This year will be the year of net zero. On 22 April the US will host a one-day Earth Summit to progress work on decarbonising the world. On 1 May there will be the 12th Petersberg conference on the same topic. This group last met remotely with around 30 countries under German chairmanship in April 2020.
At the G7 in June, hosted by the UK in Cornwall, the leaders will doubtless discuss the topic again, in preparation for the large COP 26 Conference in the first twelve days of November, hosted by the UK in Glasgow. These conferences matter, as they provide public platforms that require Presidents and Prime Ministers to firm up their offer to the world of the action being taken to decarbonise their economies. There will be much talk of new and tougher Nationally Determined Contributions or NDCs.
The US will need a revised and rigorous NDC in time for Glasgow. Getting one ready for their own earlier conference will be challenging, as it has to work out how it intends to achieve a target before pledging to it. After the four years of President Trump dissociating the US from this thrust of policy, the US governing machine needs to update the old Obama work and come up with a persuasive offer to become again one of the world leaders in this field.
The current pattern is to expect developed countries to want to get to net zero by 2050, with a demanding target for 2030 to show the seriousness of intent and to make eventual arrival at net zero more credible. 2050 allows scope for illustrative figures for technologies still to be developed or scaled, whilst 2030 depends on the current mix and needs to rest on what is already feasible. It is too early to be sure what the USA may come up with, but it will presumably need to be at least a 50% cut in 1990 levels of greenhouse gas emissions by 2030 to reassure the climate change campaigners.
There are various international initiatives and bodies to assist, under the general umbrella framework provided by the UN. There is an Energy Transition Council to decarbonise electricity generation and to replace the use of oil, coal and gas as direct fuels wherever possible. There is a Zero-Emission Vehicle Transition Council, and a Sustainable Land Use and Commodity Trade dialogue.
UK provides insight
The published reports of the UK Climate Change Committee provide quite a good guide to global thinking and are relevant given the role of the UK as chair this year of COP 26, a follow up to Paris. They stress the need for action in most areas of business and home life. They remind us that the big four areas are energy, transport, business and homes, where there needs to be rapid and sustained change. They are also concerned about land use and agriculture. With their encouragement, the UK has adopted a net zero target by 2050 and five yearly carbon budgets. By 2018 the UK’s greenhouse gas emissions had fallen to 57% of 1990 levels in a world where emissions overall had continued to rise.
Tougher targets will mean governments adopting a range of policies to force the pace. Whilst a majority of people in most advanced countries accept the general concerns, this does not translate yet into a dash to replace the car and the home boiler with electric versions, nor into a mass move away from eating meat and dairy products.
The carbon battle will need higher taxes on activities on the bad list, more subsidies for products on the good list, and plenty more regulations and bans to tip more conduct towards the favoured goods and services which help reach the net zero goal. So far it has been mainly the energy sector itself which has been at the forefront of these changes. We have seen some large recent write-offs by oil companies reflecting the strategic issues as well as recent damage to demand and prices from the pandemic. The majors are now working on their own transition plans to lower carbon. We have seen many closures of coal power stations and considerable investment in wind and solar energy. Governments found it easier to regulate and persuade big energy companies to change than to generate more change from individuals over cars, boilers and diet.
Pricing carbon is a recommended part of the answer proposed by many lobbyists. Carbon taxes are being examined by the EU and the US as they think about how they can encourage more good green domestic production and avoid ending up importing more fossil fuel-based goods from the emerging world where there is less progress in dealing with carbon.
The positive investment opportunities lie in the winners of the industrial races to produce popular products to offer electric transport and heating, to green the office and to supply the new dietary requirements. There are also new technologies like hydrogen which figure in the longer-term thinking of some governments worrying about how you can remove gas or diesel from some industrial processes and heavy vehicle fuelling. The investment threats are to all business models that are too dependent on fossil fuel energy, where we should expect more taxes and regulations to force changes of conduct. In each case, the full force of governments working across all relevant departments will be felt.
The targets are all for a net figure. We will look at how the market in carbon offsets works in a later blog, as many of the countries targets will partly rely on offsets as they do not foresee the elimination of all fossil fuel burning by 2050.
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