The SARS-CoV-2 pandemic has had a dramatic and unprecedented impact on the world. At the peak of the global lockdown, consumption of gasoline, diesel, and jet fuel combined was 40% lower than usual. For the year, combined demand for these three fuels is expected to average 15% below 2019 levels. Nearly 450,000 people have died from the disease so far and the global economy is lurching towards recession. Against this backdrop, policymakers in Europe are trying to balance the need to respond to the current short-term crisis and continuing to make progress against the longer-term threat of climate change.

<span/>The coronavirus (COVID-19) pandemic could certainly be regarded as an impediment towards progress on climate change, since society's collective attention - and resources - is understandably focused on the pandemic. However, it <span/>could very well serve as an opportunity to institute - as part of economic recovery packages - transformative green agenda policies. This is certainly the outlook of the European Commission, whose recently-proposed recovery plan aims to rebuild European societies on a greener foundation. Among other things, the plan calls for the creation of a €750 billion "Next Generation EU" recovery instrument and increasing climate spending to 25% of the overall 2021-2027 budget (see figure 1).

Figure 1: The European recovery plan: Three main pillars

Despite the unprecedented nature of the times, old patterns and alliances have so far persisted. Those countries that were already supporters of climate action prior to the COVID-19 crisis are in support of a greener recovery plan, while those that are pushing back against the European Commission's proposal now, were already skeptical of aggressive policies before this year. The pandemic also reinforced existing trends at the societal level, accelerating climate action in climate-conscious countries and slowing it down in less climate-conscious ones.

However, dynamics could evolve, and those countries that seem to lag today may drive change tomorrow, depending on their individual economic recovery and societal change. Moreover, those countries on the side of the Commission's proposal have, together with several business and industry leaders, formed the Green Recovery Alliance to press their cause (see figure 2).

Figure 2: Europe - Green recovery alliance

Likewise, the CEOs of the Oil and Gas Climate Initiative have recently reiterated their commitment to accelerating the transition to a low-carbon future in an open letter. So far, at least in Europe, the COVID-19 pandemic is looking more likely to provide a tailwind to climate policy than serve as an impediment to progress.

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Dr. Britta Daum is a senior research analyst for European oil markets, midstream & downstream at IHS Markit.

Posted 22 June 2020

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.