Net Zero

Key Takeaways

1. Climate change efforts have failed: 30 wasted years of rising emissions

Not even the Covid-19 coronavirus pandemic has failed to puncture the rise in the concentration of carbon in the atmosphere, even if it has made a temporary dent in emissions.

Global emissions continue to rise. Despite three decades of climate change awareness and policies, carbon dioxide concentrations in the atmosphere have increased relentlessly, from around 355 ppm in 1990 to over 400 ppm today. This period has seen:

• The "golden age" of fossil fuels, with more burned in the last 30 years than in the entire 19th century
• China's rapid economic growth, powered largely by coal
• Destruction of natural carbon sinks like the Amazon rainforest
• Minimal impact from renewable energy sources

The failure to achieve meaningful progress is not due to lack of effort, but rather ineffective policies and misaligned incentives. The world has focused on production-based emissions while ignoring consumption-based emissions, leading to the offshoring of carbon-intensive industries without reducing overall global emissions.

2. The UN's top-down approach to climate agreements is fundamentally flawed

There is never likely to be a legally binding international treaty, with the teeth to enforce and punish those who fail to deliver on their commitments.

The UN climate process is ineffective. The Kyoto Protocol, Paris Agreement, and subsequent COP meetings have failed to produce binding commitments or meaningful reductions in global emissions. This failure stems from:

• The free-rider problem: countries have an incentive to let others bear the costs of action
• Lack of enforcement mechanisms: no way to punish non-compliance
• Sovereignty concerns: major powers unwilling to cede control over their economies
• Misaligned incentives: developing countries demand compensation for action

The UN process has created a false sense of progress while emissions continue to rise. A new approach is needed that addresses the fundamental incentive problems and focuses on bottom-up action rather than top-down agreements.

3. Unilateral action on carbon consumption, not just production, is crucial

To start to unwind the damage already done would require a step further: to be net negative, in an effort to undo the largely coal-based carbon we have put in the atmosphere since the Industrial Revolution.

Focus on consumption, not just production. Unilateral action by countries can be effective if it targets carbon consumption rather than just production. This means:

• Accounting for emissions embedded in imported goods
• Implementing carbon border adjustments to level the playing field
• Encouraging other countries to adopt similar policies through economic incentives

By addressing consumption, countries can:

• Reduce their true carbon footprint
• Avoid carbon leakage through offshoring
• Create a ripple effect of climate action globally

This approach allows countries to take meaningful action without waiting for global consensus, while also addressing the moral obligation to reduce overall emissions.

4. A carbon price with border adjustments is essential for effective climate policy

The carbon price does not include the full cost of the carbon pollution caused.

Carbon pricing is crucial but incomplete. A comprehensive carbon price that includes border adjustments is essential for effective climate policy. Key aspects include:

• Setting a price that reflects the true cost of carbon pollution
• Applying the price to both domestic production and imports
• Using revenues to fund low-carbon infrastructure and R&D
• Adjusting the price over time to meet emissions targets

Benefits of this approach:

• Creates incentives for low-carbon innovation
• Levels the playing field between domestic and foreign producers
• Encourages other countries to adopt similar policies

Challenges include political resistance to higher prices and the need for careful implementation to avoid unintended consequences. However, without a proper carbon price, other climate policies are likely to be ineffective or counterproductive.

5. Massive infrastructure investment is needed for a low-carbon economy

The reason this is in the imagination rather than a reality (Covid-19 notwithstanding) is because businesses rely on physical contacts.

Infrastructure overhaul is necessary. Transitioning to a low-carbon economy requires massive investment in new infrastructure, including:

• Electric vehicle charging networks
• Smart electricity grids
• High-speed rail to replace short-haul flights
• Universal fiber broadband to enable remote work

This infrastructure investment:

• Creates jobs and stimulates economic growth
• Enables the adoption of low-carbon technologies
• Improves overall economic efficiency and quality of life

However, private markets alone will not provide sufficient investment due to the public good nature of infrastructure. Government planning and funding are crucial, as is the creation of independent system operators to manage complex networks.

6. Natural sequestration and offsetting play a vital role in achieving net zero

Natural sequestration (and natural emissions) happens all the time. Our interest is in net sequestration, over and above the natural emissions from anything that breathes out carbon, and from the erosion of rocks.

Natural solutions are critical. Achieving net zero emissions requires not only reducing emissions but also increasing carbon sequestration. Natural solutions include:

• Reforestation and afforestation
• Soil carbon enhancement
• Wetland and peatland restoration

Benefits of natural sequestration:

• Often more cost-effective than technological solutions
• Provides multiple co-benefits (biodiversity, flood protection, etc.)
• Can be implemented quickly and at scale

However, challenges remain in measuring and verifying sequestration, ensuring additionality, and avoiding unintended consequences. A comprehensive approach that combines natural sequestration with emissions reductions and technological solutions like carbon capture and storage is needed.

7. Agriculture must be transformed to address emissions and land use

Simply decarbonising the existing economy will not meet the needs of all these extra people.

Agricultural revolution is needed. Agriculture is responsible for about 25% of global emissions and is crucial for both emissions reduction and carbon sequestration. Transforming agriculture requires:

• Shifting to low-carbon farming practices
• Reducing meat consumption and production
• Embracing new technologies (vertical farming, gene editing, etc.)
• Restoring degraded lands and increasing natural carbon sinks

Benefits of agricultural transformation:

• Reduced emissions from farming and land use change
• Increased carbon sequestration in soils and vegetation
• Improved biodiversity and ecosystem services
• Potential for more efficient and resilient food production

This transformation will require significant changes in both production methods and consumption patterns, as well as careful consideration of land use trade-offs.

8. Transport electrification is necessary but faces significant challenges

An electric car's battery is currently anything but climate-friendly.

Transport revolution is complex. Electrifying transport is crucial for decarbonization but faces significant challenges:

• High carbon footprint of battery production
• Need for massive charging infrastructure
• Challenges in electrifying shipping and aviation

Potential solutions include:

• Battery swapping to reduce charging times and infrastructure needs
• Hydrogen fuel cells for long-distance and heavy transport
• Synthetic fuels for aviation

However, true decarbonization of transport also requires:

• Reducing overall travel demand through better urban planning and remote work
• Shifting to more efficient modes (e.g., rail over air for short trips)
• Rethinking supply chains to reduce freight transport needs

9. The future of energy is electric, requiring a reimagined electricity market

What worked for the coal and nuclear age, with the wholesale markets reflecting fossil fuel marginal costs, will not work for the new world of zero marginal cost renewables (nuclear is zero marginal cost too).

Electricity market redesign is crucial. The transition to a low-carbon electricity system requires a fundamental redesign of electricity markets:

• Shift from energy-based to capacity-based markets
• Introduction of equivalent firm power (EFP) auctions
• Creation of independent system operators at national and regional levels

Key features of the new electricity system:

• High penetration of zero marginal cost renewables
• Increased role for storage and demand response
• Decentralized generation and smart grids

This redesign is essential to provide the right incentives for investment in low-carbon generation, flexibility, and grid infrastructure while ensuring system reliability and affordability.

10. A sustainable economy requires polluter-pays, public goods, and net gain principles

The reason carbon should be taxed is that the polluters like you and me should pay for the costs we cause through our over-consumption.

Economic principles for sustainability. Creating a sustainable economy requires implementing three key principles:

1. Polluter-pays: Internalizing environmental costs through carbon pricing and other mechanisms
2. Public goods provision: Government investment in infrastructure, R&D, and other public goods
3. Net environmental gain: Ensuring that any damage is more than offset by environmental improvements

Implementing these principles will:

• Create incentives for low-carbon innovation and behavior change
• Provide the necessary infrastructure and knowledge for a sustainable economy
• Ensure that economic development enhances rather than degrades natural capital

However, this approach will likely lead to higher costs in the short term as the true costs of pollution are internalized. Political leadership and public support are crucial to overcome resistance and achieve long-term sustainability.

Last updated: August 12, 2024

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