Why covid-19 is a chance to propel transition to a more sustainable world

The outbreak of covid-19 poses a 'unique test' for governments in pursuing their environmental objectives

There is an opportunity for governments and corporates in the current global health crisis to advance their adoptions of more ecological and environmentally beneficial practices, according to a research note from DBRS Morningstar

Jason Graffam, vice president, and Nichola James, managing director, at the global credit ratings business said the outbreak of covid-19 poses a “unique test” for governments in pursuing their environmental objectives who have the chance to adjust many societal habits in terms of travel and remote working.

Although the note acknowledges the rapid spread of the virus resulting in a sharp reduction in global travel and industrial production comes at a “huge economic cost”, the pair also highlighted that even less clear is how the crisis will affect the environment over time.

See also > Coronavirus is a crisis; climate change is a catastrophe

“It is unclear whether the high fiscal and economic costs of covid-19 will limit progress or otherwise distract from transitions to clean energy and other environmental policies,” the note said.

“Nonetheless, the expected recovery will present a chance for governments to advance their ecological transition and thus reduce long-term risks associated with climate change to government balance sheets and to society at large.”

Environmental relief

There has been widespread coverage of the large decline in pollution in many nations with pictures of decreased smog across cities and NASA satellite images with country outlines much visibly clearer.

DBRS Morningstar’s Graffam and James said global airline traffic declined by 14% year-on-year in February 2020, and the decline in March will likely be shown to be steeper, when data is available. In China, policies to contain the virus caused a drop in emissions of roughly 25% in February compared to the same period in 2019, according to the Centre for Research on Energy and Clean Air.

Global Airline Passenger Traffic (% year-over-year)

Source: IATA Passenger Traffic Report, DBRS Morningstar. (RPK) Revenue Passenger Kilometre is a measure of passenger traffic.

Additionally, the decline in oil and steel production and the slowing of coal-fired power stations led to an emissions decline equivalent to 200 million tonnes of carbon dioxide and the beginning of the curfew in India in March resulted in the lowest recorded one-day traffic pollution levels. 

The pair wrote: “The transport sector is a large contributor to Greenhouse Gas (GHG) and airplanes are grounded, automobiles are parked, and mass public transit has slowed. Much of the smog has lifted in cities from Los Angeles to Delhi to Beijing. The Venice canal is once again running clear.”

Furthermore, emissions declines are expected to be considerable in Europe in 2020 with the pair highlighting the Copernicus Atmosphere Monitoring Service confirmed a reduction of the pollutant nitrogen dioxide in Northern Italy by 10% per week from the end of January 2020 through mid-March 2020. Scenario analysis by the Independent Commodity Intelligence Services (ICIS) estimates an emissions drop of 24.4% for the year 2020, or 388.8 million tonnes of carbon dioxide when combining less power and industry sector energy consumption in Europe.

However, Graffam and James pointed out the reduction in emissions may only be temporary.

“The current reduction of hydrocarbon emissions may be only temporary and in no way resolves risks to countries associated with climate change. The imperative to reopen factories and to reduce unemployment will obviously take precedence over curbing the associated rebound in energy use.

Emission levels in China have already begun to rise again, as lockdown measures there have eased and economic activity returned. Furthermore, the collapse of oil prices decreases policy and financial sector incentives to move away from dirty forms of energy. Countries will most likely return to previous habits around energy use, as policy makers strive to return economies to normality following the severe health and economic shock.”

They hope, however, some of the changes enforced by country lockdowns will be long lasting.

“Still, there may be some beneficial changes at the margins with the change in behaviour. The use of video and teleconferences will result in less commuting, as remote work options becomes more viable and attractive for workers and their employers. As further evidence emerges regarding the impact of this short-lived reduction, it may through demonstration effects highlight the potential benefits of a more sustainable transition to clean energy,” the note said.

Nonetheless, governments need to take further action especially as thus far global initiatives to slow the rate of GHG emissions have “underwhelmed relative to goals” leaving many countries exposed to the risks associated with global warming.

Not only will there be environmental benefits if some of this behaviour is carried forward, Graffam and James said there will be economical advantages too.

“To be clear, government action – or inaction – around environmental policy is unlikely to immediately place upward or downward pressure on DBRS Morningstar’s sovereign credit ratings.

“Nevertheless, the benefits to government credit fundamentals from environmental policy emerge over the longer-term and to the extent that they are coordinated or adopted globally. If delivered effectively, the ecological transition can improve the productive capacity of a country’s economy, improve the overall size and health of the labour force, and strengthen relations with other governments – all credit positive features.”


Natalie Kenway

Natalie is editor in chief at MA Financial covering ESG Clarity, Portfolio Adviser and International Adviser. She was previously global head of ESG insight for ESG Clarity and has been an investment journalist...