From my perspective, last month's UN Climate Summit in Glasgow (perhaps better known as COP26) was not an operating room, something designed to treat and cure a dying world; it was more like a clinic, affording a chance for the patient to find out just how bad the prognosis is. Reading between the lines at COP26 is usually more consequential than the formal agreements. A month later we can see this was spectacularly true of COP26. And the big message for all of us is that it's what we do tomorrow to repair the climate that matters most.
The strong prognosis is: the climate is seriously injured but can recover, with some hard work. Multiple new analyses suggested, for the first time, that the original goal of limiting the planet to 2°C of warming could be achieved if every country kept its existing and new COP26 commitments. Rystad, a major oil industry analyst, suggested we were on a trajectory that could limit emissions to 1.6°C – close to the 1.5° Paris goal. But these hopeful metrics were undercut by an announcement by U.K. government climate scientists warning that if warming does hit 2°C, humanity is in deep trouble. The number of people subjected to extreme heat stress would increase 10-fold, to a billion.
These reports should put to bed the debate over whether it's too late, or if some kind of implausible sacrifice is required to meet our climate goals. The current pledges that could get us to only 1.6° to 1.9° of warming don't even require nations to rapidly retire coal power plants — even where they are more expensive than the renewables that could replace them!
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So if we are getting close to 1.5°C, why is my emphasis on tomorrow?
First, today's carbon dioxide emissions will hang around for perhaps 1000 years – meaning tomorrow's emissions are a forever threat. But there is a hopeful aspect to moving quickly to make accelerated investments in low-carbon energy everywhere. Abundant early finance can drive clean energy prices down with increased market share economies of scale. So as abundant, low-cost capital to flows into early-stage clean energy projects, both short and long term energy prices plummet. It's the first 50 GW of clean energy that are tough for a developing economy to afford, because it doesn't yet have the systems and supply chains to build them cheaply. In other words, tomorrow's investment level that drives the future.
What's getting in the way?
If in most of the world, renewable power is already cheaper than coal and gas, why is climate finance a barrier in so many places?
For many investors, renewable projects are new and unknown investment sectors. And in many countries, high-capital electricity generation investments are risky. The reason is this: even if their, say, wind turbines generate electrons, grid space might not be reliable and utilities may not pay their bills on time. And there are also international risks, primarily currency fluctuations. Local governments need to guarantee payments for new wind and solar projects; the global community needs to provide affordable insurance against currency fluctuations. But if early stage projects in early stage renewables are posed to investors without financial risks — perhaps through some kind of guarantee from the global community — clean energy will be cheaper than existing fossil capacity, almost everywhere almost immediately.
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There are also what some call "chicken and egg" problems. If countries don't have EV charging networks up and running, customers won't buy electrified models, and automakers won't offer them. If transmission is not upgraded, and energy storage made available, wind and solar, however cheap, can't take the place of coal and gas.
To solve these kinds of problems, national governments need broad support. Businesses, cities, states and civil society need to be unleashed, empowered and financed to start doing what we have known for decades was essential. However, many cities currently lack credit ratings or even the legal authority to use financial instruments which will be essential for high capital decarbonization progress.
So how do we get off fossils?
Tomorrow's capital flows, not those in twenty years, are what matters. But not all short-term investments count equally. Right now, fossil fuel prices are spiking – and existing power plants and cars are still getting fueled, just at a higher expense. But the new wind and solar developments that are badly needed to replace coal, oil and gas are not yet being financed in much of the world.
Aligning capital and investments with a 1.5-degree pathway means, first and foremost, rapidly and reliably increasing investments in clean energy. Investors will abandon coal, oil and gas only when they see that clean energy market share is destroying fossil fuel profitability.
Given that imperative, my nominee for one of the most under-told story of the COP is that of the First Movers Coalition, a new group of businesses in "hard to electrify" supply chains like steel, aviation, shipping. They have pledged the most effective step we know of to speed up decarbonization in their sectors: create a guaranteed market for innovation.
For example, transport members including United, Volvo, Amazon and Maersk pledge to purchase 5% of their transport energy or fuel from zero carbon sources by 2030. Suddenly, there is a reliable, bankable and very large global market for such technologies.
These are the kinds of innovations we ought to be counting on. Because once technologies exist to meet 5% of these markets, they will no longer be seen as too hard to clean up.
It's true that the world doesn't need and can't afford more coal mines or oil fields. So investors would be smart to stay away from them. But that's not nearly as important as getting finance to flow into clean energy technologies across the economy and around the world.
As we let go of the legacy fossil fuel economy, we face some brutal transition issues. Early decarbonization is already disrupting fossil supply chains, increasing volatility, and intensifying the economic penalty for an economy clinging to fossil fuels. That's the real meaning of this year's mislabeled "energy crisis." It also is reinforcing the price gouging behavior of incumbent fossil fuel producers, and enhancing their propensity to play the short, not long game. Russia and Saudi Arabia are going to squeeze carbon fuel importers every time they can; this winter's price spikes are only round one.
Overall, COP26 offered us some important – and on balance, hopeful – indicators. While climate change is an enormous and expensive global problem, its solutions are often small, precise and highly profitable. Fundamentally, we know how to clean up almost every part of our economy with innovation. The biggest question is whether we can muster the momentum to do in the way the climate requires, quickly — which also happens to the be the path that will best enhance prosperity tomorrow.
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