Coronavirus, Circular Economy 4.0 and the Green New Deal
(Versión en Español aquí: Coronavirus, Economía Circular 4.0 y Nuevo Pacto Verde)
The first historical record of a pandemic dates back to the 2nd century AD when the Antonine Plague ravaged the Roman Empire, costing the lives of approximately 5 million people. From that moment on, and along almost 1700 years in the pre-industrial period, history recorded a total of seven pandemics, costing the lives of approximately 320 million people.
The new industrial period, initiated by the first industrial revolution between 1760 and 1840 in England, brought a breakthrough in science, technology, public health and education, resulting in an exponential growth of population and the improvement of its living conditions. It also brought the irreversible process of global connectivity, linking territories through new means of motorized transport -such as boats, trains, cars and airplanes- in addition to the new routes that were created through national and international trade, permanently modifying our perception of space-time; a trend that with each new technological development is being increased and facilitated, allowing us to count with hyper-connected world practically communicated in real-time.
Few can deny that over the past 250 years, the three industrial revolutions we have lived through represented one of the greatest economic, social and technological jumps in human history; however, these processes have also brought some negative impacts, such as climate change, increased risk of international conflicts from access to strategic resources, and the growing threat of epidemics and pandemics. In fact, since the beginning of the industrial era -less than three centuries ago- the planet has suffered thirteen pandemics, representing an increase of 186% when compared to the pre-industrial era, costing the lives of more than 100 million people; but in only one seventh of the time.
“All I maintain is that on this earth there are pestilences and there are victims, and it’s up to us, so far as possible, not to join forces with the pestilences” — Albert Camus, The Plague (1947)
Invisible Enemies
In his already-famous 2015 TED Talk, Bill Gates noted: “Today the greatest risk of global catastrophe… If anything kills over 10 million people in the next few decades it’s highly likely to be a highly-infectious virus rather than a war. Not missiles, microbes”.
The world is suffering more and more outbreaks of infectious diseases that not only generate human losses, but also huge economic impacts. According to the Global Preparedness Monitoring Board (GPMB), as part of the World Health Organization (WHO) and the World Bank, in 2003 SARS accounted for nearly 1,000 deaths and losses of US$40 billion; in 2009 H1N1 cost the lives of more than 200,000 people and resulted in losses of up to US$55 trillion; and in 2014 Ebola killed more than 11,000 people at an economic cost of US$53 billion.
Today we are confronted with the new coronavirus pandemic, in a very different reality for our planet, since every year our economy is more interconnected, interdependent and globalized; so the impact of the Covid-19 disease, produced by the SARS-CoV-2 virus, will not only impact our health, but will also affect our economies and societies in every corner of the world.
“Today the greatest risk of global catastrophe… If anything kills over 10 million people in the next few decades it’s highly likely to be a highly-infectious virus rather than a war. Not missiles, microbes”
As a disease with no known cure, this health crisis has placed the planet’s major economies in a real paradox, forcing countries to take unprecedented actions that has not been seen in the brief history of capitalism; because in order to win the war on coronavirus, they have had to stop, freeze and put productive and logistical activities, putting the global economy in a true induced coma until the pandemic is over.
It is estimated that the Covid-19 will cost the world economy at least US$2 trillion, sinking economic growth 0.5% on 2020, and also impacting 2021. According to the International Monetary Fund (IMF), the world is already officially in recession, and according to its Executive Director Kristalina Georgieva, it is already much worse than the crisis of 2008.
The Covid-19 crisis is reaching all sectors of the economy with the same brutality but mainly project development, construction, manufacturing, transport and tourism. Demand for strategic raw materials such as petroleum, copper, coal, lithium among others, has also suffered sharp declines, mainly impacting developing countries that base their economies on the exploitation of natural resources. The IMF anticipates the risk of a wave of bankruptcies and massive lay-offs around the planet that can not only obstruct the economic recovery but can actually erode the very fabric of our societies. According to the International Labour Organization (ILO), more than 25 million people can end up unemployed, with a labour income loss of $3.4 trillion by the end of 2020, and estimates that more than 35 million people will be added to the ranks of the working poor.
“It is estimated that the Covid-19 will cost the world economy at least US$2 trillion, sinking economic growth 0.5% on 2020, and also impacting 2021”
In Latin America the scenario is also complex, mainly due to the extreme fragility of its health systems, weak institutionality and high levels of poverty. According to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), our region’s GDP will fall between 1.8% and 3%, with an unemployment rise of up to 10%. This would increase poverty from 185.9 million to 219.1 million people, and extreme poverty from 67.5 million to 90.7 million people.
Black Swan?
In the last decade there has been several events, which the essayist, researcher and financier Nassim Taleb has called Black Swans and many of us have fallen into the temptation to call the coronavirus crisis as such. A Black Swan is an extremely rare event, very difficult to predict beforehand, that has devastating economic and social effects, but once occurred, it is rationalized in retrospect making it seem predictable and explainable. While these events are characterized for their rare occurrence, in recent years we have seen an increase in frequency of these Black Swans, whether because of the financial crises, geopolitical conflicts and lately by natural disasters caused by climate change.
But we must be clear and categorical: the Covid-19 crisis is not a Black Swan. Although it meets the characteristics of having devastating social and economic consequences, a pandemic like that of the coronavirus was absolutely predictable. This was said by the same creator of the concept in a recent interview for a major media outlet, noting that this event should not be used as an excuse by governments and corporations for not having been prepared. In fact, in his book The Black Swan: The Impact of the Highly Improbable in 2007, he noted that “as we travel more on this planet, epidemics will be more acute — we will have a germ population dominated by a few numbers, and the successful killer will spread vastly more effectively”, adding that “I see risks of a very strange acute virus spreading throughout the planet”.
“We must be clear and categorical: the Covid-19 crisis is not a Black Swan”
The World Health Organization (WHO) and the World Bank, through its Global Preparedness Monitoring Board (GPMB), in its report A World at Risk of September 2019, warned that “the world is at acute risk for devastating regional or global disease epidemics or pandemics that not only cause loss of life but upend economies and create social chaos”, making a special appeal to world leaders, noting that “the world requires determined political leadership to prepare for health threats at national and global levels”.
The Covid-19 pandemic promises to have effects that many believe will change our economy and society forever. However, in history, all major transformations and paradigm shifts have been preceded by epidemics and catastrophes, including the first industrial revolution in the 19th century with the cholera epidemic. Someone said that there are decades where nothing happens; and there are weeks where decades happen; today we are living one of those historical moments that are seen once every hundred years, and it is only up to us to transform this crisis into an opportunity to create a new global growth strategy that seeks economic, social and environmental development, creating the conditions for start a new industrial revolution.
Circular Economy and the Fourth Industrial Revolution
During the last seven years, an important worldwide movement has developed, led mainly by entrepreneurs, innovators and business people, which seeks to promote and accelerate the transition towards a circular economy that allows to maintain the value of materials and products as long as possible, eliminating the concept of waste and promoting the regeneration of natural ecosystems. At the same time, this new economic model has coincided with the beginning of one of the greatest technological paradigm shifts in history: the fourth industrial revolution.
“Prior to the appearance of Covid-19, the planet was facing another major crisis in its fight against climate change, and the circular economy was positioning itself as the most effective tool so that our planet does not increase its temperature by more than 1.5°C”
Many experts consider that this convergence is not a mere coincidence, but rather a necessity, because both phenomena are two sides of the same coin, since Industry 4.0 provides the technologies that allow the development of new circular business models, and the circular economy encourages, promotes and gives meaning to the development of these technologies. This idea has been growing stronger day by day, giving way to the concept of Circular Economy 4.0.
Prior to the appearance of Covid-19, the planet was facing another major crisis in its fight against climate change, and the circular economy was positioning itself as the most effective tool so that our planet does not increase its temperature by more than 1.5°C, being embraced by many countries around the world, taking important steps for the development of a circular economy in their territories, supported by international organizations such as Ellen MacArthur Foundation, Circle Economy and World Economic Forum (WEF) in Europe, Center of Innovation and Economy Circular-CIEC and The Regional Program on Energy Security and Climate Change in Latin America (EKLA) of the Konrad Adenauer Stiftung (KAS) in Latin America, and the UN at the global level, selecting circularity within the 17 Sustainable Development Goals (SDGs).
At the same time, the advance of the fourth industrial revolution, through the development of technologies such as 3D printing, robotics, the Internet of Things (IoT), virtual reality (VR) and artificial intelligence (AI), has demonstrated in real time the validity of the Moore’s Law, since these technologies have not only improved their processing capacity, efficiency and productivity, but have also permanently reduced their costs, democratized their access and allowed entrepreneurs and business people from all over the world to incorporate and develop Industry 4.0 processes.
However, the fourth industrial revolution is much more than a technological change. It is also an economic, social and environmental phenomenon, which allows the creation of new companies and ventures based on state-of-the-art technologies, relocating them closer to their customers and end users, promoting constant training and updating the knowledge of workers, entrepreneurs and decision makers, optimizing production processes through digitalization, reducing the carbon footprint and the use of natural resources.
“The dependence of the world on the industrial capacity of certain geographical areas has been revealed, demonstrating the extreme fragility of most economies on the planet”
The Covid-19 crisis will make us rethink globalization as we know it. Until now, the most effective way that companies found to reduce costs and stay competitive was to move their productive activities to territories that offered economic and tax advantages; However, this also brought several negative effects, including the increase in the carbon footprint of products and materials and the deindustrialization of most countries, generating an overdependence of most them on the ability to production of some specific territories.
The dependence of the world on the industrial capacity of certain geographical areas has been revealed, demonstrating the extreme fragility of most economies on the planet. The main lesson that countries are learning from the coronavirus crisis is that it is highly risky to depend on the industrial capacity of other nations, mainly on inputs and strategic products for health, productive industries and the basic functioning of the economy. This does not mean in any case involving and turning our backs on globalization, but rather taking it as an opportunity to rethink and reimagine a process that has brought so many benefits to humanity. Today, thanks to digitization and Industry 4.0 we have the opportunity to move towards what is known as Glocalization, allowing world economies to continue to think globally but act locally, making territories, cities and regions physically and virtually related, creating economic and social connections that are specific to that community, but always thinking about the effects they may have on the planet.
Global Green New Deal
Due to the great impact that the Covid-19 crisis has had on society and on the global economy, many compare it to a true war situation, and therefore also consider that the response to the reconstruction of the economy, once controlled the health crisis should go along that same line. An example that comes to mind is what happened after the Second World War with the European Recovery Program, better known as the Marshall Plan; initiative taken by the USA to help Western Europe with economic contributions equivalent to US$135 billion today, which enabled the economies of these countries to be lifted, eliminating trade barriers, rebuilding and modernizing their industries.
“Prior to the Covid-19 crisis, the world was facing the great threat of climate change, one that, while occurring at a slower rate, may have worse economic, social and environmental effects than the current pandemic”
Naturally, the conditions of the planet, society and the economy today are very different from the reality of 1945, mainly because the post-war world only had 2.5 billion people, that is, less than half of the inhabitants that we have today on Earth. In addition, economic activity is currently incomparable in its dynamism and size, considering the fact that world GDP at that time was less than US$1 trillion, compared to US$86 trillion today.
Prior to the Covid-19 crisis, the world was facing the great threat of climate change, one that, while occurring at a slower rate, may have worse economic, social and environmental effects than the current pandemic. At the global level, Europe was ahead in measures to combat global warming. In December 2019, at the same time that COP25 was taking place in Madrid, the European Commission, chaired by Ursula von der Leyen, launched its European Green Deal, at a cost of approximately US$1 trillion in the term of ten years, and which is considered the new growth strategy that will allow Europe to become the first carbon-neutral continent by 2050, also seeking to decouple economic growth from the use of natural resources; increase the efficient use of resources, restoring biodiversity and reducing environmental pollution; increase investment in environmentally friendly technologies and renewable energy; support innovation and Industry 4.0; decarbonize the energy and transport sector; create a fair, healthy and sustainable food system; and promote the construction of energy efficient buildings.
Europe must ensure that its post-crisis economic recovery from the coronavirus adjusts to the challenges of its EU Green Deal, installing the circular economy as the new techno-economic model that allows creating new companies and ventures, generating quality jobs and fighting change climate. The Circular Economy Action Plan fulfills this role; focused on improving the durability, reuse and reparability of products and equipment, as well as increasing energy efficiency and the use of resources; increase the content of recycled material in products and equipment, install high-quality remanufacturing and recycling capabilities; reduce the carbon, water and material footprint; eliminate single-use products and materials and avoid planned obsolescence; transition to business models based on product-as-a-service; and promote and install the digital transformation and traceability of products and materials.
“A transition to a renewable energy matrix could reduce the world energy consumption by 57%, creating 28.6 million jobs, and reducing energy, health and environmental costs by 91% compared to a business-as-usual scenario”
We know that climate change and pandemics do not respect borders, and for these initiatives to have a real impact, they must be developed on a global scale. In this sense, the European Commission itself has stated that it seeks to make this initiative the catalyst for a Global Green New Deal, representing an opportunity for most countries, once the Covid-19 crisis is over, to adjust their economic recovery plans through the transition to a circular, green and low-carbon economy that allows the creation of new companies, creates quality jobs and fights climate change.
The recent study Impacts of Green New Deal Energy Plans on Grid Stability, Costs, Jobs, Health, and Climate in 143 Countries from Stanford University and University of California at Berkeley, published in December 2019, and led by Professor of Civil and Environmental Engineering Mark Z. Jacobson, together with 8 co-authors, presented a plan for the transition of 143 countries towards a 100% clean and renewable energy matrix by 2050. This report projects that a transition to a renewable energy matrix could reduce the world energy consumption by 57%, creating 28.6 million jobs, and reducing energy, health and environmental costs by 91% compared to a business-as-usual scenario.
The Global Green New Deal should go in this same direction, promoting the massive electrification of all energy sectors, increasing energy efficiency and allowing a reduction in its use; encouraging the construction of solar, wind and water infrastructure that allows supplying up to 80% of energy by 2030, reaching 100% by 2050. According to this study, the transition to a 100% renewable energy matrix would require a global investment of approximately US$73 trillion; however, it is estimated that this mega-investment could have a much faster return on investment than imagined. Over time, renewable energy is cheaper to generate than fossil fuel energy, reducing energy costs by up to 61%, from US$17.7 trillion/year to US$6.8 trillion/year; improving access to energy for more than 4 billion people and creating, at the same time, a total of 28.6 million new jobs; In addition, it reduces environmental pollution, which annually kills more than 7 million people, reducing the costs associated with health from US$ 76.1 to US$ 6.8 trillion a year.
This must be added to the positive effect that the transition to a circular economy would have, which, according to the WEF, represents a global business opportunity of up to US$4.5 trillion by 2050. The World Health Organization (WHO), noted in its Circular Economy and Health: Opportunities and Risks report, published in 2018, the benefits of the circular model for health through reducing environmental impacts. In terms of jobs, it is estimated that the circular economy will create 3 million new jobs by 2030 in the European Union alone. An study made by ILO indicates that, in Latin America alone, up to 6 million new jobs could be generated through activities such as remanufacturing, repair and recycling; at the same time allowing the installation of new infrastructure and the adoption of technologies specific to Industry 4.0, allowing developing countries to finally get on the bandwagon of the fourth industrial revolution.
A Post Coronavirus World
UN Secretary General António Guterres noted that the coronavirus pandemic is the most difficult global crisis since World War II and many expect its economic effects to be worse than those of the 1930 Depression; but this cannot paralyze us, but rather motivate us to think and design the new post Covid-19 world right now. Mathematician and financier Eric Weinstein said that “we are now living the unthinkable because we couldn’t discuss the unsayable in real time”. We cannot allow this to happen again.
If this crisis has taught us anything, it is that most countries are dangerously dependent on a global manufacturing, distribution and supply chain, based on the industrial capacity of certain geographical areas. It is time to reimagine and update our economic model and our way of thinking, doing and consuming with the new conditions of the 21st century, incorporating society, the environment and the new technologies of the fourth industrial revolution; but also going back to practices that have worked in the past, such as the circular economy, industrialization and localism, since many times “the future is nothing more than the past that returns”.
NOTE: This article was originally written in Spanish for The Regional Program on Energy Security and Climate Change in Latin America (EKLA) of the Konrad Adenauer Stiftung (KAS).
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