Coronavirus may slow long-term climate action

A short-term reduction in greenhouse gas (GHG) emissions as a consequence of measures aimed at limiting the spread of the coronavirus could threaten the success of longer-term climate action policies, while a subsequent drop in the value of European emissions allowances could spur the need for structural market changes over the coming years.

Global industrial and aviation sector activity has dropped dramatically in recent weeks, as efforts to stem the spread of the virus have prompted measures to restrict international travel and domestic movement.

But while this will cut GHG emissions in Europe and globally in the short term, it may have a damaging effect on longer-term progress in climate change mitigation, deputy director of the economics of sustainability programme at Oxford University's Institute for New Economic Thinking, Dr Linus Mattauch, told Argus .

Emissions are projected to continue to rise globally over the coming years as governments struggle to bring down industrial and transport sector output, and the delays caused by the coronavirus outbreak to implementing the decarbonisation policies required may increase the size of the challenge further, Mattauch said.

"Once the economy recovers, unless more climate action is taken, emissions will continue to rise globally. After recovery from the current crisis we will still be facing the same policy challenges for meeting our climate targets, but there is real danger that more climate action might be delayed," he said.

Mattauch pointed to discussions taking place in the EU on the possibility of linking financial relief packages — designed to alleviate the effects of the coronavirus pandemic on member states' economies — to parts of the bloc's "green deal", and encouraged leaders to press ahead with this.

The EU's green deal was presented by the European Commission late last year, and is centred around the aim to completely decarbonise the bloc's economy by 2050 at the latest. But with political policy making having virtually ground to a halt, it appears likely that the policies required to deliver this aim may be brought forward later than planned.

The coronavirus struck Europe at a time when climate change mitigation had become a key priority for member state governments across the EU following public protests in the wake of the publication of findings by the Intergovernmental Panel on Climate Change that showed the world was headed towards a temperature rise from pre-industrial levels of well above the 2˚C maximum required to avoid the most disastrous impacts of global warming.

And although supporting the European economy will be the EU's immediate priority in the post-coronavirus period, the European Council has called for assurances that climate action will remain firmly on the agenda. "The urgency is presently on fighting the coronavirus pandemic and its immediate consequences. We should however start to prepare the measures necessary to get back to a normal functioning of our societies and economies and to sustainable growth, integrating inter alia the green transition," council members said in a joint statement last week.

EU ETS impact Lower emissions have led to a drop in demand for carbon allowances under the EU emissions trading system (ETS), which combined with the effect of speculators closing out positions in the market saw carbon prices shed more than a quarter of their value in the space of a week earlier this month.

Although the market has recovered some value in recent days, it remains on track to record its steepest month-on-month decline in more than a decade and the losses have wiped out a sizeable chunk of the record gains that have been made over the past two years.

Prices rallied over an 18-month period beginning in early 2018 and peaked in July last year when front-year delivery allowances traded at prices close to €30/t of CO2 equivalent (CO2e), as the EU launched a so-called market stability reserve (MSR) mechanism aimed at removing excess supplies from the market. The scheme is currently due to absorb just under a quarter of surplus allowances until 2023, but is planned to be reviewed next year. And recent price losses may force the EU to consider adjustments unless the market recovers over the next year.

"It will be interesting to see whether the MSR will mitigate this to an extent in the coming months," Mattauch said. "If not, this could impact the outcome of its first review in 2021."

By Victoria Hatherick

EU ETS price in phase three trading period €/t CO2e

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