INSIGHTS

COVID-19 has been devastating – there’s no two ways about it. According to the World Health Organisation, more than 2.7 million people have died from COVID to date. While New Zealand has fared remarkably well, peoples’ livelihoods have been affected and our day to day lives severely restricted.

However, there’s a silver lining. With some new-found perspective, more and more people are appreciating the environmental challenges facing us, including climate change.

COVID lockdowns saw emissions drop sharply

Beginning with China, countries around the world went into various states of lockdown last year. Economic activity, especially travel, ground to a halt. At peak-lockdown in April, regions responsible for 90% of global emissions were under some level of economic and social restrictions.

The effect of this on global emissions was marked. According to a paper published in the journal Nature, at its peak in April, carbon dioxide emissions were down 17% relative to the average daily emissions over the course of 2019. These were the lowest daily emissions observed since 2006.

In New Zealand, which had one of the strictest lockdowns in the world, emissions fell by an estimated 41.1%. Only Luxembourg, at -44.6%, saw a sharper drop off in emissions. By contrast, emissions in the United States, the United Kingdom and Australia fell by around 30% at their peak.

Peak drop in CO2 emissions by country

By sector, emissions from surface transport (cars, trucks etc.) were estimated to fall by 36%. The aviation sector (which comprises less than 3% of total emissions) saw the sharpest drop, with emissions down 60%. International aviation emissions fell even more – down 75%. Not surprisingly, with people stuck at home, residential emissions rose by an estimated 2.8% - the only area of the economy to see a rise.

Will the drop in emissions be long-lasting?

Yes and no.

On one hand, as the world continues to reopen, now boosted by the vaccine rollout, emissions will rebound. In fact, emissions bounced back over the second half of the year as economies reopened, with total CO2 emissions for 2020 ending up falling by around 6% on 2019 (though this was still the largest relative fall in emissions since World War II, and the first drop since 2009 in the aftermath of the global financial crisis).

The sharp decline in emissions for a few months also had virtually no detectable impact on atmospheric CO2 concentration – this is still at record high levels.

However, something happened during the COVID lockdowns. The appreciation of environmental (and social) challenges we face has gained newfound prominence amongst consumers, companies, policy makers and investors.

For example, the value of flows into exchange traded funds which invest in accordance with environmental, social and governance (ESG) principles more than doubled in 2020. Locally, we saw the effect of this with shares in electricity companies, most prominently Meridian Energy and Contact Energy, rising strongly early in the year due to demand from renewable energy ETFs.

More and more companies are consulting with stakeholders and putting in place commitments to lower their emissions footprints. Sustainable investing is here to stay and is not merely a bull market phenomenon – something that is a nice to have when times are good but tossed aside when hard times hit. While one year of economic disruption is no way near enough to make a dent against climate change, 2020 may just have been the kicker we needed.