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Worlds collide

14 May 2020 By Antony Currie, George Hay

The coronavirus crisis leaves the fight against climate change at a pivotal point. Carbon emissions will in 2020 drop by 8% due to plummeting growth amid international lockdowns, according to the International Energy Agency. Whether this largest-ever yearly reduction proves to be good or bad for battling global warming hinges on what governments do next.

It’s easy to be pessimistic. It has, after all, taken a near-global economic shutdown for emissions to fall only slightly more than the 7.6% drop required every year until 2030 to keep temperature increases to below 1.5 degrees Celsius.

Some countries may pursue climate-hostile policies to kick-start growth. U.S. President Donald Trump is relaxing environmental protections. Dramatic falls in oil and coal prices could encourage China and India to increase consumption, economist Dieter Helm warns. Supply-chain disruptions and hard-up governments could hurt future low-carbon and renewable-energy projects, the IEA says.

Yet the momentum behind climate activism remains. There’s now hard evidence that sustainable investing offers an advantage: Between December and the end of April, climate-focused stocks outperformed benchmark indexes by 5.1%, and those scoring highly in so-called environmental, social and governance ratings by 3.7%, according to HSBC.

Meanwhile, the Network for Greening the Financial System, a group of more than 60 central banks and other institutions, is pushing for coronavirus recovery policies to be linked to the environmental transition. Investors with more than $100 trillion of assets in early May started lobbying for the same action from governments through nonprofit representatives at The Investor Agenda.

Economic multipliers on state investment in areas like green infrastructure can be much larger in a slump, notes research by economists including Nobel laureate Joseph Stiglitz and Nicholas Stern. Funding resilient infrastructure in emerging markets can yield a 400% return, the World Bank estimates. That’s far better than doling out trillions of dollars in post-crisis emergency aid and could limit the permanent stranding of assets.

It may push credulity to assume that an increasingly splintering world can convene at the delayed COP26 conference in 2021 and set binding emissions-reduction targets. But Covid-19 has distilled into a few weeks a harsh taste of the havoc global warming will cause over years. Consequently, citizens may be less willing to accept ill-preparedness and more amenable to previous non-starters like tough carbon taxes. Course-correction is more, not less, conceivable.

(This is part of a series of insights from Breakingviews columnists examining how the Great Lockdown to halt Covid-19’s spread will affect business, finance, economies and markets.)


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