Can we squeeze some long-run good out of this short-run disaster?
The coronavirus has upended life in my household. I’m now toggling between teaching first-grade math and undergraduate economics, and on Thursday I changed a diaper during a conference call. So when tasked with writing an energy blog this week, I found it impossible not to think about our current crisis—the coronavirus—and how it might connect to the crisis I usually worry about—climate change.
There are direct lines between the two. As the economy stalls in response to COVID-19, emissions will decline in the short run. But long run impacts are less clear. The coronavirus could impact climate by (a) affecting investments we make today, (b) changing behaviors, or (c) altering politics, each of which I touch on below.
In the end, I believe that COVID-19 could lead to a significantly better climate tomorrow. But the important pathways hinge less on immediate economics and more on our political leaders. Unfortunately, looking for climate action in Washington, DC these days is like trying to find Clorox wipes at my neighborhood Safeway. So the biggest impact of the virus on climate may well be its impact on this year’s elections. Think of that as an opportunity to restock the shelves in DC.
Energy investments in the wake of the COVID-19 shock
They say “write what you know,” and what I know the most about is transportation emissions. So my first thought was that COVID-19 will impact the climate via low oil prices. As Severin detailed, events set in motion in part by the virus have led to a dramatic drop in oil prices today, and futures markets expect low prices to persist. (Though evidently US companies and regulators are ready to join OPEC to help boost prices!)
US consumers purchased vehicles with a record high fuel economy last year (see chart), but persistent low gas prices might nudge consumers towards less efficient models. Plenty of research has demonstrated that when gasoline prices are lower, people buy less efficient cars, and vehicles purchased today will be around for another 15 plus years.
But oil prices also plummeted during the financial crisis, and the same data shows that whatever effect that had, it was dominated by a longer upward trend. Of course, back in 2008-9 team Obama was tightening fuel economy standards and using Cash for Clunkers to push efficiency, whereas today the Trump administration is working to loosen rules. So low gas prices may have a bigger impact this time around.
More importantly, COVID-19 has also pushed already low government borrowing rates to new historical lows. Thirty-year treasury notes fell below 1% earlier this month, and they are hovering substantially below the prior record rates from the financial crisis. The bottom line is that the federal government now has an opportunity to fund big investments at negative real interest rates that would transition the economy towards renewable energy, a smarter grid, and electrification of homes and vehicles.
Can we take advantage of this? It’s clear that stimulus is coming. But the bill being hashed out now has rightly focused on immediately injecting cash into consumer’s hands to mitigate economic hardship. But I predict there will be a more forward-looking spending bill in late spring or summer that aims to spur aggregate demand once the most acute public health crisis has passed. That will be the moment for climate watchers to push for smart investments. But given the alignment of power today, getting items from a climate wish list included in a bill will require both artful positioning and a decision among Democrats to prioritize climate over other worthy concerns.
Helpful hysteresis: On elbow bumps and air travel
Another way the coronavirus could impact climate is by establishing changes in behavior that might persist beyond the crisis.
The virus has radically altered hygiene norms, and I expect some of these changes to outlast the crisis. In the span of ten days, I went from handshakes to fist bumps to elbow bumps to being on lockdown in my house. Two weeks ago, Purell dispensers popped up throughout campus and my barista wouldn’t take my travel mug behind the counter. Now I think it is normal to see someone in a bunny suit at the grocery store. I’d like to leave my house when things settle down a bit, but I’m rooting for the Purell dispensers and the increased hand washing to stay.
In terms of energy consumption, COVID-19 has similarly created rapid changes that may or may not persist. The most dramatic is probably for air travel, where passenger volumes have plummeted, spurring some to draw analogies to 9/11. Emissions from airplanes have been growing rapidly and now account for around 2.5% of all carbon emissions in the US. These emissions are especially tough to abate via technology.
I myself am in the middle of a multiyear experiment in reduced work travel, due neither to fears of disease, nor to Greta-induced climate guilt, but rather because I’ve got a litter of young kids at home. The opportunity cost of bouncing over to the East Coast to give an 80-minute research spiel is simply too high most of the time.
I’ve found ways to minimize the lost opportunities from reduced travel, but I could do a lot more if my colleagues were also interested in cutting back on travel. In most industries, real change requires a collective shift in norms and expectations. COVID-19 has thrust just such an experiment on many industries, and it may accelerate teleworking and remote meeting trends that were already underway.
For a contrasting view, consider that the last time the airline industry was hit this dramatically was 9/11. That tragedy forever changed the nature of air travel, but it had little impact on the long-run growth of the industry, as shown in the chart below. This might suggest that it is very hard to get people to substitute away from air travel.
But, back in 2001 we had AOL instant messenger, and Mark Zuckerberg was still in high school. Today we have Zoom and Slack and Skype and Microsoft Teams. I predict we’ll see a wave of innovation in related products and, more significantly, in how they are used. (I’ve already hosted two Zoom cocktail hours.) Besides, cancelled conferences and reduced travel will be a great way for businesses to cut costs as they recover from the current downturn.
The political connection between the two crises
COVID-19 has suddenly spurred the type of collective mobilization that climate advocates have spent decades trying to inspire. Is there any way to harness this moment after the immediate health crisis has abated? Or are we too quick to draw a parallel, as argued here?
An optimist might see that COVID-19 has imbued us with a sense of shared vulnerability and is forcing on us a reorganization of life to benefit the common good. Addressing a common threat can bring people together, and climate advocates will no longer have to invoke World War II to find an example of economic reorganization and shared sacrifice as a model for the Green New Deal.
On the other hand, as walls go up and tensions flare, the coronavirus may drive us apart, rather than bring us together. Which path we take is in part determined by the actions and rhetoric of our leaders, which is why I suspect that the most consequential effect of the coronavirus on climate policy in the US may well be how it impacts our November elections.
Polling shows a partisan divide around views of the coronavirus, and President Trump enjoys relatively solid approval ratings for his handling of the crisis to date. But, in the coming weeks, dire warnings will become actual deaths of relatives and neighbors, and scenes from overwhelmed hospitals will be on the news. The partisan divide is already shrinking, and I think the political consequences could be severe. But no one can say for sure who will be held accountable in our current media environment.
The short and the long of it
A lot of terrible things are happening in the here and now, and it’s important not to look past the short run actions we should be taking immediately to save lives and help those most vulnerable to the economic fallout. COVID-19 is a tragedy unfolding in real time, and actions we take today can influence the path of the disease and the severity of the economic fallout. So it is right for the virus to demand our attention now.
But for those of us whose job it is to think about climate change, there is some scope for looking ahead. Climate change is also a threat to our way of life, and our actions here also matter, though on a different time scale. Is there an important connection between the two? Short run emissions are dropping, but this will prove a blip and is nothing to laud. The long run emissions impacts could be substantial, but this depends less on immediate economics and more on policy reactions, so it seems right to focus our attention on steering policy in a direction that addresses the needs of today without forgetting the needs of tomorrow.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas
Suggested citation: Sallee, James. “COVID-19 and the Climate” Energy Institute Blog, UC Berkeley, March 23, 2020, https://energyathaas.wordpress.com/2020/03/23/covid-19-and-the-climate/
James M. Sallee is an Associate Professor in the Department of Agricultural and Resource Economics at UC Berkeley, a Research Associate of the Energy Institute at Haas, and a Faculty Research Fellow of the National Bureau of Economic Research. He is a public economist who studies topics related to energy, the environment and taxation. Much of his work evaluates policies aimed at mitigating greenhouse gas emissions related to the use of automobiles.