Did COVID-19 help or harm the climate? Modeling long-run emissions under climate and stimulus policies

Abstract

We propose a model of global energy competition, GLO-COV, to shed light on the long-run effects of COVID-19. It accounts for the joint impact of lockdown, economic stimulus programs, and climate policy on CO2 emissions. The model also captures the role of “peak oil.” It incorporates evolutionary self-reinforcing dynamics, which allows for addressing path dependence and lock-in. The model is empirically calibrated on historical energy demand, economic growth, emission intensity, and factors specific to COVID-19. The resulting long-term assessment complements previous studies that focus on the short-term effects of the pandemic. We find that without countervailing climate policy, COVID-19 increases long-run emissions. With a carbon tax already in place, COVID-19 leads to lower emissions than scenarios without the pandemic or without policy. On their own, climate and stimulus policies increase the variability of, and thus uncertainty about, emissions, while their combination reduces variability. A further advantage of combining stimulus and carbon taxation is that it creates strong synergy, resulting in maximal reduction of long-term emissions.