What does COVID mean for the climate crisis, energy transition and for BP?

Published in

Launchpad Publications

7 min readJul 16, 2020

In the lead up to the cataclysm that was to be the coronavirus pandemic, there was real sense of global momentum building around tackling the climate crisis and advancing the energy transition. Climate and environmental activism were at a high and huge carbon-emitting multinational conglomerates were making bold pledges to achieve net zero over the coming decades. It seemed the spotlight now well and truly shone on this lofty challenge — and that tackling it had become the zeitgeist of our time.

However, like no force in modern memory the coronavirus pandemic has brought most of the world to a grinding halt. As we have all settled into this “new normal” it has become apparent that in this crisis(like all crises before it), there are winners and losers. In that context it begs the question: has COVID helped or hindered the climate crisis and the energy transition? What does it mean for BP and for Launchpad?

Climate Change

It is tempting to point out that this Covid-induced global slowdown is giving planet earth the break she so badly needs. Transparent waters running through Venetian Canals. Clear skies in ordinarily smog-covered cities like Delhi, Beijing and Los Angeles. Perhaps, in times of turmoil it is simply human nature to look for the positives.

India Gate war memorial on October 17, 2019, months before the nationwide lockdown. The bottom picture shows the memorial after air pollution levels began to drop during the lockdown in New Delhi on April 8.(Reuters)

While it’s true emissions are down — daily global Co2 emissions decreased by -17% in April compared with 2019. At their peak, emissions in individual countries decreased by -26% ¹. However it would be incredibly myopic to celebrate these statistics as victories.

Firstly, these figures pale in comparison to the human and economic cost that has caused them: like losing weight when you’re sick, it is a side effect that is eclipsed by the root cause. Secondly, these are short-term effects brought about by the temporary radical changes our global response to this pandemic has required of us. These effects cannot be looked at in a vacuum and when viewed holistically is it far-cry from the sustainable decarbonised system we need to get to. The full impact of COVID on 2020 emissions will depend on the duration of our collective confinement: with a low estimate of -4% if things return to normal by mid-June and -7% if restrictions remain until year-end.² This drop is still less than what is needed each year to keep the world on track to meet the aims of the Paris Agreement.

The key question is what will the long-term effects of COVID be for the climate crisis? This is more difficult to answer. One of the many things this virus has robbed from us is our ability to accurately plan and forecast. We are simply in uncharted territory. From an individual and human level it is a question of habit: what behavioural changes picked up during or prompted by the virus will endure once it’s over? Many believe home and virtual working to reign supreme post-lockdown — add on to that questions around business travel, use of commercial office space and commuting. Large parts of the emission equation like transport and heating/cooling could be noticeably impacted. On a macro level, there is an argument that COVID has simply been brewing up a force of repressed demand and supply. As soon as safety allows, producers and consumers alike could be itching to recoup their losses and strive to return to pre-covid levels of activity.

One would hope that this temporary pause has at least allowed consumers, voters, politicians, citizens to reflect and get a taste of what a clean future could look like — and prompt action towards its realisation.

Energy Transition

It’s clear that the virus has had a substantial impact on the energy sector. Global energy use is predicted to fall 6% over the course of 2020(IEA). Fossil fuels have been hit hardest by lockdown measures with global coal demand falling 8% in Q1 and oil demand falling 5%. In fact it is renewables that have proved to be the most resilient energy source to the shocks — with global use of renewable energy increasing by 1.5% in Q1. It is anticipated that global use of renewable energy will grow by 1% in 2020. ³

It is conceivable to think that this crisis could be the watershed moment for the shift from fossil fuels to renewable or lower carbon energy sources. Even before the virus the cracks were beginning to show: experts were forecasting peak fossil fuel demand within a few years, the growing economic attractiveness of alternatives, political and societal pressures, combined with poor stock market performance. Now, the fossil fuel industry is on the brink — with negative oil prices and an average of 45% of market value being wiped off leading oil, gas and petrochemical companies books.⁴ The outlook looks different and expectations have shifted. Of course, a shock of this magnitude is going to be felt across the energy investment landscape — with green investments being no exception. However there is a stark contrast between long term effects for the low growth incumbent and the high-growth challenger.

If we take ‘economics’ as one side of this coin, government policy set in the wake of the crisis is surely the other. It will be down to governments to promote policies and regulations that pave the way for necessary changes: from EV infrastructure, power grid liberalisation and an overhaul of fossil fuel subsidies, tax breaks and uncharged externalities.

Though the changes that need to be made are by no means easy, they do present an opportunity. The International Renewable Agency found that investment in renewable energy could aid climate targets but also kickstart economic growth. It is forecasted that it could deliver global GDP gains of $98tn above a business-as-usual scenario by 2050 by returning between $3 and $8 on every dollar invested. From a jobs perspective, it could quadruple the number of jobs in the sector to 42m over the next 30 years.⁵ Major countries are beginning to realise this — Germany and France have pledged $45bn and $17b respectively on climate measures and the UK has pledged some £12bn spend on energy efficiency and green job creation .⁶

A green recovery is one that could benefit the post-covid world economically, environmentally and socially. To achieve this climate goals must be aligned with the economic stimulus and policy packages that are being rolled out.

What Does This Mean for BP and Launchpad?

This places BP in a unique situation in a what is clearly a turning point for the industry and for the company itself. Over the last few months it has been fighting a battle on two fronts: COVID and the oil shock. The impacts of which are going from bad to worse: a 66% drop in earnings for Q1, 10,000 redundancies announced and close to $18bn of value slashed off assets after revised energy price outlook.⁷ Needless to say BP’s new CEO Bernard Looney has had his hands full since taking up the job in February. With pressure now mounting on BP’s dividend payout promises — it begs the question: what next? Where are we going?

In February, BP set out its bold ambition to become a net zero company by 2020 through its commitment to 5 aims, with near-term plans and strategies to be laid out on Capital Markets day in September. We are left wondering: whether pre-COVID commitments are ones that should or even can be honoured?

CEO Bernard Looney announcing BP’s net zero ambitions

However it’s clear the fallout that BP is facing will only serve to necessitate and hasten the transformation of the company away from its traditional hydrocarbon business to a more sustainable, renewable, digital and modern energy business. The wheels were already moving in this direction but this crisis has made starkly clear how vital this transformation is. Completely transforming one of the world’s largest companies core business, all while delivering strong returns to shareholders is no mean feat. We all eagerly await capital markets day to hear the finer, fleshed out details.

Launchpad

One part of the solution will be our team and residents companies at here at Launchpad — BP’s new business building unit. Set up to invest, build and rapidly scale a portfolio of world-class energy innovations and businesses by combining the provision of capital with the expert business building capability we offer in house. This will allow for technologies and business that can enable and embolden that transformation of BP and make a tangible impact on those net zero ambitions.

Ultimately it is too early to say with any certainty what the full and final impacts of this crisis will be. It has created countless challenges but has also carved out opportunities: for governments, business and individuals. It is these opportunities and changes that we must now strive towards — with us here at Launchpad fully behind this push.

Cathal Hughes — Investment Analyst at Launchpad

*Views expressed in this article are my own*

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