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COVID-19 drives largest energy demand shock since WWII

The International Energy Agency (IEA) has warned that the COVID-19 pandemic – and the resulting economic shock – will ‘dwarf’ the 2008 financial crash when it comes to reducing global energy demand. 

Based on an analysis of over 100 days’ worth of data, the agency’s Global Energy Review predicts that there could be a record annual decline in carbon emissions of nearly 8% this year, as well as a 6% dive in energy demand. The IEA says that the pandemic represents the biggest shock to the global energy system for more than seven decades.

The overall impact of the crisis on the energy industry will be determined by the length and stringency of lockdown measures designed to stop the spread of the virus. It is likely that the biggest falls will be seen in advanced economies – with demand set to drop by 11% in the EU and 9% in the US. According to the IEA, power consumption levels and patterns on weekdays under lockdown resemble those of a pre-crisis Sunday.

At the same time, stay-at-home measures are also driving a significant shift toward low-carbon energy sources, most prominently wind, solar, and hydropower. Renewables are set to be the only energy source that will grow this year – largely because their low operating costs guarantee them priority access to grids, says the IEA. 

This projected success comes amidst a series of global supply chain disruptions that have delayed project completions in a number of key regions. Regardless, solar PV and wind are on track to help lift renewable electricity generation by 5% in 2020, aided by higher output from hydropower. Nuclear – the world’s other major source of low-carbon power – is not likely to fare as well: It is on track to fall by 3% this year from the all-time high it reached in 2019.

After overtaking coal for the first time ever in 2019, low-carbon sources are set to strengthen their lead this year to reach 40% of global electricity generation – a notable 6% ahead of coal. Following a decade of uninterrupted growth, the IEA also forecasts a record 5% fall in demand for gas-fired power. This marks the largest drop in consumption since the production of natural gas evolved at scale during the second half of the 20th century. 

All told, the IEA predicts that the combined share of gas and coal in the global power mix will decline by 3% to a level not seen since 2001. This trend is largely responsible for the historic anticipated fall in greenhouse gas emissions. However, Dr Fatih Birol, the Executive Director of the IEA, warned that emissions reductions resulting from premature deaths and global economic trauma are ‘absolutely nothing to cheer’. 

‘If the aftermath of the 2008 financial crisis is anything to go by, we are likely to soon see a sharp rebound in emissions as economic conditions improve,’ Birol says. ‘But governments can learn from that experience by putting clean energy technologies – renewables, efficiency, batteries, hydrogen and carbon capture – at the heart of their plans for economic recovery.’

Oil demand has also been hit dramatically by the coronavirus – with demand down nearly 5% in the first quarter, mostly thanks to curtailment in mobility and aviation, which account for nearly 60% of global consumption. By the end of March, global road transport activity was almost 50% below the 2019 average and aviation 60% below, says the report.

While Birol cautioned that it is still too early to determine the longer-term impacts of the pandemic, he did concede that the energy industry that emerges from it ‘will be significantly different from the one that came before.’ 

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