Abstract climate change ends with pandemic

The COVID-19 pandemic has caused the most abrupt stop in the private sector for at least a century. 

" The world knew, in a sense, this was coming. COVID-19 is Disease X.” 

Even with the largest economic policy response in history, the net effect is the deepest global downturn since the Great Depression.

On 1 March 2020 there were less than 10,000 COVID-19 cases outside China. But there were already enough data points to suggest there could be around 1 million global cases by the end of March.

At the time, very few appreciated how the combination of a highly infectious disease and a globalised world with between 150,000 and 200,000 airline flights each day could intersect to create a pandemic at exponential speed.

This failure of perspective is all the more unpardonable because the world knew, in a sense, this was coming. COVID-19 is Disease X.

But more broadly understood, this crisis is also a time-lapse version of the climate crisis.

Forecast accuracy

The last 12 months have seen a number of weather records broken:

• Antarctica’s highest monthly average temperature;
• the hottest and driest year in Australia;
• the hottest day in the UK; and
• the wettest year for parts of the US.

Yet none of those watershed events has demonstrated, in quite the stark terms of COVID-19, our reliance on a relatively stable natural environment.

Of course there have been admonitions for quite some time, from many voices, that we are moving too slowly on climate change.

Yet, rather than over-estimating the progression of climate change, scientists in fact have generally underestimated it. More specifically, once we account for the variability of greenhouse gas emissions, global climate forecasts have a high degree of accuracy.

To be sure this crisis has highlighted the very clear role economic activity plays in climate degradation. So unsurprisingly, research suggests the main driver of increased environmental impact has been absolute wealth. This is followed by population and then poor governance. The overarching, and largest, policy challenge is to reverse this pyramid and ensure governance takes primacy. Ultimately this is the real watershed the planet needs.

Economists like myself tend to have a pretty singular mindset when it comes to addressing climate change: a carbon tax. However, only around 40 countries and 20 cities, states and provinces use carbon pricing mechanisms. And the carbon pricing gap is substantial.

Only three countries price more than 40 per cent of their emissions above EUR60 per tonne; the OECD’s midpoint estimate of carbon costs in 2020. In other words, the scope of pricing is narrow and the level is far too low.

While the economics may be self-evident, gaining broad-based support for properly calibrated carbon taxes seems to be a Sisyphean task.

Yet the most fundamental task as we come out of the COVID-19 crisis is to ensure we all make choices that support our climate objectives. A tax is the simplest mechanism to determine those choices.

Pre-crisis position

As rates of economic progress in many advanced economies have slowed to a crawl and access to information has gone up, there has been a popular challenge to the distribution of economic gains. The social contract has even been further eroded through this COVID-19 crisis.

The losses from COVID-19 have fallen disproportionately on the young, women, ethnic minorities and those living in areas with higher air pollution. The environment of very elevated unemployment likely to follow this crisis is unlikely to be one where broad-based support for higher taxes on necessities will come easily.

To respond to the climate crisis then we probably need to look beyond carbon taxes.

This pandemic is offering some opportune decision points that only exist because of the crisis. Restarting doesn’t have to mean returning everything to its pre-crisis position.

Social distancing, for instance, has created a unique opportunity to rethink how society conceptualises transportation and how we might restart without the traffic problems that had become ubiquitous. Milan is turning over large areas of its city centre to pedestrians and bicycles. The French government has ordered Air France to stop competing with rail services where they offer a viable alternative.

This crisis has (or should have) also expanded our sense of what is possible. For many, geography was a primary contributor to India’s crippling pollution problem. That effect seems to have been overplayed, with Delhi air quality now ‘positively alpine’.

As climate activist Jai Dhar Gupta told the New York Times: “Clearly, this is not something that can’t be reversed. We’ve just reversed it.”

Upfront costs

The uniformly very low interest rates that are a legacy of this crisis create plenty of problems: how we fund retirement, for instance. But they also reduce the upfront capital costs of alternative energy, a significant hurdle when compared with conventional energy generation.

The fall in oil and gas prices will certainly disrupt alternative energy demand in the short term but the reality is continued oil and gas production is simply not economic at current prices. Supply is likely to be reduced and future prices are likely to be more supportive of the energy transition.

One of the trends that has strengthened through this crisis is the lack of international co-operation; what has been called “G-Zero”. This presents a fundamental challenge to the management of both pandemics and climate change. To quote Nobel Prize winner Peter C Doherty, “pandemics remind us in a very simple, direct, and brutal way that we share the same planet”.

The G-Zero landscape, however, may also offer a silver lining of sorts. Countries that feel strongly about climate change may be more likely to directly confront those not fulfilling their responsibilities.

Social transformation

Even before the crisis, patience with environmental laggards had started to run out. In late 2019 the European Green Deal proposed a carbon border tax on imported steel produced under less stringent environmental guidelines. In the future, trade wars may well have a new element.

While climate change action would clearly be more forceful with governments leading, it’s worth asking who tends to lead radical change: is it government, the private sector or civil society? The evidence points to civil societies as initiators of social transformation, often responding to a sequence of tipping points. Governments, however, can identify and prod these tipping elements to help generate the non-linear change required.

COVID-19 is an enormous challenge. It is nested, however, within the broader challenge of climate change. To prioritise one over the other risks misdiagnosing the problem and missing the practical lesson offered by the COVID-19 crisis.

Richard Yetsenga is Chief Economist at ANZ