The Dress Rehearsal

Moisés Naím / World Energy & Oil

How will the world look once the COVID-19 pandemic is contained?

This question is as urgent and important as it is difficult to answer. Every day, we are surprised by news of important and unprecedented developments in politics, the economy, society, culture, business, science and more. Many of these changes were unimaginable even a few months ago. Yet, while it is impossible to reliably project what the world will look like in a decade or two, we can probe the present to find changes that are harbingers of things to come.

Market valuations help predict the future

Take the bike boom, for example. Worldwide demand for bicycles has soared to hitherto unseen levels. The surge in demand took manufacturers, mostly in China and Taiwan, by surprise and shortages ensued. The sudden, global appetite for bikes was due to people trying to mitigate the risk of COVID-19 contagion by avoiding public transportation and biking instead. Also, to the fact that there are more unemployed people with the time to enjoy a bike ride. Streets and roads with dramatically lower automotive traffic are also more welcoming for cyclists. Once the pandemic abates, bicycle use will surely decline from the current levels, but it is reasonable to expect that the number of regular bikers will be greater than it was before the outbreak. The growing appetite for “green” transportation options is also a component of the new demand for bikes. And, not just for bikes: a soaring market for electric cars, buses and trucks has emerged. One small, but revealing, recent event is that Tesla is now the world’s most valuable carmaker. This ten-years old company boasts a market capitalization that is higher than those of Toyota and Volkswagen combined. Just in the past year, the price of Tesla’sshares has increased almost fivefold. While stock markets value Toyota at 16 times its profits, Tesla’s is valued at a whopping 220 times earnings. Even Elon Musk Tesla’s CEO was surprised by his company’s extravagant valuation. Indeed, it is safe to assume that Tesla’s skyrocketing stock market performance was also driven by speculative behavior.

Stock markets valuations are driven by many factors—including market bubbles—and may not accurately reflect the true value of a company. But they do suggest how investors are valuing not just its current performance, but also its future potential. From this perspective, it is interesting to realize that Zoom, the video conferencing company, is valued by the markets four times higher than Delta Airlines. In fact, buying the world’s entire US airline industry would be substantially less costly than acquiring Amazon. Another interesting signal is that Netflix is now 25 percent more valued by the markets than ExxonMobil. These two companies are iconic examples of two important global trends: cocooning and decarbonization. Cocooning refers to protective behavior, the preference to stay inside one's home, insulated from perceived danger, rather than going out. Netflix epitomizes this preference, while the decline in the value of ExxonMobil reflects the drop in the world’s demand for hydrocarbons. The lower demand for oil and gas has a cyclical component and price fluctuations are normal. But the currently depressed price of oil, for example, is not only driven by a weak global economy that consumes less crude.

Decarbonization still accelerating

Prices are also being pushed down by the widespread expectation that decarbonization—the movement towards phasing-out the carbon dioxide emissions that result from the use of fossil fuels—will be an accelerating trend. Most analysts expect global demand for oil to peak around the year 2030 as renewable sources of energy continues to grow at a fast pace and the mass adoption of electric vehicles becomes a reality. Fossil fuels will continue to be the main source of energy in the foreseeable future, but increasingly severe climate emergencies will create enormous social and political pressures to accelerate efforts towards decarbonization.

Scientists, policymakers, and the public continue to be surprised by the speed at which climate is changing and creating extreme weather events. Most recently, Siberia was the location of these unprecedented climate accidents. In June, the temperature in the town of Verkhoyansk reached 100.4 degrees Fahrenheit, the highest temperature ever recorded anywhere north of the Arctic Circle. Siberia has experienced an unprecedented heatwave. In the first semester of 2020, the region’s temperature was nine degrees Fahrenheit warmer than the average temperature recorded between 1951 and 1980.

Antarctica, the earth’s other pole, is also warming up. Scientists are concerned that the enormous Thwaites Glacier, also known as the doomsday glacier, is melting at a quick pace and perhaps becoming unstable. The Financial Times reports that if the glacier, which is the size of Britain, actually melts, global sea levels are estimated to rise by 2 to 3 meters. Among all the uncertainties about the world after the pandemic, there is a certitude that looms large: in the future, climate change will change the world more than COVID-19. Will this coronavirus pandemic be remembered just as a dress rehearsal for a global and unprecedented climate accident that alters civilization as we have known it?