Stock markets around the world had their worst performance in decades last week, far exceeding that of the global financial crisis in 2008. Restrictions on the free movement of people are disrupting economic activity around the world as implement measures to control the coronavirus.
There is a strong link between economic activity and global carbon dioxide emissions, due to the dominance of fossil fuel energy sources. This coupling suggests that we could have an unexpected surprise due to the coronavirus pandemic: a slowdown in carbon dioxide emissions due to reduced energy consumption.
Based on new projections for economic growth in 2020, we suggest that the impact of the coronavirus could significantly slow down global emissions. The effect is likely to be less pronounced than during the Global Financial Crisis (GFC). And declining emissions in response to past economic crises suggests a rapid recovery in emissions when the pandemic is over.
But the prudent spending of economic stimulus measures and the permanent adoption of new work behaviors could influence the evolution of emissions in the future.
The world in crisis
In just a few short months, millions of people were quarantined and regions locked down to reduce the spread of the coronavirus. Events around the world are being canceled and travel plans dropped. A growing number of universities, schools and workplaces have closed and some workers choose to work from home if they can.
Even the Intergovernmental Panel on Climate Change has canceled a critically important meeting and will instead hold it virtually. The International Energy Agency had already predicted that oil use would fall in 2020, and this was before a price war broke out between Saudi Arabia and Russia.
The unprecedented coronavirus lockdown in China led to an estimated 25% reduction in energy use and emissions over a two-week period compared to previous years (mainly due to a drop in electricity use, industrial production and transport). This is enough to cut one percentage point of growth in China's emissions in 2020. Cuts are also seen in Italy, and are likely to spread across Europe as lockdowns become more widespread.
The emissions-intensive aviation industry, which covers 2.6% of global carbon dioxide emissions (both national and international), is in free fall. It may take months, if not years, for people to return to air travel as the coronavirus can persist for several seasons. Given these economic shocks, global carbon dioxide emissions are increasingly likely to decline in 2020.
The coronavirus is not the CFG
The main authorities have revised the economic forecasts down as a result of the pandemic, but so far the forecasts still indicate that the world economy will grow in 2020. For example, the Organization for Economic Cooperation and Development (OECD) reduced the estimates global growth in 2020 from 3% (carried out in November 2019) to 2.4% (carried out in March 2020). The International Monetary Fund has indicated similar declines, with an update scheduled for next month.
Assuming that the carbon efficiency of the global economy improves in line with the 10-year average of 2.5% per year, the OECD's post-coronavirus growth projection implies that carbon dioxide emissions may decline 0.3% in 2020 ( including a leap year adjustment). But CFG's experience indicates that the carbon efficiency of the global economy can improve much more slowly during a crisis. If this happens in 2020 due to the coronavirus, carbon dioxide emissions could still grow.
According to the worst OECD forecast, the world economy in 2020 could grow as little as 1.5%. Everything else being equal, we estimate that this would lead to a 1.2% decrease in carbon dioxide emissions in 2020. This drop is comparable to the CFG, which in 2009 led to a 0.1% drop in global GDP and a drop in 1.2% in emissions. So far, neither the OECD nor the International Monetary Fund have suggested that the coronavirus will take global GDP in the red.
The emissions rebound
The CFG generated large and rapid stimulus packages from governments around the world, leading to a 5.1% spike in global emissions in 2010, well above the long-term average. Previous financial crises, such as the collapse of the former Soviet Union or the oil crises of the 1970s and 1980s, also had periods of lower or negative growth, but growth soon returned.
At best, a financial crisis delays emissions growth for a few years. Structural changes, such as the switch to nuclear power after the oil crisis, can occur, but evidence suggests that emissions continue to grow.
The economic legacy of the coronavirus could also be very different from that of the CFG. It looks more like a slow burner, with a drop in productivity over an extended period rather than widespread short-term job losses.
Looking to the future
The coronavirus pandemic will not change the long-term upward trend in global emissions. But governments around the world are announcing economic stimulus measures, and how they are spent may affect future emissions trends.
There is an opportunity to invest the stimulus money in structural changes that lead to emission reductions after economic growth returns, such as further development of clean technologies.
Additionally, the coronavirus has forced new work-from-home habits that limit commuting, and a wider adoption of online meetings to reduce the need for long-haul business flights. This increases the possibility of long-term emission reductions if these new work behaviors persist beyond the current global emergency.
The coronavirus is, of course, an international crisis and a personal tragedy for those who have lost and will lose loved ones. But with good planning, 2020 could be the year when global emissions peak (although the same was said after the CFG).
That said, past economic shocks might not be a great analog for the coronavirus pandemic, which is unprecedented in modern human history and has a long way to go.