Nick Butler: CV19 is no friend of the energy transition
Is the pandemic caused by CV19 and the global economic downturn the trigger point for a major shift in the pattern of energy demand? Will historians look back on the dark spring of 2020 and say that the one good thing which came out of the crisis was that the transition to a low carbon economy began in earnest. No. Wishful thinking is a poor guide and the reality suggests that if anything what is happening now will set back progress on the transition, leaving the issue of climate change unresolved and if anything even more in need of attention.
We do not yet know the duration of the pandemic nor the speed of the return to some form of normality. But what is much clearer is that when the turn does come the global energy mix will look much the same as it did before any of us had heard of Wuhan or the concept of social distancing.
The first point of reality is that the factories, offices and vehicles to which we will return run on the existing hydrocarbon led energy mix. Oil, natural gas and coal provided 80 per cent of all the energy used in the world at the end of 2019. There is absolutely no reason to suppose that the number will have changed materially by the end of this year or next. There are some 1.2 billion light vehicles on the world’s roads more than 99 per cent of which run on gasoline or diesel. Against that there are just 8 million electric vehicles. On top of those cars and vans come the freight lorries and the aircraft.
Coal use may have virtually vanished in the UK and France but not, as yet, in Germany, Eastern Europe, or the United States where it supplies 30 per cent of daily electricity needs. Nor has it vanished in China or India where consumption is growing. In both those countries and many others when the economic recovery comes it will be powered by coal.
The key to this reality is the capital stock. So long as the existing systems of mobility, domestic heating and intensive industrial use in sectors such as the production of cement or iron and steel are hydrocarbon powered that will dictate the composition of the energy mix. Renewables – mainly hydro, wind and solar are important and are growing but we have to remember that in total they still only supply some 15 per cent of global energy demand.
Changing that balance requires investment in new capital stock and the associated infrastructure ( power plants, upgraded heating systems, electric vehicles, grids and so on ) and that investment is less likely to be forthcoming at a time when the economic circumstances are dire. Businesses are struggling to survive, Governments have borrowed and spent exceptional amounts to keep the economy alive and investors are coming to terms with the expectation that returns will be lower than predicted for some time to come. The world after CV19 will be a world of high unemployment, lower dividends and greater poverty, not least in the emerging economies which have been the engines of economic growth for the last 20 years.
A major shift such as the energy transition requires a positive economic environment. The pace with which the capital stock is renewed tends to increase when the economy is growing and to slow down when it is not.
Nor will renewables gain from the fall in the costs of producing solar panels and wind turbines which have occurred over the last decade. Those reductions are real and welcome, but they have just been overwhelmed by the collapse in oil, gas and coal prices in the last three months. The future for expensive low carbon sources of supply such as nuclear power is particular bleak, but even for wind and solar the competitive challenge is very considerable and their progress will depend on the public policies adopted country by country. That might happen in Europe but is much less likely in the United States.
According to an analysis by Carbon Brief the downturn in the economy this year will reduce emissions by perhaps 5.5 per cent . That sounds a lot but is still less than the annual fall required to ensure that the world does not exceed the level of accumulated emissions at which global warming of 1.5 degrees is considered likely. More seriously the fall in 2020 will be reversed within a year or two. CV19 will be a blip in the graph, not a turning point.
That is why a new approach is needed which does not rely on a recession to cut emissions and which is not based on wishful thinking. In the next of these blogs I will try to define what that approach could look like.
ONS does not take positions or engage in advocacy but we hope the commentary will stimulate debate in the run up to the ONS meeting at the end of summer and beyond. The coronavirus has demonstrated in the harshest possible way that we are all in this together. “Together” is the theme of this year’s ONS and we hope by encouraging an open discussion is happening we can go through and emerge from the crisis with a full understanding of the interdependent world in which we live.