Economic Shock from Coronavirus Points to Over-Reliance on Fossil Fuels, Need for Renewables
A crisis like the coronavirus pandemic points to a global economy that is over-reliant on fossil fuels and dangerously exposed to economic shocks that could be eased by a shift to renewable energy, a leading financial economist from the United Kingdom told Forbes magazine in a recent interview.
And the first step in correcting the balance will be to resist turning the coming wave of government economic stimulus into a fossil industry bailout, said Dr. Charles Donovan, executive director of the Centre for Climate Finance and Investment at London’s Imperial College Business School.
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“Guarding against the risks of further crises, from climate change to pandemics, would require not just short-term cash injections, but ‘joined-up thinking’ by decision-makers who should prioritize developing economies that are not coupled to oil and gas,” Forbes writes, citing its interview with Donovan last week. “While campaigners and climate scientists promote renewable energy on environmental grounds, Donovan stressed that sustainable energy sources such as wind, solar, and tidal power ought to be more attractive to investors and policy-makers than fossil fuels on a purely economic basis.”
Much of that argument has to do with the stability renewable energy can bring to a complex, interconnected global economy.
“We are now seeing the downsides of the choices we’ve made about the kind of energy economy that we have,” Donovan said. “These are the unfortunate repercussions of a global market that’s exposed to the volatility of the oil markets, and suffers when unforeseeable events like coronavirus arise at the worst time.”
And now, that baked-in instability “will stand in stark contrast to what may become the great virtue of renewable energy, which has nothing to do with its greenness, but more about the stability of cash flows from underlying assets,” he added.
But those issues point to the global economy entering a make-or-break moment.
“We’re coming to a very important point now where policy-makers can ensure that this round of easing is not hugely biased towards keeping oil producers on a lifeline,” he said. Instead, bailout funds should be directed to decarbonization strategies and preparing countries for the transition off carbon, “targeted towards structural investments and things like job retraining for people in industries that can no longer keep going.”
Donovan isn’t suggesting that societies can dodge the next pandemic or massive wildfire by building low-carbon infrastructure. But “over time such economies could prove more durable than those built on the back of finite, volatile hydrocarbons—and better able to withstand crises,” Forbes explains.
“It’s not that by having more wind turbines and solar panels we could avoid coronavirus,” he said. But the world’s major economies “have been like the frog in a pan of water that’s slowing warming up: the fire has just been turned up several notches, and the only thing we can do now is jump out of the pan. This is about building an energy infrastructure that creates resilience.”