ImpactAlpha, April 22 – Call it The Great Acceleration.
Goals for cutting carbon emissions that seemed ambitious when the Paris Agreement was forged six years ago have become passé even before they have been achieved. Net-zero by 2050 no longer impresses.
Leaders in the low-carbon transition have to show dramatic results – by 2030.
This Earth Day is marked by the confluence of a rising climate emergency with falling costs for renewable energy, battery storage, electric vehicles and other low-carbon solutions. That has flipped climate action from being a drag on financial performance and economic growth to being its main driver – and a competitive business and national advantage.
For countries and companies, the FOMO is getting real – further fueling The Great Acceleration.
Determined not to miss out, President Biden is expected to announce that the U.S. is targeting a 50% reduction (from 2005 levels) by 2030, nearly double the 26-28% reduction the Obama administration had aimed for. Biden’s Leaders Summit on Climate today is rallying such increased ambitions ahead of the global climate summit in Glasgow in November to advance the Paris climate accord. The U.S. has rejoined the agreement after former President Trump withdrew.
The European Union’s goals are even more ambitious, with a legally binding commitment to cut emissions by 55% by 2030. And in the U.K., newly unlinked from the EU, Boris Johnson has set an even more aggressive target to slash emissions by 78% from 1990 levels by 2035. Johnson will also ban the sale of gas-powered cars by 2035. (Comparisons are tricky. BloombergNEF’s Victoria Cuming has created a blended score to assess country ambitions across different methodologies. The EU and the U.K come out on top, but the U.S. can catch up if it cuts 2030 emissions by about 53%.)
Japan and Canada are expected to update their emission-reduction goals, or “nationally determined contributions,” at Biden’s Earth Day summit.
“It’s not about 2050,” Biden climate change adviser Gina McCarthy said at a recent Bloomberg conference. “It’s about what we do in the next decade.”
“We don’t have anything like the amount of time that we used to talk about,” Michael Bloomberg said at the same event.
Meeting the newly ambitious 2030 goals will require a “comprehensive all-of society strategy” mobilizing cities, states, and businesses in addition to Washington, according to an analysis by America is All In, a coalition of climate leaders.
The biggest opportunity to cut emissions is in the power sector. The Biden administration has a goal of 100% clean electricity by 2035. New initiatives aim to drive solar costs even further down the curve, cutting another 60% in this decade.
Next up is transportation. Biden’s infrastructure plan would help build out a network of 500,000 charging stations. Stricter fuel economy standards would also spur the transition to electric vehicles.
Corporations will have to scramble to keep up. Amazon raised the ante last year, pledging to achieve net-zero emissions by 2040, a decade faster than most corporations. Microsoft aims to be carbon negative by 2030, including cutting emissions across its value chain by more than half. By 2050, Microsoft plans to eliminate all the carbon the company has emitted since it was founded in 1975. The company’s $1 billion Climate Innovation Fund fund invests in climate solutions that need capital to scale.
Ambitious targets and early investments will give leaders a competitive edge, and not only because investors, employees and customers are urging corporations to take greater climate action. Lower operating costs (from all-electric fleets, for example) and increased innovation (via climate-smart everything) will be key corporate differentiators.
The new stretch goal: eliminating emissions and high carbon inputs throughout your entire supply chain. Apple, which has vowed to be carbon neutral across its supply chain by 2030, is pushing global suppliers to green their operations. More than 100 Apple suppliers have committed to shift to 100% renewable energy, representing 8 gigawatts of new clean energy.
Apple even urged two rivals, Alcoa and Rio Tinto, to work together to commercialize a cleaner method of making aluminum. They now have a joint venture, Elysis.
Apple is saying, “‘Look, first off, we’ve done it. We’ve taken our company carbon neutral,” the company’s Lisa Jackson told the Washington Post. “Let us help you understand how to do it for yours and do it in a way that makes money, that’s profitable, that at a minimum, breaks even with the cost of more conventional, dirtier power. They love that message.”
The ripple effects of these corporate aspirations reach beyond corporate supply chains into forests and fields. To meet their ambitious targets, companies are paying sustainable farmers and forest owners to sequester carbon, spurring a fast growing market for quality carbon offsets.
Apple last week launched a $200 million Restore Fund in partnership with Conservation International and Goldman Sachs that will invest in responsibly managed forests and other sustainable projects. Netflix’ “Net Zero + Nature” plan will look to invest in projects that restore mangroves, grasslands, and healthy soils.
Nationally Determined Contributions
If 2030 is the new 2050, 1.5 degrees Celsius is the new 2 degrees Celsius.
The science-driven consensus is that there is little wiggle room to allow for anything above a 1.5 degrees Celsius rise from pre-industrial temperature levels. “We all know 2 degrees is not the goal,” said McCarthy.
The planet is warming faster than predicted, bringing with it more frequent storms and climate-linked disasters. The planet notched another record hot year in 2020, reaching 1.2-degree Celsius above pre-industrial levels, prompting U.N. Secretary-General António Guterres to warn the world stands “on the verge of the abyss.” The U.S. National Intelligence Council flagged climate change and the food and water shortages, migration, health challenges and biodiversity loss it will contribute to as a key concern.
“Failure to meet the Paris Agreement’s temperature limit of 1.5°C risks pushing the world towards catastrophic global warming,” warned the Dalai Lama and other Nobel laureates in an open letter to government leaders organized by the Fossil Fuel Nonproliferation Treaty.
The Nobel prize winners pointed out that the production plans of coal, oil and gas companies will overshoot by 120% that allowable amount under a 1.5 degree warming scenario. “Fossil fuels are the greatest contributor to climate change,” they wrote. “Allowing the continued expansion of this industry is unconscionable.”
Even with countries and companies on board, the math is brutal – which is why accelerating the acceleration is the only way forward. To keep warming to 1.5 degree, global CO2 emissions will have to be halved by 2030. That means leaders in emissions-reduction will have to overshoot that target to compensate for the laggards.
That is why exponential is the kind of progress required. When it is cheaper to build a solar plant from scratch than to operate an existing fossil fuel plant, the calculus quickly changes. Cost curves for renewable energy such as wind, solar and batteries are falling faster than even the best case scenarios, creating a competitive advantage for companies and countries who embrace it first.
China is raising its reductions targets and, despite other differences, Xi Jinping will attend President Biden’s Leaders Summit on Climate today and tomorrow. So will climate-action laggards like Russia’s Vladimir Putin, and Brazil’s Jair Bolsonarao. Non-state leaders such as Pope Francis, Bill Gates and business and finance leaders will help mobilize broad climate action. The World Resources Institute has a handy NDC tracker.
So far, only Morocco and The Gambia have national-level plans compatible today with a 1.5 degree scenario, according to the Climate Action Tracker. A key enabler for developing nations: policies to attract private investment in local climate solutions, as highlighted by the Climate Finance Leadership Initiative.
A Green Climate Fund fund to help developing countries head off and adapt to climate change has been chronically underfunded. Some $8 billion of a pledged $10 billion has been committed to 173 projects in Africa, Asia, Latin America and the Middle East. The U.S. pledged $3 billion, but has only contributed a third of that. Expect to hear more from Biden on topping up the fund.
Banking on sustainability
“It’s going to be tremendously important for the financial services industry to marshal and allocate capital that’s needed to make the transition toward net-zero,” said U.S. Treasury secretary Janet Yellen after a speech this week. The carrots of COVID-recovery stimulus packages that favor sustainable projects and infrastructure, green tax incentives and R&D grants to commercialize climate tech will not be enough.
Sticks are coming, including policies that impose more stringent climate disclosure and reporting requirements on companies, carbon pricing and new rules around fiduciary responsibility, as well as sector-specific policies and targets. Biden, for example, is directing agencies overseeing banking, agriculture and housing to consider climate-related risks. New Zealand and the UK are also planning mandatory climate risk reporting.
Banks such as JPMorgan and Citi have pledged to green their portfolios, in part by working with clients to reduce their emissions. While many have ended funding for coal projects or drilling in the Arctic, they have stopped well short of cutting off oil and gas companies, arguing that they are critical to the energy transition. Since the Paris Agreement, the 60 largest commercial and investment banks have shoveled $3.8 trillion into fossil fuels projects, according to Banking on Climate Chaos.
The newly launched Glasgow Financial Alliance for Net Zero, chaired by UN special envoy on climate action and finance Mark Carney, will work “to mobilise the trillions of dollars necessary to build a global zero emissions economy and deliver the goals of the Paris Agreement.” The group includes 160 financial firms responsible for more than $70 trillion in managed assets, will act as an umbrella group for other financial initiatives, including a Net-Zero Banking Alliance.
In another signal of The Great Acceleration, even that level of ambition is likely insufficient.
“The slow timelines, limited scope, acceptance of intensity targets, and vagueness on fossil fuels and deforestation come in well below established global best practice,” said Jason Opeña Disterhoft of Rainforest Action Network. “Financial institutions have to stop fueling fossil expansion and deforestation, and phase out all support for fossils, starting immediately.”