Could coronavirus knock decarbonisation off track?

Malcolm Latarche

Malcolm Latarche · 10 March 2020

ShipInsight


Some are saying that the reaction to the threat posed by coronavirus or Covid-19 as it has now been officially labelled has been overblown. While few in the west seemed perturbed by the actions taken by China in effectively closing down whole swathes of the country, now that it is looking ever more likely that similar actions will be taken in Europe and the US, there are many who say that seasonal flu causes more deaths and doesn’t really pose a threat so why should Covid-19 be treated differently.

I offer no answer to that beyond saying that if it were just one country imposing lockdowns and travel restrictions that could be put down to an over reaction, but when several countries follow that path then there Is clearly a belief that it is necessary.

Since things first began to happen in mid-January, shipping has been impacted at least as severely as any other industry and perhaps more so than some others. The effect of lockdowns and wide quarantine areas means that not only are less goods produced but beyond essentials less are required. There is also less demand for energy because if factories are not working and people are confined to their immediate area there is no need for fuel to power machines or for vehicles.

We can see that this has had an effect upon the oil trade with demand falling of a cliff and as a consequence tanker freights have fallen in parallel. There will be an impact here on demand for new scrubbers not just because installation schedules have been severely affected by yard closedowns but because for the moment the premium between HFO and 2020-compliant ULSFO has dropped from over $300 to closer to $100 and could go even lower. The drop in bunker prices is perhaps the only good effect for shipping as trade in every commodity is hit. Cruising, one of shipping’s most profitable sectors, is suffering hard and could soon be put on ice until the epidemic falls away.

What has so far not been considered is how the impact of Covid-19 might affect the drive to decarbonise shipping. There is no question that so far, the economic impact of the epidemic has been large but manageable. Most analysts in the early days were looking at things recovering in a matter of weeks or in the worst case a few months. However, this cannot now be taken for granted.

After China, South Korea has been hardest hit but Italy is not far behind and things there seem to be spiralling quite dramatically. It is hard to see other areas of Europe escaping and with France already recording over 1,000 cases and Germany fast approaching that milestone few would say that the situation is under control. In the US the figure is approaching 600 and expected to increase rapidly.

It is almost impossible to begin to calculate the effect on the economies of countries affected by coronavirus, but it is not being sensationalist to say that it could bankrupt some states and wipe billions or trillions of dollars from the global economy. Lower down the scale, people unable to work will see disposable incomes slashed contribute much less in the way of taxes to their governments.

In democracies, those governments will be obliged to support their people or face deselection. Thus there will be less inclination to pile more pressure on populations. That will mean that proposed carbon levies, already unpopular in most of the west, will be given much more thought by governments and very likely scrapped or at the very least postponed. In addition, governments will face so many calls on their reserves that will have to reduce discretionary spending.

That could impact on research grants for alternative fuels and technologies. Fossil fuels at their current will seem a very attractive means of reducing costs for industry, commerce and individuals not least because alternatives such as green hydrogen would appear to have a cost much higher than fossil fuels did even before the latest drop in price. Just as Japan took the pragmatic step of resorting to fossil fuels after the nuclear disaster of Fukushima, so might many other governments around the world.

Just recently it seemed that the world was finally getting over the impact of the crash of 2008, if Covid-19 causes a similar or greater impact we will be beyond 2030 before a full recovery is made. That would definitely delay any decarbonisation of shipping and many other industries beyond the current target dates.

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