April 2020. A global pandemic has taken the world by surprise and, although it is still too early to fully appreciate the consequences, the auguries for a rapid recovery do not appear to be encouraging. The drive towards renewable energy and the implementation of the circular economy has met with several significant barriers that are rapidly changing the way that these, up until now, critical measures may be deployed in the future. The principal of these barriers is the covid-19 pandemic and the inevitability of the associated economic slowdown, the nature of which is still not clear. Add to this an engineered collapse in oil prices, and the result is perhaps the definition of the perfect storm, one that will affect us all.
It often takes a short, sharp shock to the system to bring about lasting change, and the ones highlighted above have started a debate as to how the global economy will be affected in both the short and the long term. With respect to the renewable energy revolution, there are differing opinions as to which way the market will move. Some consider that as demand has plunged, we have passed the peak of fossil fuel demand. Before the covid-19 crisis (can we say, BCC?), and by popular demand from increasingly environmentally conscious investors, there was almost a stampede by investment funds to divest themselves of fossil fuel shareholdings. The question is whether this trend will hold as society rebuilds. Will governments continue to implement both renewable energy technologies and the precepts of the circular economy in a proactive attempt to heal the atmospheric shield, or will rock-bottom oil prices enable the fossil fuel industry to regroup and slow down the movement towards the transition to a green economy?
This, of course, will depend heavily on many facets which will include not only the political inclination of any particular government but also investor appetite towards short-term profit over long-term environmental recuperation. Populist governments and those seeking rapid gains in a weak market will always opt for the most rapid mechanism to restore fortunes, but an important factor will continue to be consumer sentiment and the importance placed in continuing the battle against climate change; this as opposed to our natural instincts towards independent survival, which inevitably leads towards short-termism as the immediacy of daily life supplants philosophical idealism.
The price war launched by Saudi Arabia, together with the covid-19 crisis have resulted in a decimation of the oil industry with several companies now involved in their own battle for survival. Many thousands of jobs have already been destroyed as the price of oil becomes lower than the cost of shipping and analysts are lamenting that the peak of oil production has been inevitably reached and may endure after the crisis, especially if aviation does not manage to recoup lost territory. After all, so many of us are now working from home, the question will be posed whether we really need to travel so much.
What could this mean for the renewable energy market and the transition towards the green economy? As noted, it’s well known that investor taste for carbon intensive industries is declining. It’s also well known that consumer preference is – or, at least, was, BCC – trending investment funds towards stocks that promote social wellbeing. There is a growing sentiment that this might be especially true when the debt to our national health services, a truly social enterprise, is fully appreciated. Patience towards dependence on limited sources of fuel, which play to narrow national interests and creates wildly unstable markets, is wearing thin and, as the possibility of energy sources being located close to the point of the use is becoming increasingly viable, financial institutions may consider the option of diverting investment funds towards the promotion of sustainably industries. This would be especially true if governments put their full force behind the movement and took the unprecedented opportunity to implement a tax on carbon that more accurately reflects its impact in the creation of the anthropomorphic greenhouse effect and the consequent phenomenon of global warming.
There’s no doubt that, once the crisis begins to wane and the real damage to the economy begins to be assessed, the conversation around the green transition will change. It can only be hoped that governments take the opportunity and ensure that not only economies are rebuilt but that the challenge of global warming is not put on the back burner. Perhaps this is the opportunity to make a real and lasting difference.