When the Black Swan Turns into a Green One

It has been more than three and a half months since we discussed the black swan event (Article from Feb. 4th) related to the Covid-19 pandemic. This event will be remembered in the books of world economic history because of its magnitude, as well as its extension across different continents. It is clear for all that governments must implement policies to fight against the health crisis, protect the defenseless people, and prepare the route for restarting activities once the worst of the pandemic passes. However, considering all these lessons, we should not ignore a more prominent challenge for civilization and for future generations, which is climate change.

To classify an event as a black swan, three conditions must be accomplished: i) the event must be rare and unexpected, ii) the impact of the event must be extreme, and iii) the event can only be explained ex-post. Similarly, Climate-related events present features that are common from black swan events. That is why sometimes these environmental events have recently been classified as “green swans”. Moreover, some researchers associate the Covid-19 pandemic with a climate change process that happens at a fast speed pace. Thus, what takes decades or even centuries for the climate to generate impact, takes days or weeks for an infectious virus to spread across countries.

Similarly, in both cases, the main problem is that it is not in absolute numbers, such as the total number of infections or the total greenhouse gas emissions. Instead, it is concentrated on the rate of change. In other words, to repel coronavirus, the main goal is to “flatten the curve”, so as for climate change is to “flatten the curve” of greenhouse gas emissions. For this purpose, it is clear that for both Covid-19 and climate change is necessary to mitigate the impact and adapt to the new landscape.

Additionally, small deviations on the growth trend could have severe implications. In the case of climate change, an increase in global temperatures between 2-3 °C would imply the exodus of Greenland’s ice sheet and the collapse of the Amazon rainforest. Equivalently, if coronavirus cases increase by double digits per day, then a country can experience an exponential escalation of cases, such as what is currently happening in Latin America, which has been recently denominated the new epicenter of coronavirus by the WHO. 

One last similarity is related to the fact that both events are susceptible to externality, which means that misbehavior by individuals may put countless communities at grave risk, and trigger damage affecting generations to come. In this context, the active participation of policymakers and a responsible corporate sector to avoid any miscalculations by individuals.

This background might represent an opportunity, and some companies have taken advantage of expanding their clean energy capacities such as wind and solar, which is doubling every 5.5 years. Meanwhile, more than 800 global companies have set similar goals in line the consensus and over €30 Trn. of investments pledged to support a low-carbon economy.

The Covid-19 pandemic has shown that there is no country or social status that is immune to significant global risks. We are all in this together, and the same support between nations and individuals shown in the fight against the pandemic is urgent to overcome the even more significant threats of climate change.

Gino Beteta