, malaria, and heat stress.1 In addition, rising temperatures are leading to the melting of permafrost, in turn unleashing an untold number of sequestered pathogens with their own pandemic potential.2
- Both represent not just physical risk, but fundamental risk to our financial systems as well.
Rather than pushing the climate change agenda aside, all levels of society could in fact elevate their response to climate change following on their experience and lessons learned from responding to the immediate threat of COVID-19. Implications could include the following:
Lower carbon emissions: People are growing accustomed to a new, more stationary working environment and technological solutions allowing easier work from home. This could lead to reduced air travel, less commuting, and ultimately, a noticeable and surprisingly positive decrease in carbon emissions.
Continued corporate decarbonisation: Corporates that recently embraced the climate change agenda may take a step back in the short term, given the impending economic slowdown and the need to cut back on any expenditure that is not business-critical. However, climate change continues to pose a long-term risk to shareholder value, and the issue will quickly resurface, possibly with greater impetus. Investors exposed to the financial implications of COVID-19 will have struggled through the related financial risks, making them more attuned to financial risks from climate change and, hopefully, inspiring a renewed push to develop and implement corporate decarbonisation strategies.
Greater government action: Governments and institutions like the European Union and United Nations, having taken action to mitigate the impact of COVID-19, may leverage their experience to better prepare for the impact of climate change. This is where we see the greatest opportunity for change.
As governments embark on various forms of stimulus packages around the world to improve healthcare and address COVID-19-related job losses, consideration may be given to some spending on building infrastructure for climate resilience, such as shoring up electrical grids. Unfortunately, worrying signs are already appearing. The Polish and Czech governments are of the opinion that the EU Green Deal should be watered down or delayed.3
One casualty of the current crisis is the deferment of COP 26 event planned for Glasgow in November 2020 until 2021. This event is critically important, especially given the outcome of the Madrid conference. Given the focus on the current crisis, it is the right decision to delay the event until sometime in 2021. This event needs to be the centrepiece of the long-term global reaction to the climate crisis, building on the 2015 Paris Agreements and the planning work done leading up to the event is crucial.
Increased demand for renewable energy: The current environment will cause significant short-term problems for many renewable developers. First, the drop in energy demand and in oil prices will likely result in much lower corporate power purchasing agreement (PPA) pricing. Second, access to capital—already a fundamental issue for many developers—is going to become much more challenging in the near term, and we are likely to see major utilities to looking to acquire smaller, cash-constrained developers. Finally, many renewable projects under construction are going to experience short-term supply chain issues.
However, for all the reasons stated above, renewables are on track to become a greater part of the energy mix over the next 20 years, and ultimately a critical solution in delivering a net-zero carbon future. It is already interesting to note that variable renewable power has become a greater part of the energy mix as a result of shifting distribution from COVID-19. It’s also important to note that the medium-to-long-term prognosis for the renewable industry remains very positive, while fossil fuel-based utilities and oil and gas companies face many of their own significant challenges related to COVID-19.
Persistent public focus on climate change: Once global citizens experience and understand the actions that they, their governments and organizations have to take to protect public health, they may turn to demanding and expecting similar urgency and action to achieve a net-zero future. Moreover, the climate change agenda is far more advanced and accepted globally than it was during the global financial crisis of 2008.
While there will be short-term adverse economic consequences from COVID-19, the climate issue is likely to come back to the forefront, and perhaps even join healthcare at the top of the global geopolitical agenda. This change, driven by the urgency to save lives from COVID-19, is happening at lightning speed. To quote Vladimir Lenin, “There are decades where nothing happens; and there are weeks where decades happen.”
Global Renewables Leader KPMG International
(with contributions from Simon Virley , KPMG in the UK ENR Leader and Ted Surette , KPMG Global Power and Utilities Leader, KPMG International)