Thu, May 02, 2019 - Page 9 News List

Capitalism will not beat climate change all alone

Investors must become aware that the non-negotiable end point is zero carbon in 2050, or they will not desert any company whose plans are incompatible with helping achieve that objective

By Adair Turner

Easter visitors to London found some streets and buildings occupied by “Extinction Rebellion” advocates, warning of climate catastrophe and rejecting “a failed capitalist system.” Followers of central bank thinking have seen the governors of the Bank of England and Banque de France warning that climate-related risks threaten company profits and financial stability.

Both interventions highlight the severity of the climate challenge that the world faces, but warnings alone will not fix the problem. Governments must set ambitious but realistic targets to eliminate carbon dioxide and other greenhouse-gas emissions, backed by policies to ensure that the targets are achieved. Net-zero carbon-dioxide emissions by 2050 at the latest should be the legally defined objective in all developed economies.

The central bank governors’ statement, together with steps to require clearer company disclosure of climate-related risks, has fueled optimism in some quarters that a free-market solution is possible.

With falling renewable-energy costs threatening to leave fossil-fuel companies with loss-making “stranded assets,” well-informed investors would, it is hoped, withdraw funding from companies still searching for new oil or gas reserves, or from automotive companies still committed to gas-guzzling sport utility vehicles.

However, there are limits to what better information and foresight alone can achieve. The same capitalist dynamism that reduces renewable-energy costs is also dramatically lowering the costs of shale-gas production.

Fossil fuels might always be the cheaper option for some purposes unless governments impose emissions taxes or regulations to favor lower-carbon technologies.

If the taxes or regulations are postponed too long, forward-looking but cynical investors would be able to profit from projects that bring climate catastrophe closer.

The Extinction Rebellion advocates are right that, left to itself, capitalism cannot solve this problem, no matter how perfect the financial-disclosure regime.

Instead, the advocates argue for public commitments to achieve zero-net emissions by 2025 — but “zero by 2025” would mean a huge hit to living standards, threatening public support for less extreme, but still effective action.

Britain would have to remove gas central heating from more than 20 million homes, and it would be almost impossible to build wind and solar capacity fast enough to deliver equivalent energy in the form of electricity.

Zero emissions would also mean no gasoline or diesel cars. While city dwellers could manage without them, people living in rural areas and small towns could not do so as early as 2025, given the likely costs and range of electric vehicles.

As the French yellow vest protesters have shown, opponents of a rapid energy transition can also occupy streets. The path to a carbon-zero economy will require time to manage.

So how much time is there? The best scientific evidence, set out in the Intergovernmental Panel on Climate Change’s latest report, says that the objective should be to limit global warming to 1.5°C above preindustrial levels. That would require global carbon-dioxide emissions to reach zero by 2050, or very soon thereafter.

Achieving that would require big investments in new energy sources and improved energy efficiency, but it is undoubtedly technically possible, as the Energy Transitions Commission’s Mission Possible report sets out.

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