A wave of net zero carbon pledges and real action to back them up could make 2021 a bust for greenhouse gasses.
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The Year of Net Zero is off to a fast start. Interest in the concept as the answer to climate change is picking up, likely to come to a crescendo at COP26 in Glasgow in November. This is a development with major implications for climate finance.
For starters, British prime minister Boris Johnson declared a goal of making the entire country net zero by 2050. (That’s assuming there is a United Kingdom by then that still includes Scotland and/or Wales.) His declared rationale is economic: “We have the opportunity to turbo-charge our economy and to drive jobs of all kinds,” Johnson has said. For the U.K., that means “literally hundreds of thousands of jobs in wind technology, in batteries, in low carbon campaigns.”
British prime minister Boris Johnson declared a goal of making the entire country net zero by 2050.
It’s an ambitious plan, also driven by Johnson’s political imperative to take a global leadership role as the presiding host of COP26. To underline how the net-zero flag has been planted at the COP event, Johnson has appointed his secretary of state for business, energy and industrial strategy, Alok Sharma, to be a full-time president of the climate conference. Sharma will continue as a full member of the cabinet and will chair the Climate Action Implementation Committee to coordinate government action towards net zero by 2050.
A challenge to the concept’s economics, however, was laid out by the Green Alliance, a British think tank, which released an end-of-the-year report finding a “significant gap” between Johnson’s policy scheme and the support needed to meet the U.K.’s carbon-cutting targets. The report notes that “policy and spending has fallen short of what’s needed to achieve these aims.” The group claims that current government spending will result in less than 25% of the emissions cuts needed to achieve its 2030 climate goals of reduced greenhouse gas emissions — never mind Johnson’s net zero pledge. To achieve that, it calls for almost $31 billion in annual spending.
Johnson’s government has its own set of calculations. The government’s climate advisement body, the Committee on Climate Change, projects that low-carbon investment should be fixed at $68 billion annually by 2030. (It’s about $10 billion now.) But the panel also reports that the cost savings from a move away from fossil fuels in the transportation sector and the adoption of energy-efficient technologies would offset the increased investment. The U.K. Treasury echoed this claim, stating that a shift to a net-zero economy will inevitably create tens of thousands of jobs in new green businesses and industries.
A shift to a net-zero economy will inevitably create tens of thousands of jobs in new green businesses and industries.
Forbes thinks so, too. In “How 5 Pivots in 2 Industries Can Trigger Net-Zero Pathways in 2021,” it describes how transformative policies in the transportation and energy sectors associated with technological innovation will drive investment.
President Biden has promised a similarly ambitious plan to eliminate greenhouse gas emissions by 2050 in the U.S. His argument is rooted in the Green New Deal’s framework as a jobs program: spending on clean energy that boosts economic growth. The new administration’s strategy also hopes to avoid hurting business by funding net zero through government investment, tax breaks and loans rather than through regulation or additional taxation.
The Biden plan raises practical issues, though: Given the razor-thin Democratic majorities in Congress, how is progress to be made when 60 votes are required in the Senate to close debate on bills — especially one with a $2 trillion cost?
The question is, of course, the urgency of timing. “How can investors accelerate the net zero transition?” BusinessGreen asked in a recent webinar. Mark Campanale, founder and executive chairman of financial think tank Carbon Tracker, sounded a note of caution. Campanale told BusinessGreen that restructuring the investment sector to shift capital toward zero-emissions industry is a radical proposition that will not go unchallenged. “The fundamental wholesale rebuilding of the global economy” requires trillions of dollars of new investment, he said. “We have to actually rebuild the models today to allow investors to future-proof their portfolios and make them more resilient.”
The question is, of course, the urgency of timing.
One answer for the U.S. may be “budget reconciliation,” a process by which a simple majority can pass a reconciliation bill that instructs committees to change spending, revenues or deficits. S&P Global reports that much of the ambitious climate plan could be achieved this way. But policy experts and lawmakers are divided, and many are less optimistic that this back-door procedure will yield results.
The stakes are as high as the price tags for net zero. If President Biden is able to follow through on the same pledge after rejoining the Paris Agreement, some 63% of global emissions will be covered by net zero promises, according to Climate Action Tracker. As COP26 president, Britain is seeking firm commitments from India, among others. Buy-ins by more member countries could achieve an even higher percentage of coverage, which will foster a renewed sense of momentum.
A final note: Let’s take a moment to remember why it matters to turn this whole net zero idea into reality. Major weather agencies have agreed that 2020 is part of the warmest decade on record. “Exceptionally hot” was the general consensus, despite nuanced debate over whether the year was tied with 2016 as the warmest (NASA) or merely the second hottest in rankings dating back to the 19th century (U.K. Met Office).
Given the urgency of gargantuan financial commitment from leading economies, the future for climate finance looks as red-hot as recent weather. That said, it’s going to take an ocean’s worth of sweat and elbow grease to get the job done by 2050.