(This post was published earlier this year on Medium. Sorry for the lack of content this year. Hopefully, 2021 will bring more exciting stories and analysis…)
The ongoing COVID-19 pandemic has brought our global economy to a standstill, with fears of the worst recession since 1929. Over 26 millions have already lost their jobs in the United States. Economies around the world are reeling from the cascading shocks wrought upon them since the beginning of March.
While the worst of the first wave may be over in Europe, the situation is not under control in the US and many other parts of the world. We are nowhere near the end of this pandemic and it will be an ongoing situation until a vaccine is developed or effective cures and drugs are discovered.
This could last a year or more and the effects on our civilization will be long-lasting. Already, this pandemic has shown the utter fragility and staggering inequalities of our systems and economies. A consensus is forming that things may — and actually should — never go back to “normal”.
In no other industry is this downturn more glaring than in oil and coal. While both have been the bedrocks of modern civilization, their status had been increasingly under threat as cheaper and better alternatives reached markets. Additionally, divestment campaigns and the fear of stranded assets have become each new year more pressing.
To make matters even worse, higher and higher temperatures and extreme weather phenomenon remind us each year in a more pressing way the urgency of decreasing our fossil fuels reliance.
Oil: from black gold to negative prices
Earlier this year, the price war between Saudi Arabia and Russia already had led to decreasing oil prices and significant stress to multiple companies. Now, due to the COVID-19 pandemic, the global oil demand is at its lowest since 1995 as billions of people are staying at home to flatten the curve.
Brent crude prices dropped 70 percent since the beginning of 2020. WTI prices went negative last week, a first in the history of oil and of commodities. As a result, the American oil production can’t compete with such low prices, to the point that the Texas oil industry could simply disappear. Other major producers such as Russia and Middle Eastern nations face a “bleak picture” too as they rely on higher oil prices for their annual budgets.
And once this pandemic is finally over, oil demand may never recover to its previous levels. Global peak car demand may already have been reached and analyses have shown that up to a third of the workforce could telecommute more frequently or just work from home as they are doing now. This would mean a massive decrease in oil consumption.
With streets empty from traffic, urban planners and citizens alike have had further proof that too much space is given to cars and not enough to cyclists and pedestrians. If biking was increasingly more common before COVID-19, temporary bike paths have been outlined and streets have been closed to car traffic. Paris alone plans to open 400 miles of bike paths as France will end progressively its lockdown next month. Other cities such as New York, Bogota and Brussels are following suit in a bid to clean the air in a more permanent way.
Last but not least, to further increase the efficiency of transportation, public transit agencies and company fleets will turn themselves towards electric vehicles. Cheaper to run and maintain, quieter and pollution-free, these represent sound investments for these troubled times. If gas is cheaper right now, there is no doubt that electric cars with seduce private citizens too as they become competitive with their internal combustion counterparts.
From King Coal to a declining role
If coal has been historically the king of electricity generation, its role in the past decade has been put in jeopardy by cheaper natural gas and increasingly competitive solar and wind. Last year, global coal consumption decreased and renewables accounted for 75 percent of global new capacity.
Before the pandemic, 42 percent of coal-fired plants around the world were already operating at a loss. It has been estimated by the Carbon Tracker Initiative that by 2030 the quasi totality will be more expensive to run than solar and wind. Renewables are also more resilient, cleaner and more popular among voters. In such conditions, how could the coal industry survive?
In the US, electricity generation from coal went from 50% in 2007 to 15% now. According to Associated Press, six of the top seven U.S. coal companies have filed for Chapter 11 bankruptcy since 2015 and analysts expect more as the economy dives. As coal is more expensive than fossil gas, solar and wind, this pandemic is having an averse effect on the American coal industry who will see at least another 20 to 25 percent decline in generation in 2020 from the previous year.
In Europe, countries are going beyond coal faster and faster. As an example, last week both Austria and Sweden have announced they were closing their last coal-fired plants. In 2019, coal use fell by 21.7% and was overtaken by renewables in electricity generation. Germany, the largest coal consumer in the region, has announced it will increase its ambitions as a way to combat global warming and restart its economy.
In Asia, momentum could shift fast towards renewables: Japan announced this week it will not finance coal projects abroad anymore. India has been moving fast towards more solar and wind energy in its grid and has announced measures to hasten its energy transition. Thailand already had plans to invest massively in floating solar farms.
Of course, whether China will continue to keeping on burning more and more coal is the main question. Will the local Communist Party increase its efforts on renewables to counter the downturn and the air pollution? Will developed economies bring back some of their industries to fight the recession and increase resiliency? Japan has already planned USD 2.2 billion to do so.
Building the world after
The parallels between the climate and COVID-19 crises have long been discussed: Scientists had been warning us about both for a long time and the longer we wait to act, the more people die. When the dust settles and this pandemic is finally over, when the world will have buried and mourned its thousands of deaths, may Humankind heed the calls of science and reason.
The economic slowdown have brought, at least temporarily, cleaner skies in some of the most polluted places. Photos of Los Angeles without traffic-induced smog have amazed people around the country and beyond. In Northern India, locals have been able to see the Himalayas from over a hundred miles away, a first in decades.
Horrible air pollution levels had been seen as a fact of life for too long and this economic slowdown shows that this doesn’t need to be so. Recent scientific studies have shown a direct correlation between high air pollution levels and high COVID-19 deaths. No doubt this could accelerate a transition away from fossil fuels and environmental destruction. Hopefully, this will prompt people to demand cleaner air as a more permanent feature of their lives.
As governments around the world are preparing stimulus plans to restart our economies, the International Renewable Energy Agency (IRENA) has stated that accelerating the energy transition towards more efficiency and renewables could boost global GDP by 98 trillion USD by mid-century. Such a plan would also create over 70 million jobs.
For homeowners and businesses alike, going solar is increasingly seen as a way to save money and keep the lights on when the next major crisis hits. Wind and solar are currently attracting investors as “low-risk, stable-yield opportunities” in uncertain economic times.
A contrario, spending stimulus money on struggling fossil fuels companies would create so-called “zombies businesses” relying on perpetual public aids to keep on polluting at a time when cheaper and better alternatives are already here.
A Green New Deal could happen in the near future, at least for both the European Union and South Korea. Upon the reelection of its President, the fourth largest Asian economy has announced its to goal to be carbon neutral by 2050 and will stop financing coal. Let us hope similar plans emerge around the world, thus relegating oil and coal to the history books.