The need to integrate funding for the COVID-19 recovery and climate change mitigation

At the time of writing, the world is experiencing the highest daily increase in the number of infections recorded with SARS-Cov-2 virus since it was first recognised in late 2019.   More than 22 million infections have been detected globally with 780,00 deaths, (Johns Hopkins)  and a peak isn’t yet in sight.

 The morbidity and social impacts are also compounding, and there is widespread alarm about how the global economic damage that is also accelerating will be managed.  A full economic recovery could take decades.

Unfortunately though, the pandemic has occurred at a critical point in the negotiations over how the world is to contain the inevitable impacts of climate change, and to fund the priority actions previously agreed upon specifically for this purpose.

The comment that follows examines the potential for a conflict over how to resolve both pressing goals together, and whether or not there are opportunities to do so within the limited timeframes that are critical for each.

The transition to a low carbon economy

One of the key expectations that arose from the latest international Treaty on climate change, the Paris Agreement 2016, was the formation of an international strategy for the world to transition from a pervasive reliance on fossil fuel energy sources to alternatives with low carbon emissions.  Both the government and industry sectors committed to be heavily involved.

The transition is now well underway in developed and developing countries.  However, one estimate is that more than US$ 90 trillion could be required to be invested by 2030, if the current rate of the world’s net carbon emissions is to be slowed sufficiently to prevent the rise in the atmospheric temperature across the planet from reaching 1.5 0C. above its 1850-1900 benchmark ( Central bank networks, 2019)

Analyses published in late 2019 suggest that the global measures to decarbonise the global economy agreed to by the 187 UN Member States who ratified the Treaty, fall far short of what is needed.

As an example, the world’s largest 50 economies have estimated that they will spend a total of (US) $12 trillion by 2030 for this purpose.  The Heads of Government meeting scheduled for late 2021 to review the Treaty could therefore be very difficult because of one key fact:  the bulk of these funds would need to be deployed early in the decade and not at the end.   So, the critical investment period is from now out to 2025.

The urgency is being driven by the calculation showing that current total annual global emissions of 43 billion tonnes of carbon dioxide must be reduced to 25 billion tonnes each year by 2030, if the global average temperature is to remain below +1.50C.  The equivalent figure to remain below +20C is 40 billion tonnes p.a.  The latter may be unacceptably hot for the existing lifestyles and ecosystems on the planet to be sustainable during the second half of the century. .(IPCC +1.5, 2018)

 Regrettably, the (US) $12 trillion commitment declared in 2019 fails even to prevent the total emissions from rising to 60 billion tonnes p.a. by 2030 – if the world’s current pattern of consuming fossil fuels were to continue unabated.  (UNEP, 2019).

 The COVID-19 story so far

An intensive and costly effort is being made to develop vaccines and drug therapies to contain the rapid spread of COVID-19 and treat people with severe infections, but the timing is critical – the current picture points to a virus that is not only highly infectious, but is also associated with a complex pathology and a poorly understood immune response.

Factors such as the prevalence of asymptomatic carriage of the virus across the community; the apparent instability of protective (neutralising) antibodies that disappear within three months of an infection; and the nature and extent of longer-term medical complications following even some mild infections, collectively present a picture of a global disease with enormous morbidity potential.

There is a level of optimism that an effective vaccine will be produced within the year, not only because there are 150 projects directed to the objective, but also because there has been an unprecedented scientific effort to characterize the molecular biology of the virus to inform the vaccine design.

But even if a breakthrough were to emerge soon, the disease could still persist at varying levels of endemicity around the world for a further 1-2 years because of the size of the task involved in distributing it to those in need.   More than 45% of each community would need to be immunised before the transmission pattern could be interrupted in its region. (Iwasaki & Medzhitov).

One the other hand, climate change is further driving the irreversible exposure by humans to other viral zoonotic pathogens similar to the SARS group.  The catastrophic loss in global biodiversity being associated with the heating of the planet is making outbreaks of these diseases more common and dangerous, and is in fact setting the scene for similar or even worse pandemics. (Lustgarten)

Integrated funding for both threats – conflict or opportunity?

Many of the dangerous impacts of climate change are now on an irreversible path, so effort is now needed to ameliorate the worst of them.   Similarly, measures to contain the growth in carbon dioxide emissions are facing an uphill battle, because it seems highly likely that the world’s attachment to the burning of coal, oil and gas will continue to remain strong for decades.

These fossil fuels are in fact, so tightly integrated into the core infrastructure systems that underpin our day-to-day transactions, that there are concerns that poorly designed interventions to eliminate their use could create local or regional social unrest in some of the poorer developing countries, and even jeopardise their economic stability.

This perhaps explains not only why more than 1000 coal fired power stations are either planned or are already under construction around the world; nor why even some of the funds ear-marked for COVID interventions appear to have the unintended consequence of prolonging a dependence on fossil fuels.

For example, an analysis was published in May 2020 of the COVID-expenditure commitments by those of the G20 countries who are responsible for around 80% of global greenhouse gas emissions (O’Callaghan).  For one pool of funds with (US) $240 billion, $151 billion is supporting fossil fuel consumption while $89 billion is supporting clean energy use.

But the social value of the total pool was further reduced by the fact that only 20% of the fossil fuel allocation had environmentally sensitive requirements attached, while 81% of the clean energy funds failed to specify appropriate environmental safeguards.

 A similar calculation hasn’t been published for the $200 billion stimulus provided from Australia’s national budget to support our COVID recovery, but there is no reason to expect that our local position is different.  The IMF reported in 2019 that fossil fuels here received AUD $40 billion in public subsidies during 2015 (reported as USD $29 bn).

In the long run, competent economic management could mitigate the worst of COVID’s social impacts on the global scale, but it appears certain that the expected economic loss will drive a significant restructuring of international capital flows and national expenditure patterns for decades. Europe for example, passed a law in mid-July 2020 mobilising (US) $750 billion for a COVID crisis management fund that will impose a debt load on its member countries that hasn’t been seen for generations.

Meanwhile, the health system in some regions of the world where the COVID infection is active will be further stressed by the growing impacts of the extreme weather events of climate change.   Climate change will afurther aggravate local health threats including: the physiological impacts of heat stroke; mosquito-borne arbovirus infections such as dengue fever; water-borne diseases from flash flooding; and reduced food security from higher agricultural losses in exposed areas.

The fact that the virus and climate risks are increasing simultaneously makes it obvious that preference should be given to investments that simultaneously accelerate the COVID recovery,  and facilitate low carbon emissions products services and transactions.

Supporting this is the recognition that investment risk is elevated when funding is diverted to carbon- intensive capital assets, purely to achieve short-term marginal cost savings.  These assets face higher ‘stranded asset’ risk when their outmoded technologies progressively become redundant.  The possibility has become real over the past year in line with the increasing number of countries and international businesses declaring their goal of net zero carbon emissions by 2050.

It is also important for cost assessments of all proposed COVID investments to consider the carbon emissions profile for the full life cycle of all asset classes, products and services (‘cradle to grave’).  And where possible, to incorporate an appropriate internal price of carbon to recognise the social externality costs involved.

This technique is already demonstrating that the new generation of  solar and wind technologies that need higher initial capital outlays but lower ongoing operational expenses, are to be preferred to outdated off-the-shelf systems requiring higher ongoing maintenance or expensive operational supplies.

Fortunately for the electricity production sector in particular, the new genre of solar, pumped-hydro, and wind energy systems are now not only matching coal powered generators with lower initial CAPEX, but they function at a fraction of their ongoing operation and maintenance costs as well..(AEMO)  So, post- COVID job-stimulating programs funded by governments to expand renewable energy generation and use, enjoy both social and environmental multipliers in both the short and long terms.

The COVID recovery could therefore provide the fillip needed for a strategic change away from yesterday’s carbon intensive industrial and commercial processes.   Some countries will move faster than others, as will some industry sectors.  But it is vital that governments have the conviction to drive the strategic change and then implement the necessary policy settings if  the transition to a zero-carbon post-COVID world is to be accelerated.

For example, a significant portion of the estimated (US) $15 trillion that will be needed for the global COVID recovery could usefully be diverted to goals such as installing new low carbon energy generating assets and modernising their distribution efficiency; retrofitting buildings to minimise or even eliminate their carbon footprint; or enhancing ecosystem resilience by fostering biosequestration in carbon-rich habitats and climate-friendly agriculture (O’Callaghan).

Geoff Noonan
The Middle Way Pty Ltd,  
Sydney

www.middleway.com.au

Updated 19 August 2020  

 

FURTHER READING

Australian Energy Market Operator (AEMO),  30 July 2020;  ISP Appendix 8: Resilience and climate change  www.aemo.com.au

Campbell D & Gordon J.,  29 July 2020   Drawing a long bow.  www.factcheck@rmit.edu.au

Central banks and supervisors network for greening the financial system,  January 2019.   www.ngfs.net

Climate Policy Tracker;   www.wemeanbusinesscoalition.org

Coady D et al., 2 May 2019;  Global Fossil Fuel Subsidies Remain Large: An Update Based on Country-Level Estimates;  International Monetary Fund,  www.imf.org

Global Energy Monitor (GEM).  An online tracker for energy issues.  https://globalenergymonitor.org/about/

International Monetary Fund (IMF),  15 July 2020.  The Next Phase of the Crisis: Further Action Needed for a Resilient Recovery.     www.imf.org

IPCC,  October 2018;  Special Report Global warming of 1.50C;  United Nations,  www.ipcc.ch

Iwasaki A. & Medzhitov R.  31 July 2020;  Scared That Covid-19 Immunity Won’t Last? Don’t Be.  New York Times.  (Authors are both immunobiology experts at Yale University)

Johns Hopkins University of Medicine,  30 July 2020;  COVID 19 Dashboard.   https://coronavirus.jhu.edu/

Lustgarten  A;  7 May 2020;   How climate change is contributing to skyrocketing rates of infectious disease   ProPublica, Illinois  USA;  email: Abrahm.Lustgarten@propublica.org

Mountford H., 12 March 2020;  Responding to Coronavirus: Low-carbon Investments Can Help Economies Recover.  World Resources Institute,  www.wri.org

O’Callaghan B and Hepburn C.  (5 May 2020)  Leading economists: Green recover also better for economy; Carbon Brief,   UK ;  www carbonbrief.org

Overseas Development Institute (ODI),  23 July 2020.   What the EU recovery fund means for Europe and international development    www.odi.org

Twomey D, 17 July 2020;  As lockdowns lift, governments face a recovery climate choice;  EcoNews  www.econews.com.au.

United Nations Environment Programme (UNEP), November 2019;. Emissions Gap Report 2019, Nairobi.   www.unenvironment.org/emissionsgap

World Resources Institute, online newsletter, www.wri.org

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