Can the Pandemic Hinder the Energy Transition?

Will the pandemic bring a low-carbon economy? The answer is not simple, but the question has been explored in an article I published last year together with my colleagues Marzio Galeotti, Alessandro Lanza and Baltasar Manzano in the Oxford Energy Forum of the Oxford Institute for Energy Studies.

COVID-19 and climate change are both global, exponential, potentially catastrophic and both have the characteristics of a public bad. Like carbon emissions, COVID-19 originates in one country but can cause damage in another by crossing borders. There are also important differences. There may be thresholds and tipping points which would make climate change irreversible, while the COVID-19 pandemic entails some reversibility, with some costs being temporary and others irreversible, like deaths. Uncertainty, the time frame, and the discount rate treatment are also different, as the impact of Covid-19 is suffered more immediately than the impact of climate change. The two main responses, mitigation and adaptation, are implemented with the best current technologies.

The objective of mitigation is to delay and reduce unwanted effects, which in both cases is about reducing rates –one of emissions, the other of infections. The objective is to delay stock accumulation and keep it below the absorptive capacity –one of the atmosphere, the other of hospital capacity.

The objective of adaptation is to anticipate adverse effects and take action to prevent or minimize them. For climate change, actions include building more resilient infrastructure, using scarce water resources more efficiently, adapting building codes to future climate conditions and extreme weather events, and building flood defenses. Adaptation to COVID-19 can take many forms, too. It may consist, for example, of investing in hospitals, medical equipment, and health infrastructure as well as in facilities that allow social distancing.

Thus, the important question is: will the low-contact economy also be a low-carbon economy?

The pandemic could alter the current energy transition path by transforming the economic system. In this new economy of low contact, the prime objective is to reduce the risk of infection. Therefore, activities that reduce physical interaction, or are otherwise considered safe, will flourish. This rebalancing of activities would indirectly determine a different pattern of energy consumption, and in that way affect the overall energy mix. These are some of the implications:

• Changes will reinforce a transition towards electrification. Under this ‘new normal’, both work and leisure activities are largely conducted through digital platforms –like Zoom, Netflix, and Amazon –whose energy source is electricity.
• Office work can be at least partially achieved without commuting time, traffic congestion, and transport emissions. If some or most of these temporary adjustments endure after the lockdowns have ended, they will have impacts on domestic electricity loads, oil demand, and emissions.
• Longer stays at home affect demand for both electricity and transport. In general, less need for travel diminishes incentives to own a car and consequently demand for oil products. However, less need for travel also reduces the prospects of electric vehicles.
• Weakening of incentives to buy a car improves prospects for ride sharing, which could be more energy efficient. If this were the case, overall energy consumption would be reduced. However, driving one’s own car seems much safer than sharing one, even with careful disinfection between passengers.
• For electricity, the impact of staying at home is at least twofold. First, domestic electricity demand obviously rises as people spend more time at home. Second, there is an increase for home-made goods, since home production avoids interaction and physical contact.

Brief, in the aftermath of the coronavirus crisis, there is likely to be a change in preferences that can lead to changes in the structure of demand. Low-carbon approaches are likely to be adopted only if they are compatible with the goal of reducing contact. Otherwise, chances are that people will prefer activities with no contagion to activities with no emissions.

This problem can be illustrated with the ‘packaging paradox’. Before the pandemic, key concerns with packaging were to reducewaste and preferably to use recyclable material. But with COVID-19, packaging can protect people and keep them healthy, and in that regard its main desirable attribute is material that is easy to clean or inhospitable to germs, which would keep people safe at the expense of increased waste.

Energy transitions have historically occurred at a very slow pace, even when climate change requires expedited action. In contrast, response to the COVID-19 pandemic is happening at an unprecedented speed. This might result in a reorganization of the economy to reduce the risk of contagion. If so, the new organization would have the potential to affect the level of energy consumption and the energy mix. Whether this rapid change is compatible with a zero-emissions economy is unclear, and there is a risk of locking in polluting technologies again. The good news is that the pandemic might accelerate the transition towards electrification, which would be the best energy carrier for the decarbonization of the economy.