With the world combating COVID-19, we asked strategic minds from the renewable energy industry how this struggle might impact the green transition. The answer was clear: let us stop bailing out the past and invest in our future.
In early 2020, the world was in an unprecedented climate crisis mode. After decades of scientists struggling to be heard, public awareness of global warming had finally reached a critical momentum. Headlines, political agendas, and street talk – there was an overwhelming amount of discourse on what to do about rising temperatures. Even in the homeland of the petrodollar, six in ten Americans were “alarmed” or “concerned” about global warming. In Europe, actions were being taken – or at least announced. Denmark reclaimed the role as global frontrunner against climate change, the UK passed Net Zero, the Netherlands impressed the international community with a very progressive climate agenda, Germany introduced the Climate Action Programme 2030, and the European Commission introduced the Green Deal. On 15th January 2020 – 16 days after the discovery of a new virus was made public – the World Economic Forum published the Global Risk Report 2020 with the five most likely risks to be all climate-change related. To be fair, global pandemics made it into the top-20.
From one day to another, COVID-19 popped up on our screens and replaced Greta, melting ice-caps, and polluted city skies. Was climate change suddenly gone? Had the rise in temperature simply taken a break while humankind turned towards tackling another urgent and severe global threat? Why would it?
The Northern hemisphere experienced the second warmest winter on record. The locust plague across East Africa and the Middle East appears to be linked to rising temperatures. As renewable energy enthusiasts, we at GreenEarthAnalytics know that the world community must quickly resume efforts against global warming – regardless of COVID-19. Germany’s announcement of a €9 billion hydrogen strategy, Denmark’s climate action plan, and the most recent 2bn EU deal with focus on climate protection give us hope. Yet, what impact will the pandemic have on the green transition across the world?
With this key question on our mind, we invited eleven high-level thought leaders in renewable energy to participate in a qualitative study. Our group of interviewees included top-managers, energy strategists, and professors from universities, cleantech firms, energy producers and traders, and VC companies – all from Europe and the US. The talks were semi-structured and carried out via video-conferencing solutions. On average, each session lasted 60 minutes.
Our takeaways in a nutshell
- The Corona crisis can be seen as a test run for the fight against global warming.
- The crisis as an opportunity: Now is the time for a rigurous green transition of our energy system.
- As one venture capitalist put it: We might – once again – bail out our past.
- Potential winners: The green economy. E-fuels. Digital. The EU and China.
A new global consciousness
Most of our respondents assume that wider awareness of the corona crisis could cause people to listen more to warning signs, scientists and other experts. A more fact-driven world could finally move the discourse on global warming out of the ideological corner and from the “if” to the “what to do”. Furthermore, respondents believe the corona crisis has the potential to teach the world community that global threats require global responses. Yes, both these effects are fear-driven which we typically reject as the ideal form of development. But in 2200, historians might claim that we had to learn it the hard way that the fight against global warming is about our survival.
More resilience for local energy systems
The pandemic has revealed weaknesses in our globalized economy. Breakdowns of international supply chains and the sudden unreliability of the international division of labour have shocked our economies. After decades of unquestioned faith in cross-border interdependencies, local value chains might be on the rise again. Our respondents are confident that such a shift will also include the energy industry: Decentral energy generation and maybe even local manufacturing of energy technology might soon be on the winning side. In short: great news for green energy. As it is mentioned later in this article, decision-makers can now develop actionable and sensible measures that make our energy systems resilient to future global threats. And renewable energy is a great way to achieve this.
High season for change
Typically, critics of the fight against global warming not only doubt the causal linkage between human action and climate change but also question the impact of human action against climate change. COVID-19 has shown us great misery across the world. However, the crisis also produced clear skies above Beijing and Northern Italy. Even the 2020 climate targets are suddenly within reach. And as a surprise to many, democratic leaders are finally able to prove their ability to take drastic action during times of threats. In these side-effects, respondents see momentum for a potentially radical shift towards a sustainable and resilient energy economy. Especially now, as economies have to overcome a serious recession and big stimulus packages are in preparation: why not directing public money towards climate-friendly action instead of investing in areas that keep us back?
A unique opportunity for Europe
According to a recent Agora study, a staggering amount of €2.4 trillion are required to meet the EU’s climate goals. The most recent deal struck by EU leaders falls a long way short: Only a maximum of €595 billion of the combined recovery deal and seven-year EU budget is – in theory – reserved for “climate mainstreaming”. The share of dedicated EU green investments over 2021-2027 boils down to no more than a meagre €80 billion – 3% of the Agora figures. In short: Europe should do way better.
We at GreenEarthAnalytics remain afraid of the world running out of time to fight global warming. Having said so, we view the agreement as an important step in the right direction. Uniting all EU member states is key. Our respondents go even further: They see the combined fight against the recession and climate change to carry the potential to create more unity among member states and help form a new European identity which might even contribute to stabilizing the EU in the long run.
China: set to be the big winner?
China’s quick and focussed response to the COVID-19 outbreak gives the country an economic head start compared to the western world. However, it is more than the current developments that make China a likely winner in the global competition. It is the country’s general resilience resulting from decisive and long-term actions. As one respondent put it: “Most global challenges are of technical and/or technological nature”. And China has a response to this: Investment in education. With a stunning 4.7m STEM graduates (science, technology, engineering, mathematics) in 2016 alone, China outruns the global competition. Continuously heavy investments into renewable energy production appear the country is on a great track. However, the country produces also highly concerning figures. According to Global Energy Monitor, heavy development activities in the Chinese coal sector put the entire global emission reduction efforts into severe jeopardy. But in the end, China has taken the global lead in renewable energy production and while US American policymakers are still reluctant to acknowledge human-caused climate change, our respondent sees China emerge as a true champion in the green economy. COVID-19 might just reinforce this as China is gaining a reputation as an investor in the country’s future – and not the past.
Digital in combination with renewable
In the world with or after COVID-19, business models that circumvent restrictions to time and place are likely to be even bigger winners than today. The experienced lockdown has turned this independency into an even more important factor. As a consequence, venture capitalists are searching for investment targets that offer a combination of digital and renewable features. Remote access to renewable energy production, digital platforms, and other resulting business models are expected to make our energy systems more robust.
E-fuels – on a winning road?
The combination of renewable electricity production and the rigorous electrification of as many applications as possible will be the key enabler for our energy systems to become CO2-neutral. There are two buts: 1. Electrification is not going to be sufficient as there are various applications where electricity is not likely to work. 2. It is going to be very costly. E-fuels – most prominently green hydrogen – are expected to mitigate curtailment needs and fill the missing gaps where electrification is no option. As a result of COVID-19 and the ongoing economic hardship across the globe, budgets are tight. For this reason, respondents put great hope in e-fuels that require limited investment in storage, distribution and end-use applications. For instance, e-methane, e-methanol e-kerosene, or e-diesel are powerful e-fuels that can be stored, traded, transported, and consumed with existing infrastructure. From an investment perspective, they represent low hanging fruits to create quick effects on our climate balance.
Conclusion and outlook
Will the fight against global warming benefit or be weakened by the pandemic? For the time being, our respondents share our cautious optimism. The world appears to be at a turning point at which we have the opportunity to take decisive action to overcome the biggest challenge our human habitat has yet to face. Covid-19 gives us the opportunity to learn what is to be done. Collaboration across borders, investments into the future, and more focus on digital appear to us as trivial statements, yet they might turn out more relevant than ever.
There are many other insights from our study that still need to be covered. Also, we are living in dynamic times and are facing extreme difficulty to predict even the nearest future. For this reason, this first blog entry will be followed up by a small series of articles providing details on other findings and new developments regarding COVID-19 and the fight against climate change.
Authors: Sebastian Karban, Dr. Henning Pruess