How is the Covid-19 pandemic affecting the global energy system & CO2 emissions?

Show Notes

The Covid-19 pandemic is first and foremost a health crisis. But by imposing lockdown measures and widely restricting travel and mobility, governments have also halted much of their own economic activities. The pandemic also represents the biggest shock to the global energy system in over 70 years, set to dwarf the impact of the 2008 financial crisis. In the first episode of Everything Energy we chat to Laura Cozzi, the IEA's Chief Energy Modeller, to unpack what this means for demand and consumption across a number of major fuels, as well as CO2 emissions for the rest of the year.

What is Everything Energy?

Everything Energy is a podcast by the International Energy Agency (IEA). Through expert interviews, it delves into today’s biggest global energy topics – providing valuable insights on important trends based on the latest data and analysis.

Laura Cozzi: 00:10

If you think at what happened to the CO2 curve since post war, we are basically always seeing increasing trends, except in a few instances where we saw declines. For example, when during the financial crisis, during other moments in which the economy didn't do so well. So if you were to put together all these contractions of CO2 emissions, all these declines in CO2 emissions that the globe has seen since World War Two up to now, well, that wouldn't be enough to see and to match what we're going to see this year.

Tanja Dijon: 00:43

Hello and welcome to the IEA's new podcast series, Everything Energy. I'm Tanja Dijon.

Jad Mahwad: 00:49

And I'm Jad Mahwad.

Tanja Dijon: 00:50

And today we're being joined by Laura Cozzi. Laura is the IEA's chief energy modeller, and she's here to talk to us about the unprecedented shock that the global energy system is experiencing in light of the COVID 19 pandemic.

Jad Mahwad: 01:02

So if you look up on Google, you'll find that there has been an unprecedented use of the word unprecedented since March 1. Truly, the global crisis that has hit the world since the beginning of the year, the discovery of a new virus in China, which has rapidly spread to Europe, the United States and other places on the planet is unprecedented in its scale, in its speed and the sheer number of people who have been affected by it. Of course, the pandemic is first and foremost a health crisis. But by imposing lockdown measures and widely restricting travel and mobility, governments have also halted much of their own economic activities. Hi, Laura, and welcome to the show.

Laura Cozzi: 01:42

Hi, John. Hi, Tania. Thank you very much for being our first guest on our new podcast.

Tanja Dijon: 01:46

My great pleasure. Laura, the first question we wanted to ask you is really about this pandemic and its historical context, looking back over similar world events. We now know that the COVID 19 pandemic represents the biggest shock to the global energy system in more than seven decades. So how is this different from previous shocks?

Laura Cozzi: 02:05

So I think I'd like to start from what Jad said about the use of the word unprecedented. We find ourselves, since a month more or less using this more and more often. And there is one rather simple reason. If you look at what's happening to global energy markets since the beginning of the year, we had the first couple of months in which the shock really started in China. And at that time, when Wuhan and Hubei were in lockdown, about 5% of global energy use was really affected by the global pandemic and some sort of lockdown.

Laura Cozzi: 02:47

But as severe spread to Europe, The United States and India, what happened since mid March through April is really unprecedented. We jumped from around 5% of energy use being in lockdown to over half of global energy use being in countries that see some form of lockdown. In terms of spread and speed, we have never seen anything like that. So basically in the span of just three weeks, half of the global energy use were in some kind of form of restrictions. And those restrictions really trigger to the energy sector in three channels.

Laura Cozzi: 03:27

The first is really electricity use, and basically all countries that have seen some form of lockdown, we have analysed, show a very similar pattern. We are basically living and experiencing electricity use that are the same as a very, very long Sunday. This means that you cut electricity use by something between 10 and 30%. Those are huge, huge numbers. At the same time, we are seeing transport energy use cut very dramatically.

Laura Cozzi: 03:56

In this very moment as we speak, global transport activity on road is only half of what we would be experiencing normally. And then the third big channel in which this crisis is affecting the global energy use is through the economy. We are seeing very significant slumps in the economy, and so global energy use is being affected in an unprecedented way.

Jad Mahwad: 04:19

So this is bigger than what we've seen after the financial crisis from a decade ago, this is bigger than the previous oil shocks from the 70s, this is how far back do you have to go to find something of this scale? You said the speed is unprecedented because it happened in such a small period of time, but just in terms of scale, how far back does one have to go?

Laura Cozzi: 04:41

So I'd probably like to pause here for a second and do two things. First, we look back at what has happened with real data over the past four months. And at the end of April, we are measuring a contraction of global energy use of around 2.5%. This is huge in itself. But when we look forward, and this is an analysis that we have performed, on the assumption that countries will slowly get out of lockdowns, so in a very, very gradual way, and the economy will recover also gradually.

Laura Cozzi: 05:15

And so when we put together all these data and assumptions for the rest of the year, we are expecting a contraction that we haven't seen for the past seventy years. Seven zero. So if you look at what happened in the financial crisis, just to give a sense of the scale and the size of what we're talking about, this is seven times the size of what we've seen in the financial crisis. And to give probably another sense of the dimension of what we're talking about, this would be like in a year, taking away from energy markets the third largest energy consumer, which is India. So it's huge.

Jad Mahwad: 05:50

So one of the first manifestations we've seen perhaps that the public has seen is the slump in oil demand. And we've seen since the beginning of the year a very big kind of shock to the oil system. Can you just walk us through specifically first on oil? What is going on there? There's a dual shock to the system here, but I think on the demand side, I think it's a really interesting one to kind of go through.

Jad Mahwad: 06:14

And then maybe more largely, is what's happening to oil also happening to other fossil fuels? Or are the reasons behind the decline in coal and natural gas different than what you've seen in the oil markets?

Laura Cozzi: 06:27

So what oil has been experiencing is among the three channels that you've seen is really the cut in transport energy use that has really cut cut oil consumption very strongly. If you look at two key indicators, one is the road transport energy use, as I mentioned, globally, today we are at 50% of normal road transport use. Flights have been curbed very significantly. And if you put together just those two elements of oil use, they make between 50 and 60% of oil demand. So this restraint in our mobility, being in urban areas, being in intercontinental flights, is really hit very severely, very severely oil demand.

Laura Cozzi: 07:18

And we have seen really unprecedented things with oil prices becoming negative. However, oil has really gotten the attention in many newspaper, in news, far less so the other fossil fuels. But our expectation and what we are seeing in terms of coal use, for example, is also gonna be very, very dramatic, very dramatic hit. A contraction that we are expecting is something that we need to go back basically to World War II to see this type of contraction. And we are expecting that basically in just one year we will swipe away the demand and go back to levels of demand of 2009.

Laura Cozzi: 08:02

So this is a huge huge shock to the coal energy markets as well. For coal, the story is different than from oil because coal is being hit mostly on two other channels. The first we have discussed earlier, we are at home, we are using more electricity for telework, etc. But overall, electricity demand is going down very significantly. And coal use is being hit because of electricity demand being down.

Laura Cozzi: 08:29

This is one channel. The other channel is industrial activity. Industrial activity is down. Many of our industrial energy uses globally are still based on coal. Think about steel in China.

Laura Cozzi: 08:42

And the fact that we are consuming less in this period is also hitting coal very hard. Similarly, I would say the three fossil fuels oil, coal and gas will be experiencing this year very, very dramatic cuts.

Tanja Dijon: 08:58

So we are seeing these really dramatic cuts across fossil fuels. But contrary to these trends, we see that renewables are holding up well in the crisis, in fact increasing. What's making them so resilient? So we again, tracking what has happened over the past four months,

Laura Cozzi: 09:17

we are seeing not only electricity demand going down, but we are also seeing a very dramatic shift on supply. In 2019, for the first time, low carbon generation has overtaken coal as the largest source of electricity. This is new. For many, many years in which we have been witnessing electricity production, Coal has always been the king. As of last year, low carbon generation is the largest.

Laura Cozzi: 09:48

Why? Basically the reason is renewables mostly, and in particular wind and solar. Last year 2019, generation from renewables went up, but at the same time we have seen very significant additions of new capacity. So what we are seeing at the beginning of this year is really the operation of this installation that happened last year. Not only, policymakers around the world in electricity grids are giving very often priority dispatch to renewables for a very good reason, because renewables are the cheapest form of electricity in this very moment.

Laura Cozzi: 10:25

So it's for us consumers to have the cheapest electricity possible. So we are really seeing, despite this COVID crisis, as we have had very large installations last year, and because of the preferential transit and inclusion and dispatch in the grids, renewables in electricity are proving some immunity. As I said earlier, however, we shouldn't underestimate the role of governments here and regulation to make sure that renewables remain immune. So there is a very important regulation and government role in making sure that this immunity is there throughout the year and in the years to come.

Jad Mahwad: 11:11

Yeah, we'll definitely come back to the role of governments. But before we do that, there are a couple of things here to unpack maybe on renewables, but particularly also on electricity. And I think you've made some points about electricity here that we're basically kind of living a week of Sundays, and not just because we're teleworking or stuck at home, but really because the consumption patterns are shifting to Sundays. You also used a very evocative image. I think you did.

Jad Mahwad: 11:39

And you called this, what's going on right now is a postcard from the future. And I'd like you to explain what you mean by that. It's a very nice way to frame what's going on and what we can learn from that.

Laura Cozzi: 11:52

Yes, so what we have been seeing in many, many countries for the past four months is basically the following: as our electricity demand was going down, the generation for renewables has gone up, which has meant that the share of renewables and in particular variable renewables has increased to levels that we would have expected to see in a few years time, in some cases even in a decade. So that's why we have heard in many instances this evocative picture, postcard from the future, because the electricity grids have been called to manage a situation that we would have expected to see a few years down the road. We have to say that so far they've done so in an excellent way. So they have managed these higher shares of valuable renewables, making sure that electricity that is so essential even in these days of crisis and even more in these days of crisis, making sure that we continue to work from home, that our kids are homeschooled, that hospitals receive all the energy they need, all countries in the world managed with this higher share of variable renewables, which is actually a very, very good news for the clean energy transition.

Jad Mahwad: 13:10

Precisely on that. In fact, this crisis is a security crisis in many ways. It is also an energy security crisis. And it seems from what you say that the energy security aspect is something that is being kind of handled. And I'm wondering what sort of lessons one can draw from what we're seeing, which is sort of this glimpse of what awaits us if indeed the energy system is going to go towards more electrification.

Laura Cozzi: 13:37

Yes, certainly there are many lessons that we are learning. Transmission system operators had to balance supply and demand in different way than we normally do, making sure that basically the rest of the system is following what solar and wind do. So we have had, especially in Europe in the past three months, a rather windy period. So we had to manage in the grid very high shares of wind and the transmission sister operator did so perfectly, always matching supply and demand. So this flexibility, which is going to be the keyword for electricity system in the future, has been put to test and our system operators actually succeeded.

Laura Cozzi: 14:24

So this is a big lesson for us going forward, making sure that we can integrate more and more variable renewables in the system to go towards cleaner energy systems going forward.

Tanja Dijon: 14:35

So I think that that brings us to our last big question, which is what is happening right now as a result of all of these changes to demand and consumption in terms of CO2 emissions?

Laura Cozzi: 14:46

So it's going to be with no surprise that we will be seeing a very, very significant contraction in CO2 emissions. This is due to the fact that we will be using this year and we are using much less oil, much less coal, much less natural gas. How much is this contraction going to be? It's going to be 2.66 gigatons. So for people that are not in the CO2 business, this will not mean much.

Laura Cozzi: 15:15

But if you think at what happened to the CO2 curve since post war, we are basically always seeing increasing trends, except in a few instances where we saw declines. For example, when? During the financial crisis, during other moments in which the economy didn't do so well. So if you were to put together all these contractions of CO2 emissions, all these declines in CO2 emissions that the globe has seen since the World War Two up to now, well, that wouldn't be enough to and to match what we're going to see this year. You will need to multiply that by two.

Laura Cozzi: 15:49

So that's quite huge, it's large. Does it mean that it's something to celebrate? Certainly not. This is happening at the human life cost, is happening at a very large cost to the economy, and if you look back at what happened after previous crises, especially after the past financial crisis, what happened after that is CO2 emissions rebounded and rebounded very strongly. In some cases, we had the strongest increase ever in CO2 emissions just after a crisis.

Laura Cozzi: 16:23

So here is key to not to sit down and think, well, COVID crisis has sorted out our clean energy transition issue. Not at all. The role of governments, as we mentioned earlier, is going to be here stronger than ever. We may want to remember that for the energy sector, the governments are either directly or indirectly responsible for 70% of investments. And now that we are thinking through stimulus packages, is essential that governments think through the green and cleaner and more resilient part of the energy sector to make sure that going forward we will not see a rebound in CO2 emissions despite seeing hopefully rebounds in energy use and in our economies.

Jad Mahwad: 17:12

Because here the lesson of the past is not particularly encouraging. I think after the financial crisis ten years ago, we had a sharp decrease in CO2 emissions followed by a very, very large increase the following year. And so that is, I suppose, still a risk as when we and as we recover from this crisis that we would see something similar. So you mentioned policy responses, and this is something that IEA has been quite involved in. So what should be the policy response?

Laura Cozzi: 17:41

So Jad, you're completely right. In fact, if you look at numbers, the rebound that we saw after the financial crisis is the largest increase we have ever seen in CO2 emissions. What is the policy response? It is actually something that we are working on very strongly at the IEA currently, and we are planning to release a special report on recovery and stimulus in mid June, where we will really understand and analyse in-depth what a recovery package could look like, and in particular with three dimensions, looking at job creation, looking at putting a big stimulus for the economy, and third, creating a more resilient and cleaner energy future.

Jad Mahwad: 18:29

So we're all looking forward. Obviously, this is the other major piece of work that you're going to be working on. It's certainly only in the first half of this year because you're not just the chief energy modeler, you're also one of the two co lead authors of the World Energy Outlook. That comes out in November, but November is a lifetime away from now. In the meantime, you did produce this report, the Global Energy Review, whose findings we were just discussing, and in fact, that is based on one hundred days of actual real data, some of which we are still updating, and you're still seeing some evidence of that.

Jad Mahwad: 19:04

I have a final question to you, because you're an energy modeler, and this crisis in a way, happening for all the wrong reasons, and terrible as they may be, you a bit of a real life kind of worst case extreme scenario, and I was wondering if you'd ever expect to see something like this, but also what are the lessons or the surprises you drew from that, because I guess you can't really plug something, or you could probably plug something like this in a model, but this is really happening in real time at a global scale. So what jumps out at you? What actually may have surprised you and what's going on?

Laura Cozzi: 19:40

I think what's surprising is nearly everything of what's unfolding is surprising. And this is certainly one of the textbook black swans that one learns when does energy modeling. So not something that we would normally, well, analyze in normal equilibrium circumstances. Personally, what I would, what I am finding very interesting is the behavioural changes that many of us are living by the day now. And it'd be very interesting to see and analyse going forward how much of these behavioural changes may actually remain with us in the years to come.

Laura Cozzi: 20:25

And how those may actually change not only energy use, but the environmental consequences. So these, among many other things, but the behavioural part is a huge experiment that we are all living in and we will draw many lessons from this.

Tanja Dijon: 20:41

Excellent. Well, you very much, Laura. This has been a fascinating conversation and I think we will draw many lessons from this. Thank you so much for taking the time to talk to us today and for sharing your great insights into the impact of the coronavirus pandemic, not only on the different fuels that we have spoken about, but also the impact on CO two emissions and the forecast for the rest of 2020.

Jad Mahwad: 21:00

Thank you very much, Laura.

Laura Cozzi: 21:01

Thank you, dad, and thank you, Tanya. Thank you.

Tanja Dijon: 21:03

And to our listeners, thank you very much for joining us for the first episode of the podcast. We look forward to bringing you the next installment. This podcast was brought to you by the International Energy Agency. To read more about our work, please visit IEA.org.