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It’s becoming evident the COVID-19 will disrupt the lives of the world’s 7.8 billion human inhabitants for much longer than we could have imagined. Already, millions are infected and hundreds of thousands dead, while the global economy could contract 3% this year in the worst downturn since the Great Depression.
Policymakers are responding by injecting trillions of dollars to help the sputtering economy. But for economic and environmental reasons, one sector should not receive a taxpayer bailout – the oil and gas industry.
A glimpse into an alternate reality
In cities from Beijing to Delhi to Los Angeles, the blue sky is once again visible as transportation-related emissions have been dramatically curtailed by lockdowns. The speed of this transition has been amazing: In roughly three weeks from March 16th when California instituted its lockdown, Los Angeles’ air quality improved by 20%. Individual metrics are even more impressive. PM 2.5 – the microscopic particles that result from burning fossil fuels and contribute to premature death, cardiovascular, and respiratory problems – dropped by 40% over the same time. Good news, considering research showing a 15% higher mortality rate from COVID-19 in areas with dirty air.
We have lots of reasons to believe that, even once the economy picks up, we can work to keep and improve upon these environmental gains, starting with the accelerated adoption of digital tools. Global airline traffic has plummeted as we’ve begun “zooming” to business meetings, birthdays, and social get-togethers via the video conferencing company Zoom, which grew its customer base 50% to 300 million in the first three weeks of April.
With businesses forced to rely on remote working and video conferencing, it’s possible that many business customers will not return to flying. This would impact air pollution and greenhouse gas emissions ; air travel emissions are one of the fastest growing contributors to climate change.
But it’s not just business that has been forced to adapt to lockdowns with digital tools. Schools are ramping up distance learning, telemedicine is replacing some doctor visits, and grocery delivery services are replacing trips to the grocery store. Fewer cars on the road will reduce greenhouse gas emissions and other noxious fumes.
The pandemic exposes the economic weaknesses of oil and gas
All these wins for Mother Nature are big losses for an arch nemesis: the oil and gas industry. For the first time in history, oil futures hit negative numbers as demand for oil demand dropped around the world and traders were effectively paying buyers to take the oil glut off their hands.
In this time of unprecedented levels of industry bailouts, it’s not surprising to see the oil industry with its hand out, and it’s even less surprising President Trump has signaled his support. Meanwhile, the industry is also looking for relief from regulations, including reporting of climate change related emissions. Of all the bailouts currently being considered or underway, propping up the oil and gas industry will provide zero benefits to taxpayers. In fact, efforts to “help” the industry will do more economic harm than good.
The oil and gas sector had been getting a free ride long before anyone had heard of Covid-19, benefiting from more subsidies and support than any other sector. While the industry accounts for about 3.8% of global GDP of $86 trillion – or about $3.3 trillion – a recent IMF study found that the oil and gas sector receives effectively about $2.5 trillion in subsidies, annually.
But even with these massive subsidies, the oil and gas industry’s economic outlook is bleak. The recent U.S. fracking boom was marketed as “energy independence” but it has carried a high cost to investors. U.S. oil companies owe $86 billion and the pipeline companies another $123 billion, much of it junk rated debt, all coming due between now and 2024. Plummeting air and land traffic have combined with global oil oversupply, leaving around 500 oil producers facing bankruptcy if oil prices remain below $20/barrel.
Many indicators add up to a distinct likelihood that the world’s response to COVID-19 may have pulled forward “peak oil.” As states and countries loosen restrictions, demand will rise, but it’s unlikely to return to previous levels. Hundreds of thousands of cars have disappeared from our roads as around one half of working adults are currently working from home. Going forward, one in five CFOs have stated that they plan to keep at least 20% of their workforce working from home.
Will the pandemic catalyze major energy sector changes?
As horrific as they are, major disruptive events like pandemics and wars have been the catalysts of major changes in society. It was after the 1918 Spanish Flu pandemic that governments including Russia, Germany, France, and the United Kingdom first instituted socialized, government-supported healthcare, while employer-based health insurance emerged in the U.S. World War II led to the creation of the United Nations, which along with helping prevent future world wars, has become the world’s megaphone for warnings about the dangers of climate change.
Transitions are always hard for industries as they come with job losses and dislocations, but the fossil fuel industry is a dinosaur, and it may go extinct sooner than we thought. Demand for oil will likely remain depressed for a relatively long period of time, while the fast-falling cost of renewables and electric vehicles continue to not only achieve parity but become cheaper in a growing number of markets, meaning these times offer a window of opportunity to accelerate the inevitable.
Despite growing investment in the renewables sector, investments in oil and gas still run nearly four times higher. U.S. electricity production from renewables (wind, solar, hydroelectric, biomass, geothermal) have closed the gap with coal, accounting for 20% of electricity generation in the first half of 2019. The clean energy industry, from energy efficiency to clean technologies like solar, wind and electric vehicles supports about 3.4 million U.S. jobs - 3 times more than the oil and coal industry, combined – and over the last five years has added jobs 70 percent faster than the overall economy.
Opportunities for economic growth coming out of a crisis
As the lessons of COVID-19 take hold, let’s take the next step in ensuring both economic growth and public health by investing in sectors that are not harmful to everything from our respiratory systems to our existence on this planet. The pandemic’s positive legacies will be investments that accelerate the further development of wind and solar energy, and electric vehicles (EVs) to accelerate the transition away from a fossil fuel-based economy.
The clean energy sector has lost 109,000 jobs in March alone and analysts estimate up to 15% of the nation’s clean energy workforce could lose their jobs in the coming months. At a minimum, Congress must provide the clean energy industry their small ask: Not to get bailed out like the oil industry, but to have their federal tax credits extended past their expiration at the end of this year.
Congress should go even further to extend EV tax credits, cut subsidies for oil, and invest in green infrastructure, including EV charging capability and battery storage technology that will accelerate the energy sector’s decarbonization. Realigning U.S. energy incentives is widely supported by the public: 67% of voters support financial support go toward renewable energy, while just 22% oppose; meanwhile just 49% support an oil and gas bailout while 42% oppose it.
After all the suffering of the pandemic, let’s make investments that will preserve life as we know in this planet and strengthen our economy. Addressing climate change mitigation by helping accelerate the clean energy transition can help do both.
