IEEJ：August 2021© IEEJ2021
Special Bulletin
A Japanese Perspective on the International Energy Landscape (545)

August 12, 2021

COVID-19 Impacts and Carbon Neutrality
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanThe year 2020 may be remembered as a key turning point for the global energy landscape.
The international energy landscape always sees dramatic changes or events. Among them, last year’s
two great events – the COVID-19 pandemic and the wave of carbon neutrality pledges – have hadgreat impacts that could transform the world.
The two independent events have rattled the world and the international energy landscape.
The COVID-19 pandemic, as noted in many of my past reports, dramatically reduced oil and otherglobal energy demand and triggered substantial oversupply and free falls and stagnation in energy
prices immediately after the pandemic broke out. In response to the energy oversupply and pricefalls, the OPEC-plus group comprising the Organization of the Petroleum Exporting Countries andnon-OPEC oil-producing countries implemented an unprecedented coordinated oil production cut asa strategic production adjustment, coinciding with U.S. shale oil and other high-cost suppliers’ exitfrom the market. The dramatic supply decline led to later re-balancing of supply-demand in themarket, but lower energy prices caused by the pandemic resulted in energy investment stagnation orcuts that could affect future production and supply.
The COVID-19 pandemic is likely to exert structural impacts on global energy supply anddemand over a medium to long term through society and world transformation. “IEEJ Outlook
2021,” published by the Institute of Energy Economics, Japan, last October, provided a scenario andquantitative analysis on energy market changes that the global transformation through theCOVID-19 pandemic would bring about over a long term. For details, see Pages 109 to 126 of IEEJ
Outlook 2021 (English version). In summary, the world transformation is projected to lead to (1) ashift of priority from economic efficiency to energy security, (2) a potential of global energy demand
decline, (3) supply chain reconstruction and changes in regional energy demand increases anddecreases, (4) suppression of oil demand, (5) accelerated electrification and (6) intensifying
competition for technological supremacy and innovation. (It must be noted that the quantitative
analysis focuses on the impacts of world transformation through the COVID-19 pandemic without
considering the impacts of enhanced climate change countermeasures.)
The abovementioned six changes have remained adequate and realistic in the world,
indicating the uniqueness and values of the IEEJ analysis. In fact, however, the relationship between
the COVID-19 pandemic and climate change policy in the scenario is deviating from the reality. In
the abovementioned IEEJ scenario, the grave COVID-19 disaster would lead developing countries togive top priority to survival, health and safety and less priority to climate change countermeasures incontrast to European and other countries that focus on climate change countermeasures, resulting inpatchy climate change measures in the world.
Actually, however, the wave of carbon neutrality pledges has swept the world since 2020.
Although developing countries plagued with grave human, economic and social losses under theCOVID-19 disaster might have given top priority to recovery from such losses, more than 1201

IEEJ：August 2021© IEEJ2021countries in the world have vowed to seek carbon neutrality around 2050, indicating that carbon
neutrality and decarbonization trends are accelerating unprecedentedly and panoramically in theworld. Why? While various background reasons are conceivable, I would like to consider somereasons regarding the impacts of the COVID-19 pandemic.
Behind the rapid acceleration of decarbonization and carbon neutrality trends, people in
the world have grown interested in a climate crisis in the face of frequent abnormal global climate
events and their growing damage and recognized that it would be politically and socially importantto tackle climate change. Supported by the strong political and social awareness and the rising senseof crisis, major international discussion platforms, such as the Group of Seven forum and theConference of Parties to the United Nations Framework Convention on Climate Change, are gaining
momentum to strongly promote decarbonization.
In observing such global developments, I pay particular attention to the European Union’s
strategy in regard to the relationship between COVID-19 impacts and carbon neutrality promotion.
As is well known, the EU well before the COVID-19 pandemic announced the Green Deal strategy,
concluding that clean energy investment for realizing carbon neutrality would hold the mostimportant key to the EU’s long-term growth strategy. The EU has contended that it would achieve
long-term growth by making huge investment in renewable energy, hydrogen, clean mobility, energy
efficiency and other clean energy technologies as key components to realize carbon neutrality
through energy transition. Facing huge damage from the pandemic then, the EU positioned clean
energy investment as important not only for the long-term growth strategy but also for recovery fromthe COVID-19 disaster. It thus set out an approach to integrate (1) clean energy investment for
carbon neutrality, (2) recovery from the COVID-19 disaster and (3) the long-term growth strategy. I
personally view the approach as strategically perfect from the viewpoint of the EU. This has become
an extremely important approach for the EU to take global leadership in tackling climate change.
This is because the message that clean energy investment for carbon neutrality is effective forrecovery from the COVID-19 disaster and the long-term growth strategy has become too attractive
to resist for a number of countries including those considering ambitious decarbonization. The
integration approach has exerted great impacts on the world.
There have been many cases in which powerful government policies have been requiredfor countries to recover from huge damage by the COVID-19 pandemic. “Big government” hasbecome a common keyword for growing priority put on national security and rising geopoliticaltensions under the COVID-19 pandemic and for powerful decarbonization promotion for carbon
neutrality. Powerful government policies are indispensable for tackling these difficult challenges. In
this sense, it is important that the integration approach has important government roles as anaffinitive driver.
In terms of COVID-19 impacts, another point that I view as unignorable is a change in theUnited States. If the U.S. economy remained robust in the absence of the COVID-19 pandemic orhuge human damage, Donald Trump might have won a reelection. This possibility is unignorable. If
Trump were reelected as U.S. president, the U.S. climate change policy would have been far
different from the current one. The dramatic change in the U.S. position on climate change has had agreat impact on the global wave of carbon neutrality pledges.
In this way, COVID-19 impacts and the wave of carbon neutrality pledges seem to havesome deep relationship. We may have to pay close attention to both the carbon neutrality policy andthe COVID-19 impacts, and the implications and impacts of their reciprocal influence as a key driverfor future energy transition facing the world in the future.
2Contact:report@tky.ieej.or.jp