Legal and business news analysis - Global Insight August/September 2021

Climate crisis drives change in energy sector amid pandemic

As Covid-19 swept the globe in early 2020, many governments brought in stay-at-home orders and lockdowns, leading to a collapse in oil and gas prices as transportation dramatically reduced. The impact was immediately evident, with oil majors posting significant financial losses in 2020 – although early financial results from 2021 have them back in the black as economic activity slowly picks up around the world.

Amid the chaos brought by the pandemic, the spotlight has turned to a bigger issue: the climate crisis. In presenting the company’s second quarter results at the end of 2020, BP Chairman Helge Lund stated: ‘The world is on an unsustainable path – its carbon budget is running out […] energy markets have begun a process of fundamental, lasting change – shifting increasingly towards low carbon and renewables.’

‘We’ve seen demand destruction, with the number of people working from home and the end of the single-use car,’ says Lisa DeMarco, CEO and a senior partner at Resilient in Toronto. A natural transition to electric vehicles and residential renewable energies, such as rooftop solar, are also changing the energy market, she says, with the pandemic hastening their adoption as people were concerned about their home spaces.

‘The necessary lifestyle shifts brought about by Covid really accelerated things,’ she says, especially for transport and fuels. It also highlighted inequities of energy poverty and a push for renewable natural gas to avoid Canada’s carbon price, and the need to ensure a just transition.

‘I don’t think Covid-19 has had an effect [on the energy market],’ says Shane Freitag, Chair of the IBA Section on Energy, Environment, Natural Resources and Infrastructure Law and a Toronto-based partner at Borden Ladner Gervais, however. ‘During the immediate onset and well into the COVID pandemic, the ability to turn on a switch and have power was one less thing people had to worry about. The source of that power, whether renewable or not was not top of mind.’

While energy developments were deemed essential and work continued throughout lockdowns, they will likely be subject to force majeure clauses, Freitag says, due to pandemic-related measures such as quarantine rules and social distancing requirements on sites. ‘Almost every project being developed is going to have some additional costs due to Covid and needing to take extra precautions,’ he says, adding that some were also retooled to manufacture essential personal protective equipment or sanitisers.

Faith Taylor, a partner at Clayton Utz in Australia, agrees that it’s hard to pinpoint a lasting impact of the pandemic on the energy sector. ‘Australia, like New Zealand, has been very lucky in trying to contain the virus, so it’s mostly been business as usual,’ she says. ‘We had a policy quagmire on climate before the pandemic and I suspect we will have one for years after.’

While the policy vacuum is stifling investment, Taylor fears the pandemic will mean details such as the role of carbon pricing may be forgotten as the country focuses on Covid recovery.

Globally, a drive towards net-zero emissions, the election of Joe Biden as US President, and growing investor pressure on environmental, social and governance issues ‘have had more of a profound impact than Covid-19 on the energy market,’ says Freitag.

The International Energy Agency’s recent net-zero report, which calls for an immediate end to new fossil fuel investments, is also largely down to the change in US president, says Peter Zaman, a partner at HFW in Singapore. It’s believed the agency has held this view for a while but was unable to say anything publicly during the former Trump administration. Zaman adds that the report ‘is quite a turning point’.

DeMarco also sees the push for net zero and Covid-related economic stimulus packages as driving changes, noting that some packages include subsidies for lower emissions infrastructure such as transportation. For example, 30 per cent of the EU’s €2tn budget for 2021-27 – which includes the €800bn Covid recovery fund – will be spent on climate measures, while tackling climate change is at the heart of Biden’s jobs and infrastructure plans.

‘Innovation is no longer a dirty word,’ she says. ‘A lot of the progressive oil and gas companies have doubled down on action,’ including by increasing their purchases of renewable energy and striving to reduce the emissions of their products, such as via sustainable fuels and the use of emissions removals technologies.

‘Long-term, for oil and gas, we’re seeing increasing diversification,’ says DeMarco.

Litigation, such as a ruling against Shell in the Netherlands in May which found that the oil major needs to reduce its emissions to 45 per cent below 2019 levels by 2030, and the recent election of three climate activist shareholders to ExxonMobil’s board, could also lead to changes, says Zaman. ‘The ruling against Shell is quite a significant step by a judicial body, essentially telling a company it has to do better on climate change,’ he adds. Shell intends to appeal the judgment.

Lasting changes that may arise from the pandemic could result from two realisations, Zaman says. First, that if humans do not take care of environmental concerns, it will affect lives; and second, that global supply chains are fragile and can easily be altered or affected by events. The way that the pandemic ‘has shut down half the world has been a tangible visual of what climate change could do,’ he says.

‘We’re at a fit and start of evolution,’ says DeMarco. ‘We’re going to look back and see this as the start of a big change.’

Covid-19: Latin America’s deepest crisis for a century foments major change

Ruth Green, IBA Multimedia Journalist

Image: Sao Paulo, Brazil, June 2020: People wait to receive food donations for lunch in a downtown street during the severe economic crisis caused by the Covid-19 pandemic. Nelson Antoine/Shutterstock.com

Across Latin America and the Caribbean, more than one million people have already died from Covid-19, making it the worst-hit region worldwide. The reasons are complex but, undeniably, have exposed deep inequalities across the region’s 33 countries.

Latin America’s excess death toll – those that exceed the number that normally occur over a given period – has rocketed. The failure by many countries to establish an effective public health strategy has been compounded by overwhelmed and underfunded health systems and social protection mechanisms that have not responded adequately to the enormity of the crisis.

The slow response – or in some instances complete inertia – of many nations has sealed their fate. ‘Governments in certain countries adopted a position of denying the pandemic and not establishing policies to control it,’ says Fernando Peláez-Pier, former IBA President and a senior consultant at FPeláez Consulting.

He points to Mexico, where the authorities have been heavily criticised for failing to lockdown early enough and then for easing restrictions too quickly. The country is already paying the price: in July it attained the fourth highest death rate for coronavirus linked causes in the world.

The situation is even more alarming in Brazil, which accounts for more than half of the region’s Covid-19 fatalities and where management of the crisis has been highly politicised. After widespread disinformation and anti-vaccination rhetoric from the current administration, a vaccine-buying scandal triggered a parliamentary inquiry to examine President Jair Bolsonaro’s handling of the pandemic.

‘We are living in times that are indescribable,’ says Horacio Bernardes Neto, former IBA President and senior partner at Motta Fernandes Advogados in São Paulo. ‘President Bolsonaro has been boycotting the vaccination programme for a long time. He had the opportunity to buy vaccines in December, but he didn’t do it. He doesn’t take the vaccine. He goes everywhere without a mask. He wants to be re-elected. That’s all that he thinks about.’

Socio-economic factors have played a significant role. Peru imposed one of the strictest lockdowns in the region, but this defied the logic that 70 per cent of the population work informally. Many lower income Peruvians had no choice but to go out to work. Infections soared and the country now has the highest Covid-19 death rate per capita worldwide.

Elsewhere, collective fatigue with the restrictions exacerbated long-standing public distrust in governments. Cuba initially won praise for keeping infections down in 2020 while first and second waves crippled many other nations. However, in mid-July the island reported the region’s highest rate of infection per capita and mass protests erupted over severe food and medical shortages, price hikes and the authorities’ Covid-19 response.

It’s a similar story in Colombia where a new wave of anti-government protests has contributed to a surge in cases. ‘Colombia was one of the first countries in Latin America to impose a lockdown, but after more than a year of restrictions people are exhausted,’ says Diana Guarnizo, a lawyer at Dejusticia, which works to strengthen the rule of law and promote human rights in the country. ‘Nobody paid attention to the latest lockdown measures. Some local governments felt it was impossible to implement them and then proceeded to open commercial and leisure venues.’

Unequal access to vaccines remains an immense challenge. Around 60 per cent of Chileans have been vaccinated, whereas in Brazil, the region’s biggest economy, only 15 per cent of the population are fully immunised. Peláez-Pier also points to a rise in so-called ‘vaccine tourism’, whereby many affluent Latin Americans have travelled to the US for vaccinations. This development looks set to only exacerbate the vaccine inequity across the region.

In lieu of any co-ordinated regional response to tackle the spread of the virus, Latin America needs much more international support, says Adriana Castro, Young Lawyers' Initiatives Officer of the IBA Latin American Regional Forum and a partner at BLP Abogados in San José . It was welcome news then in June when G7 leaders pledged to donate one billion doses of Covid-19 vaccines to developing countries.

However, Guarnizo says the G7 pledge will only go so far to address the vaccine shortage: ‘The only way to ensure that vaccine production and distribution is managed equitably around the globe is by creating new production centres in regions where they don’t currently exist.’

Guarnizo has also been advocating for Big Pharma to issue a temporary waiver on intellectual property for Covid-19 vaccines to make them more widely accessible. Cuba is the only Latin American country so far to approve a home-grown vaccine – Abdala. The Butanvac vaccine, developed by the Butantan Institute in São Paulo, has been authorised for use in clinical trials. In April, Argentina became the first nation to produce local batches of the Russian vaccine Sputnik V.

The pandemic has plunged Latin America into its worst recession for 120 years. In July, the Economic Commission for Latin America and the Caribbean (ECLAC) estimated the region would grow 5.2% in 2021. It also warned that the social impact of the crisis, combined with structural problems – namely inequality, poverty, low investment and productivity – threatened the region’s long-term recovery.

In November 2020, ECLAC’s Director, Hugo Beteta, told the Co-Chair of the IBA's Poverty & Social Development Committee, Álvaro Castellanos Howell, that Covid-19 was ‘a pandemic of poverty,’ but that the crisis in Latin America offered ‘an unprecedented opportunity to solve problems and get our societies to solve problems.’

If we’ve learnt anything from the pandemic, it’s that Latin America is ripe for change. ‘From the Colombian uprisings, the Peruvian elections to the Chilean constitution changes, our region seems to be longing for change,’ says Castro, who is also Young Lawyers Initiatives Officer on the IBA’s Latin American Regional Forum. ‘Globally, the world is changing, and we need to re-educate our population to ensure part of the population is not left out.’