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.
Given 30 years, rather than five, and much sooner in developed economies, the world could progress to having no gasoline or diesel vehicles.
Steel and cement production could be decarbonized, as well as shipping and aviation, and the massive increases in carbon-zero electricity production required to reconcile higher living standards in developing countries with a sustainable planet could be delivered.
The aggregate economic costs of this transition would be low and, in some sectors, trivial. Making autos with carbon-zero steel in 2040 or 2050 would likely add less than 1 percent to production costs and prices.
However, the public would need to accept some additional costs and behavioral changes. Carbon-zero aviation is likely to be appreciably more expensive — perhaps by 10 to 20 percent — and there is currently no certain route to zero-emissions agriculture without big reductions in the consumption of red meat.
To ensure rapid progress toward a net-zero global economy, countries should set legally binding targets. The UK’s 2008 Climate Change Act demands an 80 percent reduction below 1990 levels by 2050, and the five yearly intermediate targets set by the UK Climate Change Committee have driven significant progress, with 2017 emissions down more than 40 percent (versus Germany’s 28 percent reduction) and the carbon intensity of electricity generation cut 60 percent in the past 10 years.
However, progress in road transport has been undermined by inadequate government policies and industry lobbying to water down EU regulations. In addition, the latest scientific evidence indicates that an 80 percent reduction is inadequate.
However, the collapsing cost of renewable power and batteries has cut the cost of more rapid progress.
Today, the Climate Change Committee plans to recommend a significant tightening of the target, which should and probably will demand zero emissions by 2050.
Crucially, zero must mean zero, with the UK running its economy on a truly zero-emission basis, rather than purchasing so-called offsets from other countries.
All other developed economies should commit to that zero-by-2050 objective, and earlier still in countries blessed with abundant hydro, wind or solar power. So, too, should China, which aims to be — and almost certainly will be — a fully developed high-income economy by 2049.
Setting clear final and intermediate targets — embedded in legislation — will in itself drive strong action. Once the pathway is defined, political debate can focus on the specific policies required to achieve it.
Once investors know that the non-negotiable end point is zero carbon in 2050, they will desert any company whose plans are incompatible with that objective. Only clear targets can transform rational self-interest from a potentially catastrophic force into a powerful driver of beneficial change.
Adair Turner, a former chairman of the UK’s Financial Services Authority and former member of the UK’s Financial Policy Committee, is chairman of the Institute for New Economic Thinking.
Copyright: Project Syndicate
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