Time for an energy revolution? Creating opportunity after a crisis
The Covid-19 pandemic is a tragic event we hopefully will not see again in our lifetime.
The human destruction and the strain on global healthcare systems have been devastating. There are no winners from this crisis.
Still, it was Winston Churchill who said “never let a good crisis go to waste”. That certainly rings true when it comes to energy, and how it can rise up from the ashes of unprecedented economic destruction.
I spend up to half of my work week following gyrations in the oil market, based in the Persian Gulf where over half of the proven oil reserves sit under the desert sands. Oil is the life blood of these economies, with revenues dropping by $270bn this year according to the International Monetary Fund.
The Covid-19 pandemic has cost hundreds of thousands of lives, shuttered countless businesses and forced at least half of the world’s population indoors at its peak. It also sparked the biggest drop in energy demand in 70 years.
“This is a shock that is hard to exaggerate. It’s been absolutely unprecedented,” says Meghan O’Sullivan, director of the geopolitics of energy at Harvard’s Kennedy School of Government.
Orders for coal evaporated and oil prices collapsed to $16 for North Sea Brent. Planes were grounded on runways and cars remained parked as most of us worked from home. At the same time, over the past four months we witnessed what is possible, as smog lifted from cities free of traffic congestion and the world enjoyed a historic plunge in greenhouse gases.
The multi-trillion-dollar question being asked today is: will governments and industry respond to this unexpected change to ensure a global energy transition takes hold, and meet the Paris Climate targets by capping global warming to below 1.5 degrees centigrade by 2050?
The International Energy Agency (IEA) put forth a roadmap of what needs to be done in this post-Covid era to heal the environment, asking leaders to act now with a $3 trillion plan to adopt cleaner energy policies.
Fatih Birol, executive director of the IEA, outlined the key priorities during an online interview: “Improving energy efficiency, especially in the buildings. Second, accelerating the renewables, especially solar power. And third, modernization of the electricity grids that we are using.”
I see this as a twenty-first century version of the Marshall Plan, which helped rebuild Europe in the aftermath of World War II. The IEA believes that this masterplan can create nine million jobs over three years, and spark a green revolution.
A year ago, Britain was the first G7 economy to pass legally binding legislation to bring all greenhouse gas emissions to net zero by 2050 compared to its 1990 levels. Now, European Union countries are embracing the challenge in the aftermath of the pandemic.
Germany announced a $45bn package to wean the country off fossil power and gasoline cars. It plans to abandon coal by 2038 and cut greenhouse gas emissions by 55 per cent.
In France, President Emmanuel Macron wants the country to become Europe’s clean car producer by putting forth $9bn to transition to electric and hybrid vehicles. He plans to have Air France to become the world’s greenest carrier, with a similar level of funding to make it happen.
And tiny Denmark is punching above its weight by passing landmark legislation to generate 100 per cent of its power from renewable energy in only seven years. It’s doing so by developing two offshore wind islands in the North and Baltic seas, intending to eventually be an exporter of green electricity to neighbouring countries.
“I think it’s important to say that we don’t actually know how to achieve that target. If we knew it, then it wouldn’t be that ambitious,” says Dan Jorgensen, the Danish minister for climate, energy and utilities. “We’re saying, instead of asking what is possible, we ask what is necessary. Our task then is to make the necessary possible”.
However, while Europe’s green credentials are taking hold, there remain real concerns about whether the two biggest consumers of energy, the United States and China, will make the global energy transition a priority.
“I worry that in China, we actually could see backsliding,” says Varun Sivaram, senior research scholar at Columbia University’s Center on Global Energy Policy in New York. “In China, you have a tale of two proposals. On the one hand, you have infrastructure investment in electric vehicle charging, in digitalization and in ultra-high voltage transmission lines. But on the other hand, you see a resurgence of coal power,”.
He and other energy strategists are concerned that China may continue to export its coal plant technology to Africa while the world is distracted by the pandemic.
In the US, meanwhile, President Donald Trump has toned down his rhetoric to be the champion of America’s coal industry, but he remains a steadfast believer both that the country’s shale boom (“fracking”) has provided greater energy independence and helped cut US carbon emissions, and that a green transition is not a priority as a second wave of the pandemic begins to grip many states.
That attitude is unlikely to change in the next few months, but Sivaram’s recent book, entitled Energizing America, like the IEA lays out a policy blueprint to accelerate change after the US presidential election in November.
“Investing in clean energy innovation in the US would enable us to help fight climate change with new and improved technologies. And it would help us build the industries of the future from which the US can prosper,” he argues.
After spending $10 trillion worldwide to cushion the blow of the pandemic, the leading developed countries, with exception of the Europeans, still seem hesitant to embrace the opportunity of a green economic revolution. Former vice president Joe Biden spelled out an ambitious plan to foster solar and wind investment and at the same time renew America’s ageing road, rail and bridge infrastructure. At a press conference in the White House Rose Garden, Trump criticised the strategy as flawed.
It may take a change of leadership in Washington to unite the major G20 economies along with Britain and the European Union to solidify goals on the road to 2050.
John Defterios is Emerging Markets Editor at CNN Business and host of The Global Energy Challenge on CNN International. Airing from 16 July, the programme assesses the impact of Covid-19 on the global energy sector amongst changing government policy and consumer habits during lockdown.
Main image credit: Getty