The move to net zero must happen as quickly as possible – and it must happen at scale. To achieve real, quantifiable impacts we must explore and invest in all possible policy solutions.
The three main policy "tools" for solving the climate crisis – carbon pricing, sustainable finance, and technology – will all be crucial over the coming decade. However, it is greater promotion of this third tool, clean technology, that will help us hit the bullseye on our net-zero target.
Tool 1: Carbon Pricing
Carbon pricing will remain the backbone of climate policy, but public apprehension and political constraints are hindering widespread adoption
For a long time, policy makers and economists have been enchanted with a price on carbon as the most effective and efficient tool to curb climate change. The concept is sensible and straightforward; price and tax the pollutants, and mighty market forces will work for the planet by pushing the dirtiest fuels out of the system. Unfortunately, this alone does not guarantee public support.
As indicated by a 2018 study by leading economists including Nicholas Stern, a key barrier to implementing improved carbon pricing has always been public acceptability. And new carbon pricing schemes are resulting in "growing discontent" among consumers and taxpayers, as was exemplified by the "gilets jaunes" movement in France.
Even in Germany, where the green party is on the rise and climate protests are going strong, a May 2019 survey showed that only one third of the public supports a carbon tax – even though 82% in the same survey say they see a "strong" or "very strong" need for more climate action.
We should continue to push for more ambitious carbon pricing schemes as the backbone of impactful climate policy, as well as improve design of the carbon pricing schemes
We should continue to push for more ambitious carbon pricing schemes as the backbone of impactful climate policy, as well as improve design of the carbon pricing schemes. The adequate price on carbon, for example, should be at least US $50 worldwide; right now far less than 1% of emissions are priced as such.
Until we have the infrastructure and competitively priced low-carbon technologies to provide the service – energy – that dirtier fuels once did, having voters and politicians accept higher carbon prices is simply wishful thinking.
Tool 2: Sustainable Finance
Sustainable finance has a pivotal role to play but requires clear policy signals for stronger impact
For years, there have been hopes that the financial sector, driven by political support, will bring about the change we need. However, without a strong price on carbon or widespread availability of affordable clean technologies, the impact of the financial sector will remain limited. The refusal of most investors and asset owners to forego profits or accept higher risks for positive climate impacts is at the heart of this issue.
Without a strong price on carbon or widespread availability of affordable clean technologies, the impact of the financial sector will remain limited.
A typical case are green bonds, one of the main green investment products on the rise. Under their current structure, green bonds offer the same risk-return profile to investors as their non-green counterparts. As such, their ability to drive change is limited.
While there have been high profile divestment cases, such initiatives have limited impact when the risk-return profile of fossil fuel assets remains favourable and enough other asset owners continue to invest in them. Even the impact of the sensible recommendations of the Task-Force on Climate-related Financial Disclosures (TCFD) will be limited. That is, unless carbon prices become considerably higher and low-carbon technologies more price-competitive, so that investors will have a more urgent, cost-driven need to reduce climate risks.
While governments can use financial regulations to encourage markets to drive change, there is strong pushback from both the financial industry and central banks against major regulatory changes.
I can recall one instance where South Pole was consulted by a government on the stronger inclusion of climate risks in regulations. Following the consultancy, the government was willing to take further steps. Political pressure from the financial industry not only blocked this, but actually led to the removal of very basic ESG reporting requirements from these same regulations.
Tool 3: Clean Technology
Technology has broad public support and measurable success in driving down emissions
Much of my personal optimism regarding us meeting the goals of the Paris Agreement stems from the increasing accessibility, reliability and affordability of clean technologies.
Within just a few years, the installed and levelised costs of renewable energy systems – notably solar PV – have decoupled from fossil fuel prices. In simple terms, coal is not going to get cheaper – but solar will! And there is growing public support backing such burgeoning clean technologies.
Fifteen to twenty years ago, most experts – myself included – had doubts about the future of solar PV: the cost to reduce just 1 tonne of CO2 was far too high. Our mistake? Neglecting the power of technological change driven by public technology programs.
Renewable energy sources are producing electricity at a more competitive price than coal, gas and oil, and production costs continue to fall.
Based on the German feed-in tariff in the early 2000s and later similar programs in other European countries and Chinese technology policies, solar PV and other clean technologies have been rapidly deployed over the last 20 years. This has been accompanied by rapidly decreasing costs through economies of scale and learning by doing.
Today renewable energy sources are producing electricity at a more competitive price than coal, gas and oil, and production costs continue to fall. The benchmark price for solar has dropped 84% since 2010, offshore wind by more than half, and onshore wind by 49%. Similar stories exist for energy storage – the price of lithium-ion batteries has already dropped by more than three quarters since 2012.
Apart from subsidies for specific technology (both for research and deployment), policymakers have used standards for advancing technologies. Take energy efficiency, for example; with simple mandatory standards for light bulbs, millions of tonnes of CO2 emissions have been reduced. In 2019, one third of the world's energy consumption is covered by mandatory standards and regulations compared with just 11% in at the turn of the century.
A stronger focus on technology would create three massive advantages for climate policy:
Improved livelihoods – clean technology is highly tangible and can improve people's lives directly, so there is generally broad support.
- Innovation – clean technology provides a positive narrative that policymakers can get behind: innovation, development and job opportunities.
- Private sector support – business has a strong interest in new technology: over the last decade, the private sector has consistently attracted more than 75% of EU investment in clean energy research and innovation and increased annual spending from around €10 billion to over €16 billion.
We need technology as a tool to create additional impact, but also to get a majority behind climate action. This is the focus of the Swiss Technology Fund, which offers loan guarantees to small- and medium-sized enterprises that develop clean technologies to reduce emissions and support sustainable development.
The future is catching up with us. We cannot afford to delay action, especially when we have powerful tools available, today, to create the change we need.
The future is catching up with us. We cannot afford to delay action, especially when we have powerful tools available, today, to create the change we need. While carbon pricing is still the backbone of any climate policy, there is not enough public support to get it off the ground across the globe quickly enough. Sustainable finance can support the transition to net zero, but without stronger policy signals, its impact remains limited.
History shows that clean technology has always had broad political support and the most significant impact on CO2 reductions – largely thanks to R&D, clear standards, and deployment incentives. By focusing more on the development and deployment of clean technology, policy makers can speed up progress towards solving the climate crisis.
Let's not delay any longer! It's time to take action: #LetsActNow.