A green recovery: the post-pandemic economy and a just transition
Could the rebuild have climate planning at its heart?
On 12 April, US President Donald Trump Tweeted his congratulations to the leaders of Russia and Saudi Arabia on coming to an agreement to end their competitive overproduction of oil.
“This will save hundreds of thousands of energy jobs in the United States," he said at the time.
The price war had caused the value of crude to tumble since mid-February, reaching 18-year lows of around $20 a barrel by the time the OPEC+ countries made their deal.
But the agreement wasn’t enough to halt the crash. The value continued to fall and for a brief period on 20 April the American benchmark for the first time ever went negative, reaching nearly -$40 a barrel.
This wasn’t all to do with the brinkmanship of the energy giants. It was an illustration of the unprecedented challenges the global market faces when there is a sudden drop in our need for oil.
As countries around the world entered a second month of a lockdown instituted by governments to halt the spread of coronavirus, there has been a corresponding decline in demand for the types of fuels that are used to power our economies, and the consequences for the oil industry could be severe.
“There will be a lot of companies that don't survive this downturn," one American industry expert told CNN. "This is one of the worst on record."
In a recent survey of its members, Oil and Gas UK estimated there will be 30,000 job losses as a result of the pandemic, which is around one in five of those employed directly or indirectly in a sector where 39 per cent are Scots workers.
Meanwhile, the Scottish Government’s chief economist Gary Gillespie had grim projections for the wider economy in his first State of the Economy report since the lockdown. He predicted a 33 per cent slump in Scottish GDP, with unemployment potentially reaching 14 per cent by early next year.
COVID-19 may result in a temporary reduction in greenhouse gas emissions, but it is not a substitute for sustained climate action"
By the same turn, the sudden break in economic activity has had consequences for the environment.
Global carbon emissions, which were on track to continue rising in 2020, could now fall by up to six per cent over the next few months, the United Nations’ World Meteorological Organisation (WMO) predicts.
With car use down 75 per cent, according to Transport Scotland, air quality has improved in cities. Social media is awash with anecdotal evidence of wildlife reclaiming areas of vanished human activity. People are embracing new habits, with a reported eight per cent increase in Scots taking up cycling since the lockdown began.
But experts warn against viewing this temporary lull in emissions as any sort of victory for the environment.
Setting out its recently published Global Climate Report, which found that carbon dioxide levels were up 26 per cent since 1970 and the global temperature was an average of 0.86C higher, the WMO Secretary-General Petteri Taalas said: "COVID-19 may result in a temporary reduction in greenhouse gas emissions, but it is not a substitute for sustained climate action."
Indeed, the coronavirus pandemic has in some respects knocked climate change down the agenda.
COP26, the UN climate change conference which was due to take place in Glasgow in November, has been postponed until at least summer 2021. The Scottish Government’s update to the Climate Change Plan, which was to be published at the end of April, has also been delayed.
Updating the Environment, Climate Change and Land Reform Committee on the delays, Climate Change Secretary Roseanna Cunningham said: “We will need to align the Climate Change Plan to the economic recovery strategy... Initial work on the green recovery has started and I just want to reassure the committee that issues such as a Just Transition are key and central to that.”
The concept of a ‘green recovery’ is likely to dominate in climate change discussions as governments around the world draw up plans to balance the public health emergency with the need to take action to save the economy.
The UK Committee on Climate Change has already said that its annual progress report to the UK parliament, due in June, will “refocus” to include discussion of how economic rebuilding efforts can be designed to support environmentally sustainable industries and activities.
And a new report from consulting firm McKinsey says: “The coronavirus crisis holds profound lessons that can help us address climate change – if we make greater economic and environmental resiliency core to our planning of the recovery ahead.”
Given the unprecedented level of state intervention the UK and Scottish Governments have already taken to save jobs during the pandemic, and given the declaration of a ‘climate emergency’ last year, many experts on climate change are arguing that this moment of disruption could be seized to accelerate Scotland’s progress on a Just Transition away from fossil fuels.
“In my view the answer to this lies in the governments’ response,” says Charlotte Hartley, a board member of the 2050 Climate Group. “Denmark announced last week that their economic recovery plan will be different to how their economic modus operandi was before, kind of taking this as an opportunity to make what comes next more focused on delivering their equivalent to a Green New Deal and focusing on a circular economy,” she says.
Hartley also sits on the Just Transition Commission, which was set up by the Scottish Government to investigate how the move to net-zero carbon by 2045 could be managed successfully, while not leaving people who currently work in high carbon industries behind.
“There is a real opportunity for the UK and Scottish Governments to make sure that the economic stimulus packages, everything that comes in place to reignite the economy, is different and better to what was in place before,” Hartley says.
“That could set us up more beneficially in Scotland to meeting the 2030 targets, because if they don’t, if the focus is on returning to previous economic growth levels as quickly as possible, that will still take a period of time and that will simply reduce what was already a short timescale to meeting our 75 per cent emissions reduction targets.”
The commission released an interim report in February, which called for clear "transition plans" for individual sectors, which move beyond the sectoral emission reduction proposals that were set out in the original Climate Change Plan. This, the report says, will provide clarity to businesses, consumers, and communities, while also potentially acting as “a catalyst for prompt action to tackle emissions in a fair way by empowering stakeholders”.
While nobody expects the massive drop in oil demand to last much longer than the lockdown itself, the uncertainty around the timescale could have lasting damage, making some degree of government intervention inevitable.
“I think the oil and gas industry need quite a lot of transition support at this time,” Hartley says.
Publishing the stark warnings from its members, Oil and Gas UK chief executive Deirdre Michie said: “If the UK is to maintain its supply of domestic energy, protect jobs and build the critical infrastructure, it needs to transition to a net-zero future, ours is an industry worth fighting for."
There’s also the chance that behavioural changes, like the uptake in active travel and home working, could be permanent, with subsequent economic upheaval in some regions of Scotland where large numbers of people work in oil and gas supply.
Gillespie, in the April economic report, warned: “Not all sectors will come back immediately as external demand, consumer tastes, and business models will have changed significantly.”
Hartley gives the Grangemouth Refinery, which largely supplies the aviation industry, as an example.
“If the pandemic has made people aware that they don’t need to fly for holidays or for business, that remote working and online participation in meetings and all of this is the future, then that will reduce the demand for sectors like aviation and will reduce the demand of what that facility produces, which will then have a regional impact,” she says.
As well as mitigating the adverse effects of the current economic situation, governments could also move to reinforce some of these changes in a post-pandemic society.
“There’s probably quite a few people who think that cycling really is quite nice and they would like to keep doing that,” Dr Richard Dixon, director of Friends of the Earth Scotland, says.
“But if their experience after lockdown finishes is that they try to cycle on the streets they’ve been cycling on and suddenly they’re full of traffic and feel really dangerous and they don’t feel confident, they will give up cycling again.”
In Dixon’s view, transport, as the sector that contributes most to Scotland’s emissions, should be transformed after the pandemic, in terms of investment in areas such as cycling infrastructure and with greater public involvement with bus companies to drive down prices and speed up a shift to green buses, after the industry benefited from a £260m support package from the Scottish Government.
“We’ve kept them going. They’re still afloat as businesses because we, the taxpayer and the two governments, have kept them going,” Dixon says. “When we are in recovery and out of lockdown, there should be a price for that.”
The Cabinet Secretary for Economy, Fair Work and Culture, Fiona Hyslop, told the Scottish Parliament that the construction industry would be key to any economic “re-start”.
But, for Dixon, the question is what the industry is being directed to build.
“That’s the standard response in troubled times: get the construction sector going and things just right themselves. That’s perfectly understandable,” he says.
“But what are they building? If they’re building roads and bridges, then they’re building high-carbon infrastructure that’s taking us in the wrong direction. If they’re building terribly efficient social housing, or they’re completing the tram scheme in Edinburgh, or they’re investing in making the urban environment a much better place for pedestrians and cyclists, then you’re investing in low-carbon construction.”
People have realised the value of community, the value of the essential workers that we don’t pay very much, and the role of the state in difficult times”
Overall, the pandemic has changed assumptions about what big government intervention in the economy can achieve, which people, including UN Secretary-General António Guterres, say should translate into action on “the even deeper crisis” of climate change.
Dixon says there has been a “mind shift” on this thanks to the pandemic. “People have realised the value of community, the value of the essential workers that we don’t pay very much, and the role of the state in difficult times,” he says.
The Scottish Government has announced an economic recovery advisory group to advise on building “a wellbeing economy and [ensuring] a green recovery”. It is headed up by Benny Higgins, the strategic adviser to the First Minister on the development of the Scottish National Investment Bank, and by Professor Sir Anton Muscatelli, chair of the First Minister’s Standing Council on Europe.
While the “topline message” is good, Dixon says he is concerned that the membership of the group so far does not include anyone with a primary focus on environmental issues.
The First Minister has been hesitant to shift focus from the immediate challenges of the public health crisis. But, asked by Scottish Greens co-leader Patrick Harvie in the parliament if economic recovery should be focused on building a “fairer, greener and more equal society”, Nicola Sturgeon said: “I think that there will be lots of issues as we come out of the immediate part of the crisis, and beyond, that we will all want to think about afresh.” •