COVID-19 and Energy System Transformation – the future in fast forward? Or old habits die hard?
28 July 2020
By Professor Michael Bradshaw FAcSS (Professor of Global Energy, Warwick Business School) and Dr Caroline Kuzemko (Associate Professor of International Political Economy, University of Warwick)
In March, we were planning a workshop on ‘The Geopolitics of Energy System Transformation’, to be held at Warwick Business School’s Shard facility in June. The workshop was linked to a new programme of research on ‘UK Energy in a Global Context’, which is part of the fourth phase of the UK Energy Research Centre (UKERC).
The workshop did not happen, for obvious reasons; instead we convened a virtual network of social science researchers from across Europe to consider the implications of COVID-19 for the politics of the sustainable energy transition. The results have been published as a ‘Perspectives’ piece in Energy Research and Social Science. In concluding, we evoked the film ‘The Age of Stupid’, in which an archivist in 2055, played by the late Pete Postlethwaite, asks: ‘why didn’t we stop climate change when we had the chance?’ We believe the COVID-19 pandemic offers a significant ‘counterfactual opportunity’ for us to reflect back, at the end of this decade, on an opportunity missed or an opportunity taken to put the energy system on the path required to mitigate climate change.
Energy system transformation is made up of two interrelated processes, two sides of the same coin. On the one side, there is the ‘low-carbon energy transition’ that aims to decarbonise energy production and consumption. On the other side, there is the ‘high-carbon energy transition’ associated with the decline of the incumbent fossil-fuel energy system. According to BP, in 2019 fossil fuels still accounted for 84.3% of global primary energy consumption and renewables only 5%.
In this blog, following the approach taken in the ‘Perspectives’ paper, we distinguish between three time frames when considering the implications of COVID-19 for energy transitions. The short-term refers to the immediate impact of what the IMF called the ‘great lockdown‘. The medium-term refers to the period between now and the end of 2021, when the focus is on a ‘post-pandemic’ (though not post COVID-19) economic recovery. And the long-term refers to the period from 2022-2030 when the consequences of the decisions made now become apparent through the rate of global carbon emissions.
Even before the pandemic, a new energy age was emerging as rapidly falling costs of low-carbon technologies, together with policy support, were destabilising the incumbent fossil fuel industries.
Ironically, technological change—the shale revolution—had heralded an age of fossil fuel abundance just as demand was being constrained by climate policy.
Consequently, oil and gas markets were struggling with over-supply and low prices. On the eve of the lockdown, the ‘OPEC+’ coalition fractured, resulting in an oil price crash, then exacerbated by the dramatic fall in economic activity that resulted in a new agreement to constrain production. After a record fall, oil prices rebounded; but oil and gas companies have slashed their dividends, reduced investment, cut their workforces and are reassessing the value of their assets.
Equally, oil exporting states have faced a sharp reduction in income just as the social costs of the pandemic escalated. Much of this is not new as the oil and gas industry is both highly volatile and cyclical, but there is a growing sense that this time is different. Investment cuts now may result in tighter markets and higher prices in the second half of the 2020s as the global economy recovers. However, that may simply serve to accelerate decarbonisation in the 80% of states that are not net fossil fuel exporters.
For some, peak global oil demand has already passed. This suggests that for oil and gas companies, and for the states that depend on their revenues, the time to prepare for a ‘world beyond oil’ is now. Failure to do so could result in social unrest and conflict in parts of the world that are already unstable.
What happens next is not a matter of technology – we have the technologies to meet net zero today. It is instead a matter of economics, (geo) politics, behaviour and societal expectations. The pandemic has prompted a scale of state intervention across the OECD that is unprecedented in peaceful times.
Widespread calls persist to ‘build back better’ via a ‘green recovery’ to accelerate the pace of decarbonisation – and in the UK the government is being challenged to re-think its stimulus packages to date. However, as one influential group of academics put it: ‘There are reasons to fear that we will leap from the COVID frying pan into the climate fire.’ Unfortunately, the experience of the 2008 crisis suggests that it will be all too easy to return to old habits, with a resumption in demand for fossil fuels and growing carbon emissions.
But there are reasons to be optimistic. The Paris Agreement and the Sustainable Development Goals, both agreed in 2015, provide a ready-made blueprint for action. Equally, there is growing societal pressure to address climate change, added to which lockdown resulted in a period of cleaner air, making clear the causes of pollution.
There is ample evidence to suggest that investing in green growth results in better outcomes than supporting fossil fuel incumbents. Politicians tend however to focus on protecting the status quo. The Energy Policy Tracker is monitoring recovery packages across the G20 member states, and concludes that of the public money committed to the energy sector, $151 billion or 51% is related to fossil fuels, though efforts in the United States weigh heavily in these numbers.
In earlier research we developed four energy scenarios to 2030. Two illuminate the stark choices we face: one called the ‘Big Green Deal’, where policies, funding and cooperation drive rapid decarbonisation (akin to a Green Recovery); and a second called ‘Dirty Nationalism, which seems just as likely, where fossil fuel industries are protected and energy markets fragment. Of course, such global scenarios are the outcome of a mosaic of different regional, national and local policies and outcomes. Consequently, the net impact of the current situation may look more like our third scenario: ‘Muddling on’, where fossil fuels dominate, and renewables fail to mitigate climate change. For the sake of completeness, our fourth scenario was called ‘Tech Breakthrough,’ where renewables surge and then slow as competition limits their spread.
It is too early to know what the long-term consequences of the pandemic will be. Much depends on the need to maintain social distancing and quarantine measures that will determine the pace of economic recovery, though few now expect a rapid ‘bounce back.’ Equally, the extent to which the behavioural changes imposed by the lockdown will result in lasting differences – in work patterns, attitudes to travel and personal consumption, all of which impact on energy demand – is also uncertain. One of us is a student of Russia’s transition during the 1990s and notes the words of the eminent Russian industrialist and politician Viktor Chernomyrdin who famously said: “We wanted the best, but it turned out like always.”
We must all do whatever we can to ensure that when we reflect back in 2030 on climate-related policies adopted now, things have turned out for the best.
Professor Mike Bradshaw is Professor of Global Energy at Warwick Business School. His research is at the interface of geography, international relations and business and management. His current research focuses on UK gas security, the shale gas conflict and the geopolitical economy of energy system transformation. He is a Fellow of the Academy of Social Sciences, and the Royal Geographical Society where he previously held the role of Vice President.
Dr Caroline Kuzemko is an Associate Professor in International Political Economy at the University of Warwick. She is Deputy Leader the research theme ‘Energy in a Global Context’, and PI of the ‘Beyond Brexit: UK Zero Carbon Energy Policy’ project. From 2016-2019 she held an ESRC Future Research Leader grant for her project on ‘Power Distributions: Local Government and Sustainable Energy’. She is an Associate Editor of the journal Energy Research & Social Science.
The perspectives expressed in these commentary pieces represent the independent views of the authors, and as such they do not represent the views of the Academy or its Campaign for Social Science.
This article may be republished provided you place the following statement and link at the top of the article: This article was originally commissioned and published by the Campaign for Social Science as part of its COVID-19 programme.