COVID-19 and Climate Change

COVID-19 and extended lockdowns in many countries around the world have blurred the boundaries that differentiate financial and environmental initiatives.

This pandemic presents a great opportunity to rise above the virus and reverse the damage we have collectively done to our surroundings.

COVID-19 has claimed the lives of more than half a million people around the globe. Many more millions have been infected and yet, the spread of the virus shows no sign of slowing down. Nobody stands to gain from such a scenario of global proportions that has brought numerous economies, even those of developed nations with well seasoned public healthcare infrastructures, to an almost perpetual standstill. But having said that, there couldn’t be a more opportune moment than the present situation for enterprises to go back to the drawing board and revisit their operational models in a bid to turn back the clock on climate change.

Prior to the outbreak of the coronavirus, numerous individuals who strongly advocated a greater commitment to putting the breaks on climate change were quite pessimistic about the possibility of restricting global warming to between 1.5 and 2 degrees Celsius in excess of pre-industrial levels – the target mutually agreed upon and established by various nations at the Paris climate convention. Considering the world’s production levels before we went into lockdown, a rise in global temperatures of 3 to 4 degrees Celsius seemed inevitable.

The consequences of such a rise in temperature are a lot more complicated than meets the eye. For starters, it would wipe out most of the world’s coral reefs and rain forests. Extreme heat would make living conditions nearly impossible in places with high population densities. There would be widespread food shortages owing to droughts and famines. Many would go hungry.

COVID-19 and Carbon Emissions

Such catastrophic conditions owing to rising global temperatures can be averted. Environmentalists and weather experts are witnessing a drastic reduction in global carbon dioxide emissions owing to extended lockdowns. The skies are clearer, the air cleaner, and more and more people are taking to walking and cycling.

The significant drops in carbon emissions have once again raised the hopes of many in achieving the target established at the Paris climate change and thereby (i) protect our flora and fauna, (ii) safeguard the interests of working class laborers who otherwise would be forced to migrate, (iii) slow down the rise in sea levels and the Arctic ice caps from melting.

While this COVID-19 crisis has gifted a welcome lifeline to those committed to protecting the climate and businesses are reevaluating cleaner sources of energy, it is highly impractical to extend the current lockdown situation indefinitely. Millions of people have lost their jobs. Unless economies revive quickly, the occupation of many more would be unnecessarily threatened while exposing the underprivileged classes to a precarious existence.

The nations of the world would do themselves and humanity in general a good turn by coupling these twin needs of (i) making large investments to bring down carbon emissions and (ii) creating more jobs to reduce unemployment.

To meet these objectives, countries like the USA and the UK can generate funds through long-term government bonds that mature over a century or half a century and take advantage of the negative interest rates on government debt that are presently available. And since deflation poses a greater threat than inflation right now, creating funds through government bonds could also protect economies from another financial crisis.

There might be some resistance to such a strategy that would make our future generations liable to pay back these loans. But long term public debt is not an irrelevant option, given the global scale of this virus. For instance, the UK settled its last outstanding dues pertaining to the first world war only about six years ago. And the per capita wealth per UK citizen today has seen a five fold increase over the last century since the first world war. So we can safely expect future generations to not be financially burdened on the assumption that economies will  continue to develop during this century.

Environmental activists have in the past tried to garner the attention of world leaders to address climate change. But the time has come to look at its financial implications as well.

Combating climate change requires heavy financial backing to support R&D efforts in order to develop cleaner energy sources such as solar and wind power as well as make them commercially viable and scalable so that industries are increasingly less dependent on fossil fuels for their energy requirements.

Simultaneously, the use of liquid fuels such as ammonia and synthetic hydrocarbons must be given more preference than even electric power so that shipping, aviation, steel production and similar operations can reduce their carbon footprint. Another crucial factor will be the extent to which the use of future nuclear technologies such as advanced modular reactors can be leveraged.

Such ambitious initiatives tend to stretch over extended periods of time due to their scale and infrastructural needs. Fossil fuels can’t be replaced if cleaner technologies can’t be made economical and affordable for all. Governments have the advantage of taking loans at interest rates that are lower than those offered to the private sector. And the employment created from these investments would offset the loss of jobs in environmentally harmful sectors and in turn accelerate commercial activity on a global scale in a post COVID-19 world.

Developed economies such as the UK have already started funding such initiatives to reverse climatic and environmental deterioration through government issued bonds. And they still have the resources to make a greater financial commitment. Pension funds also stand to benefit from such long term bonds.

Conclusion

It would be unreasonable to expect governments to commit to transitioning to cleaner energy sources at the expense of short term economic goals. Minimizing expenditure has always been a hurdle in this regard. But it can be overcome, as was the case with solar power, through extensive R&D exercises and proactive adoption ahead of time.

But all said and done, there is no denying the fact that economies around the world stand to benefit immensely from the current pandemic if they use it as a reason to speed up migrations to climate friendly operational models.