Will COVID-19 be a turning point on climate change?

*Podcast script from Physical Attraction show, June 2020*

Fatih Birol, from the International Energy Agency, was quoted in The Guardian on this issue.

Unfortunately the newspaper went with the headline “World Has Six Months To Avert Climate Crisis” — I wish people would stop with these simplistic and misleading deadlines… because this doesn’t communicate that much.

Some headline more like “Green stimulus urgently needed as part of COVID-19 economic recovery”, or “Green stimulus would create jobs and avert climate catastrophe”, or even “Global Green New Deal Urgently Required to prevent Climate Crisis” or something like that would be far more truthful, accurate, and more communicative than making up some other arbitrary, false deadline. I really feel like these deadlines don’t work. But maybe that’s just me. Anyway, as someone who’s written articles, I know the headline is often written by someone else… and it’s unfortunate that this is often what most people end up reading.

To the substance, then — what he actually said was the following:

“This year is the last time we have, if we are not to see a carbon rebound,” said Fatih Birol

“The next three years will determine the course of the next 30 years and beyond,” Birol told the Guardian. “If we do not [take action] we will surely see a rebound in emissions. If emissions rebound, it is very difficult to see how they will be brought down in future. This is why we are urging governments to have sustainable recovery packages.”

The point here is that, according to the IEA, global governments are likely to go for a big, Keynesian, stimulus package — investing in new projects and bailouts that aim to restart the economy in the wake of COVID-19. The IEA estimates that the total value of these stimulus packages in the next few months will be ~$9trn. The stimulus packages created this year will determine the shape of the global economy for the next three years, according to Birol, and within that time emissions must start to fall sharply and permanently, or we can say goodbye to the 1.5C goal in Paris (which is already extremely unlikely to happen in my view.)

The issue is that the type of stimulus that governments typically like is “shovel-ready” infrastructure projects — everyone remembers the examples from the New Deal in the US. Back then, the Public Works Administration spent billions building roads, schools, airports, power stations… and helped kickstart the US economy out of the Great Depression, but also potentially laid the framework for substantially higher emissions in the years to come. If you choose to spend money on airports, you’re going to lock-in planes. If you spend money on roads, you’re going to encourage private car ownership, and if those cars are fossil-fuelled, you can lock in that too. And, of course, there are direct CO2 emissions from big construction projects, not least where cement is involved.

So you can forsee a bit of a nightmare scenario where governments focus on what they think of as classic “big infrastructure” projects, building roads, bridges, and fossil-fuelled power-plants, and letting climate policy take a back-seat. In the meantime, due to the huge economic hit and debts that governments have taken on to try and deal with the immediate aftershock of the crisis, fiscal hawks might show up and argue that the government can’t afford to invest in research and development, or climate-related projects. This would obviously be a disaster that would lock us in to higher carbon emissions for many years to come.

The IEA paints a rosier picture of what the stimulus could look like, suggesting that each year, a sustainable economy could create more than 9 million new jobs.

1.9 million of these would be in retrofitting houses and buildings to be more energy-efficient, cutting the carbon emissions from buildings. I have to say, for me, this is such a no-brainer. You employ millions of people to make homes more energy-efficient, so you’ve created jobs in the midst of a crisis. Not only does that get you closer to your climate goals, but it reduces the energy bills of those same people, so it’s like a direct stimulus to them; they have more disposable income to spend or invest. You could imagine a programme where this is done progressively, so that the fraction that the government pays for depends on how wealthy the homeowner is. The government can even recoup on its investment by freezing the bills for a number of years, should it choose to do so, because many of these energy efficiency measures effectively pay for themselves after a few years. Meanwhile, the fact that we’re using energy and electricity more efficiently frees up some capacity to electrify heating and transport. The only people who would not benefit from this plan are the fossil fuel companies, which is probably part of why it isn’t happening — some people profit from the fact that we waste so much of our energy, because all they care about is the overall demand.

1.1 million would be in installing new wind and solar power plants.

Improving power networks — including, for example, greater interconnectivity projects between regions and between countries — could provide over half a million jobs. Given that a country like the UK, to hit its target of net zero emissions, may end up having to use four times as much electricity as it does today — after electrifying the transport and heating industries — this type of project would be extremely useful. In some countries, where energy demand continues to rise, expanding electricity networks avoids huge amounts of carbon emissions by ensuring that people can actually use electricity rather than high-carbon fossil fuels and alternatives.

The electric car industry, new energy-efficient appliances and modes of transportation, energy efficiency in industry, and so on can each offer over half a million jobs in the IEA’s reckoning for the green recovery.

Further backing for this comes from the rather millennialist point from the Grantham Institute and LSE, via Sam Fankhauser. He points out that the economic disruption caused by COVID could well kill off some obsolete industries, and governments — instead of propping up old industries — should focus on helping people transition into new ones.

The fact is that opposing economics is always extremely difficult because pretty much every political and corporate force is driving towards doing what is economically profitable. In the 5 years from 2009 to 2014, when Obama was President in the US, coal production of electricity fell by about 14%. In the two years 2017 to 2019, coal’s electricity production in the US fell by 22% — this, despite all of the nonsense Trump spouted about saving the jobs of coal miners. Coal is dying in the US, and it’s dying due to market forces.

Now, this doesn’t mean climate policy is powerless — climate policies enacted throughout the world are what has made renewables so cheap that they can drive coal out of business [and we’ll do an episode on this story someday, which still doesn’t get enough attention.] But it does mean that, when more coal-fired power plants struggle to make money in this COVID recession, governments shouldn’t be afraid to let them close and focus on helping those workers into new modes of employment.

So this is the vision of what we could have — a green recovery. What’s actually happening?

Well, according to The Guardian, so far:

“At least $33bn has been directed towards airlines, with few or no green strings attached, according to the campaigning group Transport and Environment. According to analyst company Bloomberg New Energy Finance, more than half a trillion dollars worldwide — $509bn — is to be poured into high-carbon industries, with no conditions to ensure they reduce their carbon output.

Only about $12.3bn of the spending announced by late last month was set to go towards low-carbon industries, and a further $18.5bn into high-carbon industries provided they achieve climate targets.”

Now, some of this is fair enough, because the first wave of stimulus has really been a panicked, emergency response that aims to prevent total economic collapse in light of the shutdowns, and therefore it hasn’t really taken into account what type of economy we would like to see in the future. But the real challenge for green stimulus starts now, and these investments already should prove to be a marker: if we can pump $33bn into the airline industry, but we can’t do this for energy efficiency, then our priorities here are seriously out of whack.

Another excellent outlet for climate-related journalism is Carbon Brief, and they have launched a “tracker” which is going to keep track of all of the green stimulus plans that are being enacted or announced by governments as part of the COVID recovery.

So what have they found so far?

Globally, government stimuli had already reached “$15tn and counting” by early May, according to Reuters. In early June, Bloomberg put the total at $12tn, of which it said less than 0.2% had been targeted towards climate priorities. So far, with the focus on preservign

Of the countries that have announced policies, we see South Korea has announced a “green, digital” new deal which will invest around $10bn by 2022. This includes a proposed $4.5bn for solar, wind, and hydrogen infrastructure and research and smart grids, and a proposed $4.8bn for buildings that will — starting with government-owned buildings — invest in energy efficiency and green replacements for heating and air conditioning.

The European Union also has proposals to do similar — $3bn would go to public transport, $17bn to agriculture, and a $37bn just transition fund that would hope to help workers move into low-carbon jobs.

And, perhaps predictably, Germany has the most comprehensive stimulus package of all.
According to Carbon Brief:

“In early June, the coalition government of Germany agreed to a stimulus package worth €130bn ($146bn).

The package is divided into three pillars, one of which is called “invest in a future-friendly Germany” and is allocated €50bn ($56bn), or some 38% of the total. This pillar has a strong — but not exclusive — focus on the “energy transition” and “sustainable mobility”.

One notable feature is a major €9bn package of support for the development of hydrogen, particularly renewable hydrogen. The German research ministry says “green hydrogen” made from renewable energy is “tomorrow’s oil” and will be “indispensable for the energy transition”.

Despite lobbying by some states and industry, the package only includes extra subsidies for hybrid and electric vehicles. (This extends an existing scheme, under which most support so far has gone to hybrids, which cut CO2 emissions far less than EVs). Since petrol and diesel cars are excluded, some have called combustion engines the “big loser” of the agreement.

Bloomberg called the package “the world’s greenest stimulus plan” and said 30% of spending would go to “activities that will cut emissions”.”

So it’s good to see that, at least in Merkel, there is a world leader with the vision to do what’s necessary and do so rapidly. Hopefully other world leaders follow suit and get the message, although I’m not exactly holding my breath when I look at some of the people who are in charge.

Now, that isn’t to say that I expect everyone to suddenly go all-in on fossil fuels. Particularly in the West, fossil-fuelled expansion in the power sector is dead. A recent analysis of US power plant developments suggested that there are 50GW of renewable power plants that are “almost certain” to open in the next few years — and just 2GW of fossil fuel power plants that can say the same.

It would be foolish beyond belief to prop up these dying industries for another 2–3 years, only for them to eventually fail anyway. Instead of wasting that money, and wasting the time of the employees in these industries, they could be retraining and doing work that’s both economically productive, more stable long-term in terms of employment, and better for the environment and the climate. We know what we need to do; all that’s needed is the vision to do this and the will to make it happen.

But what I am afraid of is that old, parochial attitudes — that solving climate change is simply too expensive, or shouldn’t be a priority, or somehow detracts from economic growth, or simply is a distraction… or, worse, some politicised idea that this is somehow a left-wing issue that will “waste tax dollars” — is going to prevail. The reality is that even if your main concern is economic growth, renewables, energy efficiency, electric vehicles — these are going to be the growth industries, where the efficiency and innovation is happening. Throwing away your lead in these things out of some pigheaded adherence to a culture war is mad — and something that the US has already done way too much of, frankly.

The US has chosen to prop up an unprofitable shale gas industry as its way of getting “energy independence.” Even oil industry analysts suggest that this is the case. One of the things I make a point of doing is reading very widely. I have a number of sources I check in on that I know I’ll disagree with — people who hold political views that are different from mine. One such blog has reliably published energy industry analysis about what they describe as the shortcomings of renewables and the continued need for fossil fuels for the last decade or so. Even this blog, which is generally extremely pro-fossil fuels, had to concede that:

“Since drilling and producing from shale is expensive, it is dependent upon high price to succeed. But over-production of oil has led to the price collapse, starving the shale drilling industry of cash flow and ability to borrow, leading to widespread bankruptcy. In fact informed commentators like Art Berman and Rune Likvern have long maintained that the shale industry has never turned a profit and has survived via a rising mountain of never ending debt. Economists will argue, however, that improved technology and efficiency will reduce costs and make shale competitive with other sources of oil and energy. We shall see.”

That was in 2015. Five years later, has the picture changed? No. This is from OilPrice.com

“Despite the hype of lower breakeven prices, and despite the hype around longer laterals, energy digitalization, and other technological breakthroughs, most shale companies are still not profitable.

In fact, roughly 9 out of every 10 U.S. shale companies are burning cash, according to Rystad Energy. The Oslo-based consultancy studied 40 U.S. shale companies and found that only 4 of them had positive cash flow in the first quarter of 2019. In fact, the number of companies with positive cash flow was lower than it was previously, and total cash flow from the group fell from $14 billion in the fourth quarter to just $9.9 billion in the first.

“The gap between capex and [cash flow from operating activities] has reached a staggering $4.7 billion. This implies tremendous overspend, the likes of which have not been seen since the third quarter of 2017,” Alisa Lukash, Senior Analyst on Rystad Energy’s North American Shale team, said in a press release.

U.S. shale drillers have historically loaded up on debt in order to continue to finance their cash burn. But investors have soured on the sector, finally waking up to the fact that shale drillers by and large are money losers. Investors are fed up and are “leaving no room for undisciplined spending in 2019.””

And all this is pre-COVID. The point being that increasingly the fossil fuel industry is unprofitable compared to the alternatives even before you price in the immense damage that burning these fossil fuels is doing to the environment. So while the US is needlessly propping up a dying, polluting industry — doing no service at all to the workers who will still be out of a job in five years and throwing money into a black hole — what is China doing? China is cornering the world’s markets on lithium, the fuel of the future. In the first half of 2019, China exported more solar panels than in the entirety of 2018 — and this in the midst of a trade war in the US which slapped such heavy tariffs on China’s solar panels that only 0.1% of China’s exports were to the US, in terms of solar panels. In other words, China has one eye firmly on markets of the future, albeit still while burning a hell of a lot of fossil fuels in the present.

This, of course, illustrates part of the issue with these green stimulus packages; countries that have lagged behind in producing renewable energy are potentially going to struggle to find domestic industries that they can finance; this may be a particular bar for the UK, given our pathological desire to cut off trading relations with most of the rest of the world and our eviscerated manufacturing sector. But this should be no excuse when it comes to measures like energy efficiency, which can principally be done domestically.

One thing that is noticeable about the short-term policy response to COVID-19 has been that the central banks have doubled down on an old policy that has been in place since the 2008 crisis — Quantitative Easing. Now I’m actually further diversifying the stuff that we talk about on this show and I will be interviewing a couple of economists and social sciences in the coming weeks where we will discuss QE in more detail, so I don’t want to tread on that conversation too much here, but I will briefly explain why I think this is relevant.

In Quantitative Easing, the Central Banks — the Bank of England in the UK, and the Fed in the US — essentially “print money” to buy government and corporate bonds from banks. In other words, they take on the debt from these corporations and the government and exchange them for cash. The idea here is to inject liquidity (cash) into the markets, so that banks are keener to lend money, preventing a financial crisis where no one will lend to each other, which would send the entire stack of cards that is the global economy toppling to the ground.

Although some credit QE with averting an even worse crisis in 2008, there are also plenty that would criticise it. One of the major criticisms has been that when the central banks buy corporate bonds, the companies focus on using the money to buy back their own shares, rather than the intention (which is that they would continue to employ more people.) The result is that the money injected into the economy inflates assets and stock prices. Good for people who own stocks — terrible for people who don’t; and so QE exacerbates inequality in society. Since stocks are disproportionately owned by wealthy people, policies that inflate asset prices like this disproportionately benefit the wealthy. And even the Bank of England, who committed to large amounts of QE previously, have admitted that the effects of this policy have not been very progressive, and that it has resulted in more wealth collecting at the top.

Yet despite this, central banks have embarked on greater QE programmes than ever before. In the UK, the initial response to the 2009 crisis was to buy £200bn of bonds. That was later boosted to £435bn in light of Brexit. In March 2020, responding to COVID-19, £190bn of bonds were bought, and in June 2020 another £100bn of bonds were bought, adding to the bank’s balance sheet. The Federal Reserve in the US has bought approximately $3trn worth of bonds and assets in the response to coronavirus alone. The argument is that this isn’t really “printing money” and giving it to these companies so much as it is creating money as banks conventionally do when they create loans. This is sort of true in the sense that the central bank owns the bonds, which they can then theoretically sell back, and from which they draw a dividend. But in actual fact, since these central banks hardly ever decrease their balance sheets — the Fed’s balance sheet has hardly ever gone down since the crisis — it’s the sort of loan that you don’t need to pay back particularly stringently. I would like someone to loan me $3trn on these kind of generous terms.


So this policy relates to things that we’ve talked about on this show in two ways. Firstly, we know that it’s a policy that exacerbates inequality — and we have discussed in our series on technology, inequality, and catastrophic risks that all of the driving trends in society are pushing towards worsening inequality, and discussing some of the potential consequences of this. In light of that, and the other disproportionate impacts of the COVID-19 crisis, it’s crucial that we ensure that these policies don’t go unchallenged. And, if as its advocates would insist, all this QE is necessary to prevent some “even worse” collapse (for whom? After all, we have millions unemployed) then we need redistributive policies to cancel out its effects in disproportionately benefiting the wealthy.

And secondly, we know that the Bank of England has had to do an internal review into its bond holdings in terms of how they impact climate change. For the first time ever, this climate-related financial disclosure has been published — and what does it show? It shows that — if every corporation and entity behaved as the bonds bought by the Bank of England does, we would be on track for 3.5C of warming by the end of the century — blowing through the Paris Agreement goals of 1.5C and 2C and heading into, frankly, a really dangerous level of climate change.

The Bank do attempt to defend themselves by pointing out that “the broader economy” is not on track to reach 2C, and so if you invest in a wide spread of different companies, you’ll inevitably end up smashing through the Paris Agreement because so few companies are actually acting in compliance with it. This may be true, but it feels like an excuse — why not preferentially extend bond-buying to the companies that are doing well, or make your bond-buying contingent on promises to use part of that money to enact policies that will reduce emissions? How can the central bank claim to be acting towards the Paris Agreement when it’s lending billions to prop up companies that will result in 3.5C of warming?

In short, looking at this whole situation, there are essentially central banks that are pumping vast amounts of money into the economy in a way that inflates assets disproportionately benefits the wealthiest in society and has no regard to the possible impacts in supporting polluting companies and industries that jeapordise the future for all of us, and we’re all told that this policy can’t be questioned at all. We see bizarre things going on where the stock market is totally divorced from the actual goings-on in the economy — climbing rapidly even as unemployment rises precipitously and every other sign is that we’re headed for a major recession/depression — and, since the markets are all about the sentiment of the people who invest in them, you have to wonder if many of them aren’t just assuming that their interests are going to be protected, no matter what the cost is.

Without wanting to belabour the point too much, this is the real tragedy of an economic depression. There are going to be millions of people who are out of work and who want to work; there is no shortage of useful work to be done; but because our world is optimised for making profits, and not for achieving useful things, we may well end up with so much wasted potential at a time that is really crucial for the history of our species. And it is just another example of where trying to optimise for a single, simplistic goal misses out on so much detail, creates so many perverse incentives, and leads to so many unintended and self-defeating consequences.




In an earlier episode of this show, on the psychology of existential risks, we talked about the risks of “millennialist” thinking — an ideal that all that was required is for the existing system to be toppled and destroyed, and that destruction is almost an act of purification, and a new and better system will arise in its place, out of the ashes of the previous one.

This is certainly a tempting way to think, a lot of the time. There’s a reason why similar thinking has enraptured so many groups throughout history, from the evangelicals who believe in the Rapture, and the Marxist revolutionaries who overthrew governments in the 20th century.

And it’s certainly true that periods of great upheaval can often lead to changes that are unimaginable in ordinary times, creating urgency, shifting the boundaries of what is normal, conceivable, and possible, loosening the grip of the old masters on legitimacy, power, and authority. And the changes that result can be good and beneficial. But this simplistic picture misses out that it’s not enough for something to simply send the old system crumbling to the ground. The hard work — the difficult, challenging, complicated work — the landing that you have to stick — is creating the system that replaces the old one, and ensuring that it is better. If we want this millennialist vision to be true — if we want there to be some silver lining from this crisis, and for COVID-19 to indeed be a catalyst for us to resolve some of the problems that we have been incapable or unwilling to deal with before — then we our hard work starts now.

Thank you for listening to this episode of Physical Attraction.
Until next time, then, take care.