2020 was envisioned as the year of climate action – the year when the gap to meeting the Paris goals was closed. Countries were due to come forward with new, more ambitious national plans ahead of the 2020 UN Climate Change Conference, also known as COP26, which was scheduled to take place in November in Glasgow.
In light of the current pandemic, COP26 has been postponed with no alternative date fixed yet, but we expect it to be held mid next year. A delay is never good news but there is a positive side to it: there is a chance to rebuild political momentum, some of which was challenged even before the pandemic. More preparations can be made ahead of that meeting. One critical decision point between now and then is the US elections due to take place in November; the dynamics of the climate negotiation will be very different depending on the outcome of those elections. But regardless of who becomes the next US president, the strategy remains the same as it did pre-pandemic: bottom-up pressure to break through the political deadlock. This means actions by sub-nationals, corporates, investors, and the public to create a ground swell of action in order to set the stage for a successful COP meeting.
Collapsing GDP will hit all types of energy investment; will the recovery be green?
The dramatic declines in energy demand growth are inevitably impacting on investments in new energy infrastructure, as company revenues decline, and new projects no longer look viable given dropping prices. The impact on energy infrastructure spending across the board will be very significant. There are certainly some significant short-term headwinds to renewable energy – supply chain interruptions, delays to construction and some projects failing to meet deadlines for incentive plans. But the impact on investment in new oil projects is likely to be even more dramatic – with the International Energy Agency predicting a one-third drop in exploration and production capital expenditure in 2020 compared with 2019.
The key question is what happens next in a post-pandemic world. There are increasing calls for a ‘green stimulus’ when we emerge from this crisis and governments begin to reflate economies. However, we’re seeing a sharp divide between agendas in the EU, where both the European Commission and political leaders have been strongly supporting this idea, and other nations such as the US, where the focus is on bailout of the oil & gas sector looks more likely. There may also be ‘green strings’ attached to corporate bailouts in heavy-emitting industries such as airlines, but again this is looking more likely in Europe than in the rest of the world.