One of the few unexpected, if short-term, impacts of the current COVID-19 crisis is a reduction in carbon emissions. The rapid shutdown of economies and transport across many countries throughout the globe has resulted in an unexpected drop in fossil fuel use and resulting emissions. A study by Carbon Brief, estimates that China’s carbon emissions dropped by around 25% over a four-week period at the beginning of the year. Meanwhile, in Europe, figures from Sia Partners cited by the Financial Times (subscription needed) indicate that daily carbon dioxide emissions have reduced by 58% across the EU since the introduction of so-called coronavirus “lockdowns”.
The extent to which these reductions will have a lasting impact on emission volumes depends upon the extent to which manufacturing and production could speed up to make up for periods of lost output, and the extent to which there is a demand for a speeding up of production. If world economies enter a period of recession, reduced wages and economic damage as a result of the lockdown period could result in reduced demand for goods and services for a period after the easing of measures.
Opportunities for the future?
Much also depends upon the actions of governments after the pandemic. Economic stimulus packages which focus on fossil fuel-intensive industries could result in high emission volumes, outweighing the benefit of the short-term reduction. There is also the possibility that governments continue to be consumed by efforts to focus on recovery from the pandemic at the expense of climate change initiatives which were beginning to gain traction.
On the other hand, the article by Carbon Brief points out that targeting clean energy and energy-efficient investments could be a positive solution to marry the need to encourage economic growth with government spending and continue to work on climate change targets. The sectors in which and the type of spending governments engage in could therefore be important in determining the extent to which progress on climate change is damaged by priorities created by the current crisis.
The coronavirus pandemic certainly demonstrates the ability of societies and government to rapidly adapt to monumental changes in lifestyle and behaviours in times of crisis. As discussed in an FT article, “How coronavirus stalled climate change momentum”, values are starting to shift, with the possibility that some behavioural changes could last long after coronavirus. Some changes in behaviour which have arisen through necessity could have longer-term beneficial impacts; for example, increased use and acceptability of virtual meetings could help contribute to longer-term reductions in air and other forms of travel, should fewer face-to-face meetings and conferences take place. Such acceleration of digitalisation across workplaces and socialisation will certainly have benefits from a climate change perspective, although admittedly from a wider risk view will bring new (primarily cyber related) risks.
With COVID-19 likely dominating the current and ongoing agendas of risk managers, risks such as climate change may become lower priority in the short term. However, lessons can be learnt from the current crisis which might well be relevant to management of other risks such as climate change.
As an example, the current crisis highlights the importance of health systems in determining the severity of the outcome. As highlighted in a World Economic Forum article, “A first lesson we are drawing from the COVID-19 pandemic and how it relates to climate change is that well-resourced, equitable health systems with a strong and supported health workforce are essential to protect us from health security threats, including climate change.” Although an external factor, the strength and operational resilience of health systems could be a key determinant of the extent to which life insurers suffer increased mortality rates as the physical risks of climate change begin to crystallise. The importance of understanding interrelated external factors, which determine the severity, timing and nature of the onset of risks such as climate change, is therefore an important benefit to firms approaching management of these risks.
Finally, we should not ignore the possibility of a significant climate event that rapidly and unexpectedly raises global temperatures and destabilises weather patterns; in such circumstance there will almost certainly be no short-term or even medium-term remedy. This might be considerably more unlikely than the onset of a global pandemic such as COVID-19, but nonetheless the possibility should not be ignored. Indeed, today’s crisis and the unprecedented mitigating responses from governments have demonstrated to firms the need to be agile in their decision making. Properly thought through plans are key to enable firms to adapt or transition their operating models at short notice, whilst the length of the lockdown also suggests firms need to bear in mind that operational stress scenarios can last much longer than typical business continuity plans (BCPs) allow for.