Seizing the moment

Katie Kouchakji, IBA Environment CorrespondentWednesday 12 August 2020

2020 was meant to be a red-letter year for addressing the climate crisis, with governments expected to set ambitious emission reduction goals as part of the Paris Agreement. Covid-19 has shuttered economies, bringing visible reductions in pollution and raising hopes of emerging into a cleaner future.

The abrupt cessation of economic activity in February and March has led the International Energy Agency (IEA) to forecast an eight per cent drop in global CO2 emissions from energy in 2020, compared to 2019, to 30.6bn tonnes. The IEA notes this would exceed the fall in emissions seen during the global financial crisis by six times, and is at least double all previous declines in global CO2 output since the Second World War.

The onset of the pandemic saw most industrial activity grind to a halt. The daily commute to work became a thing of the past, reducing the amount of vehicles on the road. Aside from repatriations, planes were grounded as borders closed in a bid to control the spread of the virus. And where lockdowns have been established, restaurants, bars, cafes and coffee shops, for the most part, closed.

Jump forward four months, however, and restrictions are slowly easing across Asia, Canada and Europe. Elsewhere, things are going into reverse.

Encouraging noises

Before restrictions eased, there were already calls for governments to seize this moment to ‘build back better,’ and to put the climate crisis and increasing resilience at the heart of economic recovery plans. This was partly borne out of fears that, as lockdowns ended, emissions would rebound and potentially be even greater than before. In June, a study by the Global Carbon Project found that emissions were just five per cent below 2019 averages, compared with 17 per cent below in April. The study’s authors warned that decisions taken by governments post-pandemic would be likely to ‘influence the global CO2 emissions path for decades.’

Early signs are encouraging. In April, officials in Milan announced plans to ringfence 22 miles of streets over the summer for an experiment in cutting traffic in the city by widening pavements for pedestrians, creating temporary bike lanes and reducing the speed limit on these roads for vehicles. Athens, Auckland, San Diego, Toronto and Vilnius are among those trialling expanded pedestrian-only zones and/or cycle paths post-pandemic. ‘The idea that cities might not snap back to having their centres all cluttered by cars is very attractive,’ says Ronan Palmer, leader of clean economy programme at think-tank E3G.

At a national level, however, things are more mixed as some countries are still in the thick of the first wave of infections. ‘A lot of the noises are very good,’ Palmer says, while cautioning that the world is still in too early a stage of recovery.

‘It’s a global trend to talk about building back better,’ says Guillermo Tejeiro Gutiérrez, Website Officer for the IBA Environment, Health and Safety Law Committee, while noting that some have specific agendas but others are silent on the matter. ‘Economies are now facing a tough time, so priorities have shifted – but the environment and social aspects of projects and business cannot be overlooked.’

In order to build back better, Tejeiro Gutiérrez – who is also Head of the Environment and Sustainable Business Team at Brigard Urrutia in Bogota – says there needs to be both the money, in terms of investors’ appetite, and the government policies signalling a path towards a more sustainable economy. ‘If there’s enough environmental and social focus, the government will act,’ he says. ‘The pandemic can be a turning point.’

‘Following the global financial crisis, there was an immediate argument that we needed to focus on short-term economic needs and that climate change had time to wait, was a “nice to have” – the fact that argument has not happened now is a sign of things to come,’ says Emma Herd, CEO of the Investor Group on Climate Change (IGCC) in Sydney.

‘The global economy, in many ways, was at a tipping point of investment in low-carbon – I think that we’ll look back and see that Covid-19 accelerated those trends, because low-carbon investment is a safer bet,’ she says.

Planning a green recovery

Herd points to the IEA’s Sustainable Recovery Plan, released in June 2020, as a good resource for planning a clean recovery. Spanning electricity, transport, industry, buildings, fuels and emerging technologies, the IEA’s recommendations would cost $1tn per year for the next three years. This is a drop in the ocean of the $9tn-worth of measures governments had already pledged at the time of the report’s publication. It would also create nine million jobs per year over the same period, boost global gross domestic product by three and a half per cent more in 2023 than it otherwise would have been, and reduce emissions by four and a half billion tonnes of CO2 compared with where they would otherwise be in three years’ time.

Some governments were quick to tie climate crisis response measures into emergency financial support. One example was the requirement by the Canadian government for firms seeking federal bailouts to commit to publishing climate risk disclosure reports, in line with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.

Another example is that of Air France-KLM, which, in exchange for up to EUR 11bn of support from the French and Dutch governments, must look at reducing its environmental impact.

The European Union has pledged that 25 per cent of its EUR 750bn recovery package would be directed to initiatives to help fight the climate crisis, such as retrofitting buildings to be more energy efficient, infrastructure to boost the use of electric vehicles, and the development of clean energy technologies, including hydrogen.

However, this carries its own risk, says Palmer. ‘My nightmare is the EU spends a lot of money on green things in a country so that country spends its own money elsewhere,’ he says. ‘It’s important that governments don’t just make big announcements but also track these things to make sure it is truly effective.’

The United Kingdom government hit headlines globally in early July with the unveiling of its economic stimulus package. Despite having pledged to put the environment at its heart, only ten per cent of the £30bn plan is for green initiatives, focusing on energy efficiency for houses and public buildings.

‘A lot of people in government are trying to build net-zero into the recovery,’ says Sam Unsworth, a policy analyst at the Grantham Research Institute on Climate Change and the Environment at London School of Economics (LSE). He adds that the government is now asking ‘the right questions,’ such as which investment areas are labour-intensive, and which are good to go. ‘Energy efficiency is a good example - it's not just a UK decarbonisation problem, but the UK has a particularly leaky housing stock, making it a great place to invest,’ says Unsworth.

Unsworth points to a July report by the LSE which highlights that the economic shock will worsen inequalities, and that an investment-led recovery could help address this crunch. The report emphasises the importance of investing in different forms of capital – such as natural, physical and human – as well as gathering evidence on the potential impact of net-zero aligned investments, including active travel infrastructure and natural capital projects.

The report demonstrates that these investments offer value for money for the taxpayer, in terms of the jobs created, economic impact and broader benefits, such as cleaner and more liveable cities.

A ‘Just Transition’

‘It’s something we need to think about when we talk about “build back better” – it’s not just about creating the jobs, but also who gets them,’ says Unsworth. ‘Something like home energy efficiency retrofitting, you can learn at least in part on the job,’ so it’s very good for job creation and labour markets at a time when skills demand and supply might be mismatched, he adds.

‘This is what we talk about when we talk about the “Just Transition”’, says Palmer. ‘This should improve people’s lives, not just through insulated homes but also jobs and skills.’

There is a risk that the ‘Just Transition’ – a framework designed to cover the various social interventions required to secure workers’ rights and livelihoods as economies move to fight the climate emergency – will get lost amid the focus on underlying job numbers, says Christina DeConcini, Director of Government Affairs at the World Resources Institute (WRI).

After the global financial crisis, the United States focused on incentives to support the clean energy sector, although the political situation in 2009 was very different to current US politics (see box-out: The US rolls back on environmental protections).

‘The next US President is going to inherit the worst economic crisis since the Great Depression,’ says DeConcini. Economists suggest that getting out of this crisis will require more spending. ‘We have choices though,’ she says. ‘Are we going to do it in a way that will lock us into climate disaster or move us in the right direction?’

From an investor point of view, the IGCC’s Herd says discussion that there is a choice to consider the climate crisis or not is false. ‘It’s not like we’re going to have a policy that says you will or will not have to address climate change,’ she says. ‘All investment decisions have climate risk.’

Conscious of the need to create jobs, Herd says that ‘all roads lead back to the low-carbon sector,’ such as a focus on retrofitting buildings or even new builds. Governments also need to look at the skills in their populace and repurpose these. In Australia for instance, that means taking skills from the mining sector and redeploying to battery supply, hydrogen and renewable energy.

‘What do we do for the next 12 months and what do we do for the next 20 years – we need to be having both of those conversations at the same time,’ Herd says. ‘Governments aren’t going to have enough money to do everything they’re going to want to do, so they’ll need to set up some way to incentivise the private sector.’

One powerful way to effect this, says Martijn Wilder, Founding Partner of investment and climate change advisory firm Pollination, is to use existing policies procurements to incentivise private sector action. For example, the government in New South Wales issued a tender in May for a trial of electric buses, as it moves towards realising its goal to transition all 8,000 of its bus fleet to electric.

The staged roll-out of the electric buses allows a manufacturing industry to be built in-state. ‘Business can talk about the opportunity in decarbonising and move away from the narrative of it’s going to cost you,’ Wilder says.

Herd also endorses this joined-up approach, saying that a designation of an area for renewable energy could then lead to jobs in distribution and transmission, which in turn could lead to industrial zoning nearby to make use of the renewable energy. This, again, would create jobs. ‘Looking at the value chain offers up a lot of opportunities for job creation, industrial production and decarbonisation,’ she says. ‘It’s better and more efficient for investors.’

‘Those countries that have climate laws or regulations in place will be more successful in building back better,’ Wilder says, adding that net-zero laws in the UK and the Australian state of Victoria will mean these two jurisdictions are more likely to achieve decarbonisation, for example.

The threat of litigation

However, this could also leave jurisdictions open to challenges in the courts, as is being threatened in the UK. Environmental campaign group Plan B has asked the UK government to detail how its recovery plan will support its legally-enshrined net-zero goal by 17 July, or the group will commence the next steps towards legal action to force the change.

In its letter, Plan B says the UK government has ‘a historic and one-off opportunity to advance a large-scale job creation programme and an economic transition that will prepare the UK for the crises ahead and restore hope for our young people’s future.’

New Zealand, too, may run into legal risk if it does not focus enough on climate in its recovery, following the passage of the Climate Change (Zero Carbon) Amendment Act in November 2019. ‘The government should be taking climate change and targets into consideration with all of its decision-making, but it’s not yet,’ says Mark Baker-Jones, Special Counsel on climate change at Simpson Grierson in Auckland. ‘We may see lawsuits challenging this in the next couple of years.’

Baker-Jones says that the pandemic provides an opportunity, ‘in terms of us having to make investments in things like infrastructure and our economy,’ and notes the staggering amounts governments are ploughing into recovery packages. ‘In order to afford this investment, we’re borrowing from the future, so any outcomes should benefit those future generations,’ he says.

‘The truth of the matter is that Covid-19 is about a temporary economic recession in the financial system, whereas climate change is a long-term systemic threat to the financial system,’ says Wilder.

In Australia, Wilder says that while the National COVID-19 Coordination Commission has focused on expanding the country’s gas industry to boost the economy, the states have ‘more of a focus around not locking in emissions long term.’ But, he adds, ‘we need to move more from the theory to the actual on-the-ground investment and work.’

‘The really hard part starts now, the “what happens next”,’ says Herd. Governments need to grapple with questions such as how to stimulate economic growth without immigration and migrant labour, as well as how to live with Covid-19 for now. ‘It’s a test not just for their short-term response, but also their longer-term strategic planning,’ she says.

‘Politics in the last decade have been very attracted to short-term populist hits, which aren’t going to work now,’ adds Herd. ‘We need our institutions to deliver now.’

Katie Kouchakji is a freelance journalist and can be contacted at katie@kkecomms.com