Soaring mercury has become a concern at the national level. Thanks to the unmindful industrial activity that propelled economic growth across the developed world. Climate change is a problem of today, and if not addressed with alarming speed, will lead to a bleak future.
The annual COP conferences where the world gathers to address this issue has ended up as a green washing event where merely more carbon is added. The war at one end and reeling economic stress at the other, is pushing the climate change to the side lines.
Emissions from energy has reduced
From the start of time, the human race has transformed the natural system to suit its needs. Be it clearing out forest for agriculture, digging up the earth for mineral extraction, changing course of rivers with dams, polluting the environment with hazardous chemicals,… But all this have eventually resulted in huge developments across countries. This growth-only focus has left a negative impact on nature. The carbon emitted due to this has left a CO2 concentration of 405 ppm. An average human contributes about 5 tonnes of CO2 with substantial difference between rich and poor countries.
A recent report by the International Energy Agency (IEA) is heartening. It states that carbon emissions from energy, one of the biggest sources of emissions, increased by less than 1 per cent in 2022. This was despite the turmoil in energy markets caused by Russia’s invasion of Ukraine. This is much smaller when compared to the 6 per cent increase recorded in 2021.
However, a 7 per cent reduction every year is required to meet the goal of halving emissions this decade. The high energy demand is due to the unprecedented temperature and also due to shortages caused by the war. Despite this, global emissions are expected to plateau in 2023. A slow economy, clean energy spending, electric vehicles and heat pumps are expected to offset coal combustion to level carbon emissions
Emission – Growth – Emission
As each section of the society moves to a higher stratum, their consumption, and emission increase. A person with a cycle aspires to buy a scooter and then upgrade to a car. While aspirations cannot be curtailed, government and industry need to partner to facilitate this sustainably. Suppose the ambition of the more significant part of society is to buy a bike, the government should increase the availability of electric vehicles and cut down rates cheaper than fuel-based vehicles. Similarly, the government should develop attractive infrastructure for public transport, encouraging a large portion of the population to be moved by that.
After transportation, heating and cooling needs are the second-largest emissions contributor. Air conditioners have already become a necessity. ACs are a vicious cycle where cooling the house increases the atmospheric temperature, increasing the demand for cooling and going round about. Next comes plastic. Microplastics have already polluted our food sources and pose an immediate threat to us. India’s per capita plastic consumption is significantly less compared to developed economies. This offers India an advantage to tackle the problem in the bud. The Indore municipality proved that with the determination of administration, support of NGOs, and increasing awareness among people, it is possible to effectively segregate waste at the initial stage and then process it later for proper discharge. Along with this, several state governments have banned single-use plastics. Such models can be emulated across the nation.
India can invest in research of effective carbon capture technologies and highly abundant renewable power sources to move away from fossil fuels. While India has currently 101 GW of installed renewable energy capacity, the sad reality is that India continues to invest in coal-based power generators, and these investments will operate for another 25 years. To tackle this contradicting interest, the only proven way is to plant more trees to capture carbon. More trees and less consumption are the only way forward to prevent climate change.
Rethinking Growth
The culture of use and throw across different segments makes a massive waste handling problem, which several countries are already suffering from. Stressing on our roots of simple living can impact youth who can become torchbearers for the future.
The developed countries of today have benefitted highly from their past emissions. Developing countries like India need to push the world to rethink the idea of what is development itself. Would a high GDP and huge money reserves alone quantify growth? Isn’t protecting nature or the carbon emissions also be considered for this? With its efficient diplomacy across the world, India can rethink its development and urge to include emission and environmental protection as essential parameters to evaluate growth.
If there are strict regulations, then companies tend to pursue greener innovations. The political and economic instruments force companies and, in turn, create market competition for greener technologies. This has been proved in the case of the fire in a garment factory in Bangladesh. Until the incident, global fast fashion giants washed off the poor working conditions as something not under their purview but that of their contractors. As the fire broke out and the News of the working conditions spread like fire, several shareholders were shocked. This was reflected in the stock market, and the share of the companies started to plummet. After this, the companies also agree to look into contract labor conditions. This shows the power of collective individuals.
Book Review : Investing in the era of climate change
Policies backed by science will lead the way…
This is not a book for those who want to get tips to invest in specific clean tech company or in particular green sector of the economy. But for those who want to get a quick tour of all possible ways of fighting existential climate change crisis and different ways of raising funds to support the needed investment. The book also serves as a source of useful information to get a comprehensive understanding of climate change from the beginning of coal era to how the end of fossil fuel will happen.
Authored by Bruce Usher who is a Columbia University professor, an entrepreneur and worked in financial services in New York and Tokyo, the book is divided into six sections – momentum, climate change solutions, investing strategies, investing in real assets, investing in financial assets and investor’s dilemma.
When James Watt invented steam engine in 1723, and Edwin Drake drilled for oil in 1859 little could we have imagined, that such discoveries resulting in industrial revolution and explosive economic growth will end up with an existential crisis for our planet earth. This book begins with climate solutions to promote decarbonisation. They are – renewable energy, electric vehicles, energy storage, green hydrogen, carbon removal,…
In 2020, the cost of manufacturing solar PV panel has plummeted below USD 0.25 per watt, a 95 per cent cost reduction in two decades. It is the impact of the learning curve which is behind this stunning result. The author hopes similar situation to drive down the cost in implementing several climate change solutions in the future.
The Paris agreement does not force any country to meet their self-imposed emission targets. From 2014, GHG emissions have increased from 53 GT of CO2 (Gt CO2) to 59 GT CO2 in 2019. Currently the race to fight climate change has ambitious target of reaching the net zero for all developed countries by 2050. The author strongly feels that there is every chance of meeting this target. According to him there are solutions which are technically, politically and commercially feasible and with proper policy framework, private investors can raise enough money to fund them.
Cost of renewables
As much as 50 per cent of global power production by 2035 is forecast to come from renewables – the most significant transition in energy since the industrial revolution. One levelised cost estimate made in 2020, for small modular reactor is USD 65/ MW when it comes to stream in 2029 while the IEA’s levelised cost estimate for solar is USD 33/MW and for wind is USD 34/MW in 2025. In short, the author does not expect much role for nuclear energy. According to BCG, capital required to decarbonise the global economy to limit warning to 1.5 C to 2 C is USD 3 -USD 5 trillion per year or a total of USD 100 to USD 150 trillion by 2050. No details are provided on how such an important estimate was arrived at. Another consulting company McKinsey has a much higher cost estimate of USD 280 trillion.
Shifting to EVs and green hydrogen
As far as electric vehicles (EV), history is likely to repeat. Bloomberg New Energy Finance predicts cost parity for EVs and ICE vehicles by 2024. In mere 10 years, cost of EV battery has fallen from USD 1100/kwh in 2010 to USD 137/kwh. UBS bank predicts 100 per cent share for EVs by 2040! If this happens, then EVs will also be the most significant energy transition. Major drawback of wind and solar energy sources is its intermittency. While the storage cost using battery is coming down, and vehicles to grid can be used for meeting peak energy or intermittency, they are not enough to solve this problem. The book does not dwell much on this problem and implicitly assumes there will be an economical and technical solution to intermittency.
Role of green hydrogen in meeting intermittency and also the needs of major industries like steel, cement, trucking, shipping, for aircraft and agriculture is discussed highlighting the cost of producing green hydrogen as a major hurdle. The author does not discuss how the current cost of producing green hydrogen of USD 3 to USD 8 per kilogram will fall below USD 1/kg, to be competitive. Surprisingly infrastructure to transport hydrogen has been highlighted as a significant hurdle though some experts have different views.
Three carbon removal solutions are discussed. They are: Carbon Capture and Storage (CCS), carbon sequestration using biomass and Direct Air Capture (DAC). Carbon sequestration through forests cost USD 5/tonne while CCS costs USD 60 to USD 150 per tonne and DAC costs USD 500/tonne. Carbon Engineering, a startup leader in DAC, expects its technology can bring down the cost to USD 100 to USD 250 per tonne. According to the author, since other technologies cannot be used to mitigate some part of GHGs, carbon removal technologies are required to remove at least 3-7 billion of GHGs annually despite its high cost.
Tragedy of horizon
IEA estimates that by replacing fossil fuel by renewables and energy efficiency improvement, it is possible to reduce GHGs by 38 per cent by 2050. EVs can reduce GHGs by another 22 per cent. Industry can reduce by another 20 per cent through renewables, energy efficiency and green hydrogen. For the remaining 20 per cent, carbon removal is needed. Since climate change risks are not immediate and beyond the usual business cycle, investors have less concern. This lack of concern was termed as “tragedy of the horizons” by the then governor of Bank of England, Mark Carney in 2015. Otherwise, how one can explain the current historical high price of oil company stocks and huge investments for oil exploration.
Decoupling growth and emissions
Based on several studies, the author concludes that the ESG has improved risk-adjusted returns. Strategies like “consume less” and “abandon economic growth”, to reduce GHGs, has been discussed but the author dismisses them as of no consequence. This is in contrast with India’s stated strategy of simple living and high thinking. It is disappointing to see lack of importance given to these by the author. On the other hand, India is also failing to walk the talk. India’s policies are influenced to maximise economic growth at any cost. The book even tries to argue that it is possible to have higher economic growth while following the strategies of decarbonisation.
An important issue of equity of how to share the cost of decarbonisation has been left out. This is surprising especially after discussing the “tragedy of the commons.” Developed countries which account for 12 per cent of the world population have emitted 50 per cent of the greenhouse gases for the last 170 years. This in turn is putting a heavy burden on the developing countries since available carbon space has been already used to a great extent.
As the author sees, next 30 years are going to be extremely critical for our civilisation. He refers to Austrian economist Schumpeter’s capitalism process of “creative destruction” to argue it will work to solve climate change crisis. The author gives the convincing example of Kodak versus apple. In 1998, market capitalisation of Kodak was USD 26 billion and of Apple was USD 1 billion. Kodak was forced to bankruptcy and Apple was a successful company. He is expecting that the invisible hand of capitalism will work and fossil fuel companies will be replaced by renewable energy companies by 2050.
While it is always useful to feel optimistic, one needs to be practical and give what-if scenarios to convey the urgency of taking difficult and inconvenient. In mid 70s, only after banning lead for public health reasons, oil companies started to produce the right kind of gasoline. In late 80s, Montreal protocol resulted in rectifying the Ozone hole only after banning chlorofluorocarbons by manufacturers. Dreadful air pollution and smog in cities was brought under control only when the government-imposed emission controls on vehicle manufacturers. After adapting amendments to the clean air act by adding cap and trade, acid rain was reduced in the US. But for the EU and that too partially, we do not see any such major policy on the part of any government to fight climate change though there is greater urgency. Some governments have taken major policy decisions like banning ICEs as early as 2035, and coal power plants, imposing minimum requirements using renewable to produce power, etc. But much more needs to be done to achieve net zero.
Neither Adam Smith’s invisible hand, or ESG investments or Schumpeter’s creative destruction will result in fighting climate change. We need a robust set of polices backed by sound science.
