It became clear pretty soon after the first lockdowns in the spring were imposed: Covid-19, the disease caused by the novel coronavirus, caused a decline in greenhouse gas emissions. It was a no-brainer, really: the fewer people traveled and the less factories worked, the less they polluted. Now, we’re seeing a second round of emissions reductions.
Last month, in its New Energy Outlook, BloombergNEF said the coronavirus pandemic could wipe out as much as 2.5 years worth of emissions from just the energy sector. To counter the good news, the forecaster also said that even so, we’re on track for 3.3-degree warming by 2100. Still, an emissions decline was a very welcome occurrence. Now, with the resurgence of the infections that could remove another 2 million bpd in oil demand from Europe and the United States, the effect on emissions will be extended.
The chief executive of Trafigura, one of the world’s top commodity traders, recently said that he expected the current lockdowns in Europe to remove about 1.5 million bpd in oil demand with another 1 million bpd in demand erased in the United States as Covid-19 case numbers continue to climb fast, prompting grave warnings. His counterpart at peer Vitol was less pessimistic, only expecting a demand decline of 500,000 bpd in demand in Europe.
In any case, any further oil demand drop will also mean lower oil production, which is always good emissions news. In fact, reports say that OPEC is already discussing deepening production cuts agreed to this April instead of relaxing them as was the plan or extending the current level of cuts for another few months. This means still lower emissions from the energy industry. And it shows precisely how complex the issue of fossil fuels versus renewables is. Related: Oil Prices Are Set To Go Higher Next Year
Earlier this year, Shell’s chief executive, Ben van Beurden, said in an interview that while the effect of the pandemic on emissions has been positive, it is neither plausible nor desirable to keep having lockdowns to keep emissions lower. Which was why Shell and other European Big Oil majors began preparing for a greener energy future, noting the change in public expectations and, perhaps more importantly, in investor sentiment towards fossil fuels.
All Big Oil majors in Europe plan to be net-zero companies by 2050. BloombergNEF says that emissions from fuel combustion actually peaked last year, even before the pandemic. However, it adds that from 2027 to 2050, emissions will decline at a rate of 0.7 percent annually. This is not a lot, given that it is based on the fast and strong proliferation of “super-competitive wind and solar power, the uptake of electric vehicles and improved energy efficiency across industries,” according to BloombergNEF. And even this will not be enough to achieve the Paris Agreement targets of arresting global warming to 2 degrees Celsius.
Pandemic for Longer?
Of course, keeping lockdowns in place to keep energy consumption—and hence emissions—lower is a ridiculous idea. But it supports what some skeptics have called the unrealistic nature of the Paris Agreement targets. Whether we like it or not, the human population of the planet requires growing amounts of energy as it expands. Where this energy comes from is a secondary question, the primary being that it has to come from somewhere, preferably at a low price. But concerning that secondary question, alas, even renewable energy is not entirely emission-free. It is also not as “super-competitive” in some places as it is in others.
BloombergNEF forecast in its October outlook that the next three decades will see more than $15 trillion invested in new power generation capacity. The great bulk of this—80 percent—will be invested in wind, solar, and battery storage. It is under this scenario that the agency sees emissions crawling down by a measly annual 0.7 percent between 2027 and 2050. And even that may not materialize—because of the pandemic. Related: How Big Can the Tesla Bubble Get?
The European Union took up arms against climate change amid the pandemic, devising and promoting a green recovery plan. It tied recovery grants and loans to EU members to renewable energy and digitalization projects as the bloc pursues its own net-zero strategy. The recovery program alone is worth $874 billion (750 billion euros). Then there are hefty allocations for green projects in the EU’s budget. Yet the program was devised when everyone thought that would be that, and the pandemic would mostly be over by the end of the year.
This did not happen.
Germany, France, and the UK are once again on lockdown. These are some of the most generous backers of renewable energy. They are also among the countries with the most generous social security programs, and the previous lockdowns—and their effects on the economy—have already cost them dearly. Another lockdown would mean another financial hit. How severe it would be remains to be seen, but the prospects are not rosy at the moment as the second wave of infections is proving to be even more taxing on people and economies than the first one.
Meanwhile, based on current trends and BloombergNEF’s outlook, emissions will apparently remain tied to human energy consumption, regardless of the sources of that energy. If most of $15 trillion in renewable energy investment cannot lead to a more sizeable annual emissions reduction than 0.7 percent, then those more climatically focused among us should celebrate every lockdown.
By Irina Slav for Oilprice.com
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