VINCENT OBISIE-ORLU: Trade-offs required on the road to net zero
Growing ESG emphasis in capital markets offers an opportunity to approach some challenges
After the recent International Energy Agency (IEA) “Net Zero by 2050” report, and the Sixth Intergovernmental Panel for Climate Change (IPCC) report, the world is rapidly shifting in pursuit of a net-zero emissions future.
The IPCC report warns that the planet is on course to exceed 1.5°C of warming above preindustrial levels in the next 20 years unless action is taken. In turn, the IEA’s report draws a road map for the future of the global energy sector to make the changes needed to keep warming under 1.5°C.
Both reports advocate for an end to new fossil fuel investments and increased investment in renewable energy and the infrastructure required for its functioning. Additionally, the IPCC report proposes the decarbonisation of supply chains across various economic sectors as a path towards mitigation.
Several countries — including the US, China, Canada and Japan — have set out time frames to reach both net-zero targets and peak emissions. However, many of these countries have not fulfilled their commitments under the 2015 Paris Climate Agreement. Equally, how these countries intend to achieve these objectives remains vague.
The pursuit of the net-zero future proposed by the IEA and the IPCC requires trade-offs. Trade-offs occur when there is a need to sacrifice something (emissions) to obtain a benefit (a net-zero future). Deciding which trade-offs to incur requires understanding that future economic development depends on ecological sustainability.
The recent floods in Germany and China, as well as the snowstorms experienced by Texas in February, show that climate change present risks to firms, their infrastructure and global supply chains. There is growing dialogue about companies aligning their strategies with environmental, social & governance (ESG) performance criteria and avoiding the risks of greenwashing.
Here, the concerns pertaining to the environmental footprint and effect of companies, their human rights records and how boards manage corporate governance are significant. The growing ESG emphasis in capital markets offers an opportunity for how to approach some of the challenges presented by the trade-offs needed in pursuit of a net-zero future. Increasingly, access to global capital is likely to be determined by firms’ ESG credentials.
It provides direct cash payments for preservation efforts, which in turn limit the incentives for poaching and overharvesting of wild animals and natural resources
According to the EIA, global energy usage is expected to increase by almost 50% by 2050. With increasing energy demand driven by increasing urbanisation and global population growth, the challenge of energy security for a net-zero world is essential to solve. There are concerns that the pursuit of renewable energy supplies will result in an inability to meet demand.
Many governments in developing countries have expressed concern that renewable energy will prove unable to meet baseload demand requirements for running an industrialising economy. Even some European countries are confronting a challenge to their energy security, which some politicians and commentators are partially blaming on the push towards renewable energy sources.
Many view these developments as a moment of truth for Europe’s green ambitions. Addressing energy security anxieties associated with renewables requires several solutions. These include upgrading carrying capacity of national power grids, developing interconnected decentralised microgrids, and ensuring efficient storage capacity.
Carbon sequestration, the process of capturing and storing atmospheric carbon, is critical to the net-zero ambitions of countries and firms. Carbon offsetting refers to the process by which carbon emissions are reduced to compensate for emissions produced elsewhere.
The most common method of carbon offsetting is tree-planting. Here, firms pay organisations to plant trees that compensate for the firm’s carbon emissions. A question that emerges is whether these projects can generate the carbon benefit claimed. A Financial Times article warned, for instance, of the risk of carbon offsetting essentially equating to a licence to pollute, couched in the language of net-zero ambitions.
Additionally, the wildfires in Northwest America, Algeria, Turkey and Greece present a warning for firms and policymakers. As global temperatures increase and wildfires become more common, these trees (often non-indigenous to the local environment) carry ignition risk and worsen the carbon emission problem they purportedly solve. Indigenous forest recreation and restoration, to the contrary, solve the tree-planting model’s problem because the resultant ecosystem serves as natural fire protection. Forest recreation and intact landscape preservation is therefore a more optimal policy direction to take.
Carbon Tanzania, a social enterprise focused on landscape conservation and providing local populations with tangible benefits for doing so, offers a model for firms and countries to follow. It provides direct cash payments for preservation efforts, which limit the incentives for poaching and overharvesting of wild animals and natural resources.
According to an article in Nature, wetlands in the US store 11.52 PgC (petagrams — 1015g — of carbon), while another article suggests the world’s wetlands may constitute carbon sinks of up to 830Tg/year (teragrams a year — 1,012g). The preservation of intact ecosystems clearly has significant carbon sequestration potential.
A final issue to consider is that the critical minerals required to sustain global renewable energy and transport revolutions are in short supply. Increases in extraction volume and refinement processes are required to meet demand, which will require geological exploration into new areas, some of which are untouched. Mining also typically results in environmental degradation unless new technologies are rapidly deployed to ameliorate the worst of its ecological impact.
Equally, concerns are emerging about the potential use of child labour and the susceptibility of communities to increased conflict in the extraction of these minerals. According to a report by the International Labour Organisation, child labour remains a serious mining industry problem in some jurisdictions.
Both the IEA’s “Net Zero by 2050” report and the sixth IPCC report highlight the need for a shift away from fossil fuels in the global energy supply. This is essential to meet the targets of the Paris Climate Accord and achieve net-zero emissions by 2050.
This pursuit will require attention to the trade-offs and concerns that animate the process. These include addressing the trade-off between meeting future energy demand and our green energy resource capacity to do so. Equally, it needs to address trade-offs between the increased demand for critical minerals and the environmental and social impacts this has on local communities.
The question of carbon offsetting and associated concerns about its usage as a licence to emit must be addressed. If negative externalities are internalised and properly accounted for, incentives would shift for development ambitions to follow an ecologically sustainable trajectory. It would also result in more sensible pricing of carbon, shifting firms towards more concrete offsetting mechanisms.
The coming two weeks’ 26th Congress of the Parties (COP26) meeting once more brings these questions to the forefront. Policymakers will need to robustly evaluate how they intend to manage these trade-offs in the development of future policy and move towards net-zero in a way that serves people and the planet we all share.
• Obisie-Orlu is researcher in the natural resource governance programme at Good Governance Africa.
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