Life after COVID-19: Will the world as we know it change for good?

With the first lockdowns in place in March 2020, the Internet and social media were buzzing with posts and images of empty cities, and in some cities, even wild animals were pictured roaming the streets as if nature was reclaiming the world from humanity.

As governments across the globe shut down their plants and traffic systems, confining people to their homes so as to curb the spread of the Coronavirus, the daily global CO2 emissions dropped providing some silver lining to the pandemic.

The suspension of road and air traffic, coupled with shutdowns in industrial complexes in China and steel production in the U.S. significantly cut the global CO2 emissions during the first half of the year.

According to figures from Nature Research, daily global CO₂ emissions decreased by –17% by early April 2020 compared with the mean 2019 levels, with emissions in individual countries decreased by –26% on average at their peak. 

The pandemic-related shutdowns have shown that decarbonizations goals could be attained at a snap of the fingers if the world wanted to push forward with ambitious actions.

Nevertheless, the positive effects on air pollution and the environment were temporary. As soon as the plants started working again, we saw that those emission cuts quickly returned to previous levels.

On the other hand, the economic impact of those factory closures, work from home orders and quarantines have been devastating for numerous sectors resulting in losses, layoffs and cuts across the board.

The International Monetary Fund (IMF) expects the global economy to contract by 4.4% this year, a large drop compared with the 3.3% growth being projected in January.

The pandemic has triggered one of the worst humanitarian crises in the shipping sector, causing over 400,000 seafarers to be stranded at sea and some 400,000 more unable to join ships due to travel restrictions imposed by individual governments.

Furthermore, COVID-19 has put a break on numerous investments slowing down global economic progress and triggering fears of recession across global economies.

The shutdowns due to COVID-19 and the sense of urgency they were carried out with by global governments, compromising economic output for the sake of human safety and health have been unprecedented.

Fortunately, there seems to be some light at the end of the tunnel as the development of COVID-19 vaccines marks significant milestones, with the first vaccines being rolled out and starting distribution in the UK already this week.

It will take some time before the vaccination finally curbs the spread of the virus enabling the world to go back to normal and for the economies to recover.

However, the time we have had during the pandemic to reflect about the world as we know it should serve as a lesson on how to rebuild back the global economies in line with the greatest peril to the humanity of our time – climate change.

There is a mounting pressure for the post-pandemic economic recovery to go hand in hand with the sustainability goals of the Paris Agreement, which this year celebrates its fifth anniversary, and abandon, once and for all, the energy sector’s reliance on fossil fuels.

Energy transition has become quite a trend this year with numerous oil and gas majors taking stakes in the renewable energy sectors and a handful of governments announcing their carbon neutrality plans.

Even Beijing, the world’s biggest polluter, announced plans to make China carbon neutral by 2060.

The timing is perfect. But will the world be able to step up and act with the same vigor and sense of urgency to combat climate change as it did with the pandemic?

“Lessons learned from the economic crisis in 2008-2009 show that CO2 emissions dropped, while in 2010 the rebound was four times higher than in the previous year due to the economic recovery. It is in all our interest to use this time to avoid that scenario and have a peak CO2 emissions in 2019. In order to do so, we need a strong, sustainable recovery plan and a continuous commitment to net-zero by 2050 or later,”Mechthild Wörsdörfer, Director Sustainability, Technology and Outlooks, IEA, said in a recent webinar hosted by the International Chamber of Shipping (ICS).

The world needs a sustainable recovery plan, creating jobs and economic recovery while pushing for a reduction of CO2 emissions.

As governments across the globe embark upon the monumental task of devising stimulus and recovery packages, the clock is ticking for the governments to go green.  

Nevertheless, sacrificing sustainability goals for the sake of economic rebound might just be what certain governments are willing to do.

According to the International Institute for Sustainable Development, despite repeated pledges to end inefficient fossil fuel subsidies, G20 governments’ support to fossil fuels has dropped by only 9% since 2014–2016, hitting $584 billion annually over the last three years.

Based on the study IISD conducted in cooperation with the Overseas Development Institute (ODI) and Oil Change International (OCI), the marginal progress will likely be undone this year by billions of dollars committed to fossil fuels in response to COVID-19.

“G20 governments were already not on track to meet their Paris Agreement commitments on ending public support for fossil fuels before COVID-19,” says Anna Geddes of IISD, lead author of the report.

“Now, disappointingly, they are moving in the opposite direction. G20 funds for fossil fuels are likely on course to remain constant or even trend upwards again in 2020 compared to the last few years where we’ve seen a slight drop in support.”

According to data from the Energy Policy Tracker, G20 governments have given at least $233 billion in additional support through recovery measures to fossil fuel-intensive sectors since the pandemic began.

These billions represent a missed opportunity to accelerate the energy transition and to power long-term job creation and investment opportunities at a time when we need them most, members of the International Renewable Energy Agency (IRENA) Coalition for Action said.

IRENA insists that the governments across the world need to work together toward a Global Green Deal and pave the way for a clean, low-carbon global economy.

Hence, there should be a greater push to subsidize technologies consistent with long-term climate sustainability, which include flexible power grids, efficiency solutions, electric vehicle charging, energy storage, interconnected hydropower, green hydrogen, etc.

Nevertheless, it appears that it will be very difficult to let go of old habits.

The global shipping industry is expected to play a key role in the global economic recovery post-pandemic as a vital enabler of smooth functioning of international supply chains. Trade recovery has been slow this year, especially as winter brought about new waves of COVID-19 cases and related lockdowns across the world.

Moving forward, this will probably be the case in 2021, with demand picking up in line with the pace of phasing out of the pandemic.

The post-pandemic recovery of global economies will definitely increase the demand for shipping which is good news.

However, in the long-term, the sector is also likely to see some changes with regard to global trade patterns.

“Although it may be too early to fully grasp supply-chain redesign patterns in a postpandemic recovery scenario, it is inevitable that the shipping industry will be fundamentally affected, regardless of the specific trajectories that different industries follow.

“For instance, a reshoring trajectory, leading to shorter and less fragmented value chains, could have an impact on deep-sea cargo volumes and the capacity to generate economies of scale through megasized vessels, which also provide less flexibility than smaller ships to adapt to sharp fluctuations between supply and demand,” UNCTAD said in its Review of Maritime Transport 2020.

A tendency to switch toward self-sufficiency and water down the globalization process built on low labour cost differentials and extensive outsourcing of production is emerging slowly but surely. The pandemic has shown that reliance on single sources of goods is not sustainable, hence countries are expected to shift to the diversification of sourcing goods and building up self-sufficiency, according to UNCTAD.

The review points to five key trends in maritime transport and trade that will be part of the pandemic’s legacy:

• An accelerated shift in globalization patterns and supply-chain designs
• A swifter uptake of technology and digitalization, with technology increasingly permeating supply chains and their distribution networks, including transport and logistics (e-commerce and online platforms, blockchain solutions and information technology-enabled third-party logistics)
• Continued shifts in consumer spending and behaviour and evolving tastes that may change production and transport requirements. (Rise in online shopping in the post-covid era and a requirement for more customized goods)
• Heightened importance of new criteria and metrics such as risk assessment and management on relevant policy agendas and industry’s business plans and strategies.
• Adjustments in maritime transport to allow adaptation and change in line with the changing operating landscape.

Finally, the global decarbonization agenda has implications for the two largest commodities transported at sea: crude oil and coal.

With some of the world’s largest importers of these products, shifting to carbon neutrality in the upcoming 30 to 40 years, most notably China, Japan, and South Korea, as well as the EU, the world’s trading patterns will probably have to shift adapting to demand prospects.

Instead, ammonia and hydrogen carriers are likely to step in and take over major trading routes. However, the volumes of oil traded globally would probably be unmatched by its likely successor(s).

Aside from economic recovery, geopolitical trends will play a significant role in the future shaping of trading volumes and patterns, for sure.

 Hence many eyes are set on the Biden administration and its ability to go back on track with the US climate action plans. The future administration has pledged to rejoin the Paris Agreement and to set the country on a pathway to net zero emissions by 2050. 

It is yet to be seen what kind of policies will be adopted to make this a reality, and what approach will the Biden administration take, once it takes office, towards China.

“While the style of US-China relations is expected to improve under a Biden administration, the substance is likely to remain broadly unchanged. US political orthodoxy sees China as a threat, particularly to US jobs. Protectionism remains in play, even as the US looks to re-engage with the WTO, the EU and, potentially, the Trans-Pacific Partnership,” WoodMac’s Gavin Thompson‘s wrote in a blog post regarding the US elections and impact on China energy:

“A significant increase in Chinese purchases of US energy would be a positive step. China’s imports of US crude are now rising, and US LNG into China is a compelling story given its inherent flexibility. Across the energy spectrum, collaboration on climate change offers enormous potential. But with strategic competition rising, the stakes are high. “ 

Be that as it may, there will be a bumpy road ahead for the shipping industry which is highly dependent on how these geopolitical relations will pan out.

Further trading tensions, protectionism, and competition will not aid the cause.

Collaboration and keeping eyes on the prize are the only way we can make the transition toward net-zero economies happen.

The shipping industry must face up to its own demons in order to push forward on the sustainability scale.

The International Maritime Organization (IMO) is targeting a reduction of greenhouse gas emissions by 40 percent by 2030, and by 50 percent by 2050 when compared with 2008 levels with the aim of a complete phase-out by the end of the century.

To make this possible, the industry needs to have zero-emission ships commercially available by 2030.

That being said, the sector has been the target of severe criticism for lack of ambition on its decarbonization efforts urging it to move faster on the regulatory front to spearhead the transition.

Specifically, on the back of the recent approval of amendments to MARPOL Annex VI by the IMO’s Marine Environment Protection Committee, industry bodies have clamped down on IMO insisting the amendments fail to accelerate global fleet renewal.

To remind, the amendments relate to the Energy Efficiency Existing Ship Index (EEXI), operational Carbon Intensity Indicator (CII), which includes a rating scheme (A to E), and an enhanced SEEMP with mandatory content, approval, and subsequent audits.

Shipbroking firm SSY said that instead of speeding up the removal of aging ships from the market and replacing them with more eco-friendly newbuilds, the shipowners are expected to continue to slow steam as a way of meeting environmental targets.

Environmentalists fear the move could result in the rise of the sector’s 1 billion tonnes of annual greenhouse gas emissions in the next decade at a time when the world is urged to halve its GHG emissions to curb global warming in line with the Paris Agreement.

It is very difficult for the IMO to find common ground between countries seeking a more ambitious approach to protecting themselves from the effects of climate change and those with more conservative views, often trying to protect other interests.

As a result, shipping has been notoriously slow in adopting and implementing global strategies, often as a result of getting entangled in bureaucracy and diplomacy ultimately failing to deliver results.

Clearly, if IMO doesn’t move faster, individual regions and governments might do so instead, which could result in the creation of multi-tier systems in the sector and further aggravate the complex market situation for shipowners.

Therefore, the recovery packages and strategies toward a more sustainable future should go hand in hand with the IMO’s goals, and vice versa, in order to make the transition less painful.

The shipping sector has been vocal in expressing its willingness to deliver emissions cuts. Technology developers are pressing further with innovations to meet those objectives, but aside from regulatory support, a set of de-risking measures from governments will be vital to spurring the research and development and commercialization of zero-emission technologies.

Clearly, sectors like shipping cannot do this on their own, and they need wide-ranging government support through regulatory and economic packages to make the transition economically sensible.

A punishment and reward system targeting vessels’ environmental performance could be one of those measures that could encourage shipowners to move faster toward greener operations.

But at the end of the day, fast-tracking of the transition toward a more sustainable shipping industry can only be achieved if the governments shoulder a greater financial burden and support a greener post-pandemic recovery of the world.