COVID-19, climate change, and resilient development: towards leveraging common measures
Unlike the sudden COVID-19 pandemic, the climate crisis has been looming for decades – and still is. Allowing global warming to pass 1.5-2°C poses huge risks, like severe and more frequent droughts, floods, and famine, with existential impacts on the poorer and more vulnerable countries of the global South. The global community pledged to take more serious action against climate change in 2015, but it seems like these efforts have now been paused to focus on the more immediate socioeconomic threats that COVID-19 has brought. The race to find a vaccine while nursing the economy ‘back to normal’ has dominated global press coverage, leaving discussions about the climate in the shadows. But can we solve these social, economic and environmental problems in one go? Has COVID-19 presented a chance to solve three problems with one measure? We find that the COVID-19 pandemic presents a unique opportunity to address the climate emergency as it has significantly destabilised the global fossil fuel sector – a major driver of climate change. Shifting government support away from fossil infrastructure during the post-pandemic recovery may successfully tackle the climate emergency as well as make resources available for addressing pressing social issues like healthcare, unemployment, and reliable access to energy.
The fall of the fossil fuels
One of the dominant challenges in the climate problem is the fossil fuel sector. Fossil fuels (coal, oil, and gas) emit most of global greenhouse gasses. If we are to have any chance of meeting our 1.5-2°C temperature goal, most fossil fuel reserves (80% of coal, 50% of gas and 33% of oil) must be left underground. Sounds simple enough, until you find out that leaving these reserves untouched implies a massive opportunity cost – ranging from $12 – 185 trillion depending on how you estimate it. In today’s growth-driven world, investors and firms would certainly never leave this cash underground voluntarily and would use all means available to stall strong policy action. Therefore, national governments face the critical challenge of phasing out fossil fuels. While this means risking short-term financial loss, at the same time they would take a leading role in the transition to non-fossil resources, like solar and wind energy with greater prospects for sustainable economic development. Realising this transition might be one of the most difficult tasks of the 21st century, but it is absolutely imperative for long-term resilient development, particularly for the world’s poorest and most vulnerable. It is also important, however, for the rich whose investments and infrastructure stand to lose significantly from the impacts of climate change. If only one dares to look beyond the most immediate future.
It just so happens that the task of phasing out fossil fuels may have become a little bit easier in light of the COVID-19 financial crisis. The opportunity lies in the fact that the fossil fuel market has taken a major hit. Share prices for leading global coal, oil and gas companies have plummeted. One look at some notable companies says it all: Shell (51% drop), ExxonMobil (49% drop), BP (46% drop), BHP Billiton (25% drop) and Sasol (82% drop). This means that a company like Shell – which was ‘worth’ €205 billion in August 2019 – is ‘worth’ about €120 billion in April 2020. ExxonMobil’s worth tumbled from €267 billion to €160 billion in the same timeframe. These market dips translate to substantial impacts for investors. For example, from 2019-2020 Dutch Pension Fund ABP may have lost €2.25 billion in a small handful of fossil fuel assets alone.
In addition to the direct financial blow that COVID-19 has dealt to the fossil fuel sector, it has also led to a significant drop in demand for fossil fuels. Policies like social distancing and quarantine measures mean less flying, less driving and less spending. As a result, coal plants have closed in the UK, US and Austria; oil and gas exploration projects have halted in New Zealand and Australia; oil refineries have cut production or completely shut down in Canada, Italy, Pakistan, Thailand, Russia and South Africa. On top of that, companies like Shell and ExxonMobil have announced plans to reduce 2020 spending in the fossil sector by tens of billions of euros. COVID-19 has seemingly done what no one (or nothing) has managed to do so far; it has temporarily deflated the fossil fuel industry, potentially making the job of tackling climate change a little bit easier.
Four pathways for post-pandemic recovery
But what happens next? Will we capitalise on this unprecedented opportunity to grab the climate bull by the horns, or will this opportunity be squandered? We think there are four plausible pathways for a post-pandemic recovery of the fossil fuel sector:
- Return to business-as-usual: socially and ecologically exclusive
Past financial crises – like that of 2008 – show us that the most likely scenario is the return to the old ways of doing business. Governments prop up existing companies and infrastructure through economic stimuli and, temporarily ignoring emissions regulations, let the fossil fuel sector return to its old self. Share prices and ‘growth’ are prioritised in this recovery pathway, meaning that support from governments is allocated to corporate executives rather than workers and low-level employees. Thus, from a social perspective, the well-being of the poor and vulnerable is sacrificed for the greater good of the economy. And from a climate perspective, we are back facing the same problem that we were before the crisis: a massively powerful and polluting fossil fuel sector.
- Socially inclusive, ecologically problematic
A slight variation to the ‘business-as-usual’ pathway may see governments ignore climate policies and support the fossil fuel sector, but simultaneously use funds and resources to address social issues. This could mean providing subsidies for petrol or generating jobs by funding new fossil power plants to address recent unemployment. Like in scenario 1, the climate problem is returned to the status quo, but the burden of the recovery back to ‘normal’ is somewhat cushioned for the poor and partially absorbed by the rich. This scenario may seem inclusive in the short run, but its ecological ignorance will backfire in the long term, resulting in greater socioeconomic and environmental threats for the poorest and most vulnerable.
- Ecologically inclusive, socially problematic
In a greener universe, national governments may surprise us and choose to capitalise on the shrunken fossil sector and promote an environmentally friendly pathway. This could mean subsidies for fossil substitutes (like renewable energy) and emissions regulations to contain heavy fossil users. While such measures would be great for addressing the climate problem, they may give rise to social issues that must be accounted for. Coal miners in Pakistan may become unemployed, or street vendors in Thailand may be unable to transport their produce without petrol to fuel their vehicles. By only focusing on the environment, a socially exclusive scenario may unravel that hurts some of the world’s poorest. France’s yellow vest protests in 2018 offer a vivid example of the tension that environmental policies may create without accompanying social considerations.
- The inclusive development variant
The only truly inclusive scenario combines the environmental considerations of scenario 3 with social measures to protect vulnerable stakeholders who are dependent on the fossil fuel sector. Three conditions must be met to bring us to this future:
1. Health, climate and the environment must be treated as public/merit goods
Governments realise that it is a universal human right to have access to both health care (including an efficacious vaccine) and a clean and resilient environment; and treat the environment and health care as public goods.
2. Financial resources must flow to fossil-substitutes and rigorous climate policy must remain intact
Governments realise that consistent policy requires refraining from funnelling massive funds to prop-up existing multinationals in these dire times. Instead, they allocate their funds to fossil-substitutes and accelerate rather than stagnate climate policy.
3. Fossil fuel users and low-level workers must receive social security
Governments realise that the energy transition and other policies need to be equitable for public support. The current ‘Black lives matter’ movement demonstrates clearly how a broad-based lack of equity in policy processes will, in time, lead to societal upheaval and disparities. Hence, policies to realise the transition away from fossil fuels must be equitable and socially inclusive. Many instruments could be employed to cushion the blow, including subsidies for access to clean energy and electric vehicles; social security measures to support those who face unemployment in the fossil fuel sector; and retraining programmes for e.g. former coal miners.
In this scenario, the burden of phasing out the fossil fuel sector falls on the richest actors –investors, shareholders, and corporate executives. This will only happen if we accept that a ‘growing’ economy is not a healthy economy, and often comes at the cost of a healthy society and environment. Instead, we should shift our focus to redistribution of our resources to assure protection of the health and environment of all.
Achieving this fourth pathway, an inclusive and resilient recovery, requires that we resist the temptation to follow our dated economic models and return to ‘normal’. This implies a transformation of the economy in an ecologically and socially inclusive sense. There will be winners and losers in this transformation – and the losers have a lot of money at stake. But it would be foolish – to say the least – to squander the environmental lifeline that COVID-19 has granted us. By the time the next lifeline presents itself, it may already be too late.
This research was made possible with the support for the University of Amsterdam GID department and the Dutch National Science Foundation (NWO). For more, check out the leaving fossil fuels underground project.