By Joseph Saviour, Senior Analyst, Distributed Energy
According to the International Monetary Fund (IMF), the human tragedy of the COVID-19 pandemic and global restrictions resulting in business closures and travel prohibitions may contribute to the worst economic downturn since the Great Depression. As a result, the global economy is expected to contract by 3 percent in 2020.
The scale of this crisis is generating unparalleled challenges for the global economy. Businesses are growing wary of large capital investments as the economic risks are the most likely and concerned fallout i.e. prolonged recession of the global economy. Some companies are already inevitably being pushed into bankruptcy as the number of indebtedness, both public and private, increases.
In light of this crisis, it’s important to not overlook other, equally important global risks and challenges we have been facing for decades now. A passage in a recent publication by the World Economic Forum does a compelling job in capturing this and I’d like to share the same:
“One of the most important fallouts for the world when dealing with a global crisis like COVID-19 is ignoring other existential global risks – in particular, any shortfall inactivity to address sustainability risks, especially climate change adaptation and mitigation. As countries emerge from the immediate health crisis and reboot their economies, changes in our working practices, attitudes towards traveling, commuting and consumption might make it easier to find business opportunities to capitalize on lower carbon and more sustainable recovery. This could enable society to adapt responsibly, to return cleaner and greener, and to develop through sustainable growth with people and communities at the centre of society.”
Governments around the world are ramping up stimulus packages to create jobs and reflate their economies. These actions have made two things very clear (WRI, 2020).
- We should invest in things that strengthen the health and well-being of our citizens; and
- We must look at reducing economic and infrastructure vulnerability. Propping up old, polluting industries is not a solution.
Renewable energy investments, on the other hand, can help avoid greenhouse gas emissions and protect communities from dangerous health and environmental effects of climate change. According to the World Health Organization (WHO), about 4.2 million deaths every year occur as a result of exposure to ambient (outdoor) air pollution, while a recent Harvard study showed that people living in contaminated cities were more likely to die of COVID-19.
Solar PV and onshore wind are now the cheapest sources of new-build generation for at least two-thirds of the global population.
In the most recent Global Renewables Outlook published by the International Renewable Energy Agency (IRENA), they present a “Transforming Energy Scenario” – an ambitious yet realistic energy transformation that would limit global temperature rise to below 2 degrees Celsius. To make this a reality, it would cost an additional $19 trillion more than the current business as usual approach. However, this would bring benefits worth $50-$142 trillion by 2050 and grow the world GDP by 2.4 percent. The report also details a “Deeper Decarbonisation Perspective”. This basically outlines that a net-zero emission world by 2050-2060 would cost anywhere between $35-$45 trillion BUT yield $62-169 trillion in cumulative savings.
Now let’s put this into context in terms of the current COVID-19 crisis. In USA itself, we’ve just seen the House pass a $3 trillion coronavirus relief package.These relief packages are trending on a global level. It’s not hard to argue that some, if not more, of the current economic fallouts could have been mitigated or better managed if there was a relevant framework in place to apprehend and address this crisis. While the R&D and associated costs require preliminary capital, the accrued tangible and non-tangible benefits to be realised as a result of this pre-emptive measure needs to be properly studied and documented.
It’s not only about renewable energy investments. It’s an investment that also mitigates the financial and other risk of climate change. With this mandate in mind, our company, Distributed Energy, was formed in early 2019. We leverage finance, technology and innovation to accelerate our commitment to sustainability and drive a low-carbon transition in developing countries.
The COVID-19 crisis reinforces the need to adopt and capitalise on lower carbon and more sustainable recovery.In parallel, the fossil fuel industry is now in the spotlight, as it happens to be one of the hardest hit sectors – a consequence of curtailing of commercial air travel and stay-at-home orders. The pandemic has caused massive declines in demand for oil and gas. Leading oil, gas and petrochemical companies lost an average of 45% of their total market value since the start of 2020 and their stock prices continue to plummet.
In the midst of this crisis, oil, gas, and petrochemical companies are lobbying governments worldwide to seek direct and indirect support, including bailouts, buyouts, regulatory rollbacks, exemption. This has resulted in some of the largest financial institutions i.e. BlackRock, to rapidly divest from fossil fuels, having recognized the growing financial risks of carbon-intensive investments.
Bloomberg New Energy Finance (BNEF) estimated last year that between now and 2050, 77% of investments in new power generation will be in renewables. There is a compelling case, now more than ever, that governments and investors treat COVID-19 not as a signal to slow down, but rather to ramp up and embrace renewable energy.
