Companies serious about cutting carbon emissions face spending issues and other new market realities.

For the first time in living memory, fish are swimming in clear waters in Venetian canals, London’s air is fresh, and New York City’s traffic noise has eased to a gentle hum. Such are the unintended consequences of measures designed to control COVID-19, the disease caused by the novel coronavirus.

Another silver lining is that worldwide carbon emissions are on track to fall 14% this year. With chemical production also falling across the industrial world, it would appear that chemical firms and others seeking to slash greenhouse gas emissions will be able to meet their targets more readily.

The opposite, however, may transpire, and any short-term gains could turn into losses, a growing chorus of experts says. Chemical companies with ambitious carbon-reduction goals—particularly companies in Europe—face a steep uphill climb.

Three factors conspire against chemical makers and other industrial firms that want to cut carbon emissions. First, companies financially harmed by COVID-19 are now under pressure to cut capital expenditures on projects, including those to reduce greenhouse emissions. Second, with oil and gas prices depressed, switching to renewable energy—a tool widely used by chemical firms to reduce carbon emissions—has lost some of its appeal. And a drop in the price of carbon traded on Europe’s Emissions Trading System (ETS) means that European chemical firms in particular reap less financial reward for using low-carbon technology.

Capital spending cuts are showing up already at chemical companies that are reporting a drop in first-quarter financial performance and forecasting further falls ahead. This is also the case for oil and gas firms, which have become key funders of low-carbon projects, says Runeel Daliah, an analyst with Lux Research. “The current crisis is making oil and gas firms less risk prone. It will have a negative impact on the low-carbon transition,” Daliah says.

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