According to economist Christian de Perthuis, 2019 could well be remembered as the peak year for global emissions, with the coronavirus health crisis acting in the medium-term to accelerate structural changes in economies.

A woman crosses the usually busy La Castellana avenue in Madrid on March 15, 2020. Photo by OSCAR DEL POZO / AFP
A woman crosses the usually busy La Castellana avenue in Madrid on March 15, 2020. Photo by OSCAR DEL POZO / AFP

During the first two weeks of March, the health crisis caused by the spread of Covid-19 took on a new magnitude. On March 11, the WHO officially recognized the outbreak as a global pandemic. Every country in the world is now affected and Europe is the current epicenter of the pandemic.

With the spread of this disease causing turmoil for financial markets, it is becoming a new vector for the spread of recession throughout the world. In the short term, global recession will reduce the amount CO2 released into the atmosphere on an unprecedented scale. We expect 2019 to become the peak year for global emissions since the health crisis will act in the medium-term to accelerate structural changes in economies.

 

Hypotheses on the duration and magnitude of the coronavirus pandemic

According to research by epidemiologist Antoine Flahault, the contemporary world has seen three pandemics: the Spanish flu of 1918-1919 and two flu outbreaks in  1957 and 1968. The impacts of this fourth pandemic will depend on the level of danger that can be characterized based on its duration and fatality rate.

First, the duration. The epidemic peak appears to have passed in China and Korea (27% of the world’s population). If Europe (7% of the world’s population) succeeds in containing the spread of coronavirus at the same pace, the peak could be reached by the end of April. It is difficult, however, to anticipate the response capacity of the United States (4% of the world’s population) due to the weak public health system. The greatest uncertainty surrounds South Asia and Africa, where 42% of the world’s population will confront the virus with extremely vulnerable health care systems. The assumption is that a global peak for COVID-19 should be reached by the end of June, with the global economy gradually returning to normal during the summer.

Next, fatalities. When economists study the economic effects of the most serious pandemics (Black Plague or Spanish flu), one of the major effects is the long-term loss of labor resources due to fatalities: the plague killed one fourth of the European population in the 14th century and an estimated 40 million died in 1918. It would certainly be inappropriate today to make any predictions about the expected fatalities of the current health crisis. This impact is expected to be of secondary importance from a macroeconomic perspective. What is taken into account in the analysis is the economic and environmental effects of the exceptional measures taken by public authorities to contain the coronavirus health crisis.

 

Towards a historical decrease in CO2 emissions in China

Recessions typically occur to correct past imbalances, such as the initial over-indebtedness in 2009, the year of the last major economic crisis. The current situation is very different: economies are moving abruptly into recession following the restriction of human mobility. Satellite imagery testifies to the magnitude of movement in China and Italy, where local pollution has sharply declined since populations have been put on lockdown.

 

Visualizing the short-term effects for Italy

Visualisation des effets de court terme en Italie

 

 

In China, confinement measures for the population led to an unprecedented decline in economic activity: according to official indicators, a 20% drop in retail sales and 16% drop in manufacturing output was recorded during the first two months of the year. In mid-March, the worst of the coronavirus appears to be over and the watchword is now recovery. Despite the flow of credit from the Chinese central bank, economic recovery seems slow: trust has not yet been restored, which is weighing down on household demand (consumption and housing). In foreign trade, the recovery of exports is hindered by the recession now being experienced by China’s main customers.

 

Coal consumption in China’s electricity sector through the six main companies

(in thousands of tons)

 

 

During the 2009 recession, Chinese growth only slowed, and the impacts were barely visible in terms of CO2 emissions. The developments taking shape in 2020 are entirely different. According to a study by Lauri Myllyvirta based on indicators such as electricity production (chart above), the recession is already believed to have caused a reduction in CO2 emissions of 200 million tons in February (- 25%), the equivalent of two thirds of annual emissions in France! Within this context, China, which is responsible for 27% of global emissions, should experience an unprecedented decrease in emissions in 2020, in contrast with what happened in 2009.

Dramatic impacts of the coronavirus in Europe and the United States

In Europe and the United States, the start of the coronavirus crisis came with exceptional monetary and budgetary measures to cushion the economic shock. The goal is to maintain productive capacity and prevent cash flow problems for companies from multiplying bankruptcies, causing a surge in unemployment. These cushions will only absorb the shock of depression without creating the conditions needed for an economic rebound. In these countries, transport, the first sector affected, is also the first source of CO2 emissions. The impact of the crisis on emissions will be even more pronounced.

In the short-term, the management of a global health crisis causes an economic shock with an intensity that is unprecedented in peacetime. The result will be a massive reduction in emissions. In 2009, the major recession caused a 500 million ton decrease in global CO2 emissions. In 2020, the decrease is expected to be significantly more pronounced. The magnitude is expected to be between 1000 and 5000 million tons. But once our societies have emerged from recession, will they better equipped or less prepared to tackle global warming?

Past shocks have caused drops in regional emissions trends

Some commentators have compared the speed of governments’ response to the health crisis to their inaction in the climate emergency. While the analogy is tempting, it is also misleading: the word “emergency” is used for very different timescales.

The health emergency must be managed from one day to the next, integrating new information received on an hourly basis. To combat Covid-19, the time limit for measures taken to curb the epidemic is approximately ten days. To combat global warming, given the inertia of the stock of CO2 accumulated in the atmosphere, the response time for climate variables after a drop in emissions is approximately twenty years. One day lost in the fight against pandemic is therefore equivalent to two years lost in the fight against global warming and one month equals 60 years! After correcting these timescale differentials, it is not clear whether governments have reacted that quickly to the threat of the new coronavirus or Covid-19.

In order to assess the long-term effects of the health crisis, it would be better to take a historical approach. Since 1959, global CO2 emissions have declined three times due to an external shock (see chart below). Once the shock had passed, overall emissions levels began to rise once again. However, in each case, the shock left lasting impacts in one region of the world.

In the aftermath of the oil price realignment of 1980, global emissions decreased for two consecutive years for the first time. It was also the point when the European Union-28 reached its peak in emissions. The second drop, observed in the early 1990s, corresponded to the emissions peak reached in 1990 among all former Soviet-bloc countries.  The economic crisis in 2009 hardly effected Chinese emission trends, while it corresponded to the peak reached in 2007 in United States.

 

Global CO2 emissions

(in gigatons)

Source: author, based on data from the Global Carbon Budget (2019 edition)

 

The shock in 2020 caused by the coronavirus could make 2019 the global peak year for CO2 emissions. The health crisis reveals the fragility of the current productive organizations responsible for the overall growth in emissions. This shock treatment will force societies to experiment with more climate-friendly alternatives. China, the world’s largest emitter, will be on the front line in the reorganization of its production chains.

The health crisis as a catalyst for structural innovation

This change in direction will not be linear. The drop in oil prices will stimulate demand and increase relative investment costs in green energy. Since the health crisis has invaded the entire political landscape, government concern about climate change has decreased. The end of lockdown periods will result in a tremendous need to reconnect through gatherings and to multiple forms of consumption associated with this need.

In contrast, the health crisis has revealed the major fragility of development patterns based on the constant increase in the mobility of people, capital and goods. Slowing the spread of a virus in extremely mobile societies quickly becomes a difficult conundrum. China was the first to experience this. The need to rapidly mobilize health facilities, respiratory assistance devices, protective masks or even paracetamol faced the obstacles posed by the hyperspecialization of value chains. In both Europe and the United States, the health authorities are shocked to discover the new dependencies resulting from this reality.

The coronavirus crisis does not only reveal all these weaknesses. It will also force us to experiment with innovative forms of productive organization. The widespread adoption of remote working is a major key. It will require us to discover the possibilities for reducing the multiple forms of mandatory mobility that needlessly increase our carbon footprint in exchange for minimal economic benefits. In terms of goods, economic stakeholders will be forced to test ways of diversifying their sources of supply and shortening supply chains. In both cases, this will mean experimenting with new forms of productive organization, not only to limit the risks of epidemics, but also to facilitate the reduction of our greenhouse gas emissions.

Due to the constraints imposed by lockdowns, the management of this health crisis will also lead to multiple innovations in the area of solidarity. We are seeing the beginnings of this in France, both for the elderly, who are more vulnerable and therefore more protected from physical contact, and for healthcare professionals, who are most exposed to the virus in the collective fight against the spread of Covid-19.

 

 

 

The opinions expressed on this blog are those of the authors and do not necessarily reflect the official position of their institutions or of AFD.

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