Climate change is a hot topic. Over the last months, I have realized that the public and political debate is making it difficult to understand what is really important to face the challenges ahead. In Germany for example, the public debate seems to be very much focused around getting out of fossil fuels (specifically coal), rolling out electric mobility and more recently a CO2 tax or price. While I support all of these in principal, I challenge the notion that these measures can come even close to being sufficient to have a substantial effect.
Given the magnitude of the required change and the disruptions we are facing, I believe the answer must not solely be a political one. The private sector — companies and entrepreneurs -have a massive opportunity ahead to build a valuable “green” economy. Increasing public pressure (e.g. from campaigns as Fridays for Future) and changing demand patterns will fuel this opportunity globally and will attract significant investment and deliver economic upside.
Global warming is a global crisis — environmentally and economically. In order to achieve the 1.5°C Goal, the world needs to become net-zero by mid of the century. This will give us 20–30 more years for reconfiguring our worldwide economy.
With this post I am trying to summarize my understanding of the situation as well as my view on why climate change is both a crisis and probably one of the biggest entrepreneurial opportunities of all times.
„Pathways limiting global warming to 1.5°C (…) would require rapid and far-reaching transitions in energy, land, urban and infrastructure (including transport and buildings), and industrial systems (…). These systems transitions are unprecedented in terms of scale, but not necessarily in terms of speed, and imply deep emissions reductions in all sectors, a wide portfolio of mitigation options and a significant upscaling of investments in those options (…)”
- IPCC, Summary for Policy Makers 2019
Climate change is a global problem, national answers are not sufficient
Although my home country Germany is behind its CO2 reduction goal, the European Union overall is on track at least for their 2020 goal. Out of the annual carbon emissions in 2017, Germany is responsible for 2% while China and India together account for 34% of emissions and increasing in both relative and absolute terms. The economic and population growth in India, China and Africa will lead to continuously increasing emissions. Why we should of course try to mitigate as much as possible in the EU and Germany, we need to accept that we are not going to solve the problem locally.
The challenge is global and requires global thinking and solutions.
Key facts:
· Currently humanity is emitting 42 billion tons of CO2 or Equivalents per annum with no visible slow down
· The remaining carbon budget, i.e. the amount of CO2 to be released in the atmosphere must not exceed 500–600Gt CO2. At the current rate of annual emission, the remaining carbon budget for reaching the 1.5° goal will be used up in 15 years
· The biggest growth in emissions is coming from fast-growing economies in Asia, specifically China and India and provided that economic improvement is such a powerful driver, a slow-down in emissions is not foreseeable
· Africa, with its fast-growing population, will become increasingly important for the emission discussion, also because this continent will be hit hard by the effects of climate change
The Paris Climate Agreement was a major step forward, to align most countries on the common goal of keeping he global temperate increase below 1.5°C compared to pre-industrial times. Countries set for themselves voluntary reduction goals. While this was a big step forward, the sum of all these measures is currently not sufficient to even reach the 2°C goal and de-facto the emission level as well as temperature will likely further increase.
In short, there is currently no visible slow-down in emissions, current policies will not be sufficient to meet the global goal of 1.5°C warming and we only have a relatively short time-window left to act.
Ways to address the challenge
There are basically three ways how the CO2 levels can be reduced vs. the current trend
(1) Reducing current emission levels
(2) Avoiding future emission increase
(3) Removing CO2 from the atmosphere (carbon dioxide removal)
The political debate centers primarily on the dimension of reducing current emissions. Moving from fossil fuel to renewables, moving to electric mobility or taxing CO2 are examples that hopefully lead to a reduction of current emission levels.
Avoiding an increase in emissions levels in fast-growing economies is key, namely China, India, Asia and Africa. The challenge here is even bigger than in the US or EU. Economic growth and prosperity needs to happen at constant or at least highly under proportional emission levels requiring bolder solutions than anything currently deployed.
Especially developing countries need to realize “green growth” going forward and not repeat mistakes from the “developed” world. This means that heavy investments need to be made into those regions of the world at a magnitude of additional $100bn p.a. or more. Developed countries have promised this sum as part of the Paris agreement from 2020 but this amount is not in sight. In his excellent book (“Der Milliarden Joker”), Club of Rome member Franz Josef Radermacher estimates that $500bn p.a. are needed to mitigate the gap needed to only reach the 2°C goal.
In any case, on top of emission reduction or avoidance we need to increase efforts for carbon dioxide removal. The most prominent example is global (re)forestation with scientists from the ETH Zurich estimating that there is a potential area the size of the US that can be reforested with the potential to remove eventually even 200Gt of CO2.
The Big Opportunity
We need to find a way to invest unprecedented sums into technology and growing economies to enable a CO2 neutral and sustainable growth. A global cap and trade system (certificate trading) as established in the EU, could be largely helpful to funnel funds into effective projects and investment areas and efficiently allocate capital where it returns the highest yield. In my opinion, politics need to find a way to incentivize investment into these areas by the right regulation. A CO2 price as discussed in Germany and already implemented in other countries is a good example.
Technology has no borders. Building technology and platforms in an already globalized world could be an effective way of funneling funds and investment into areas to fight climate change where it is needed in addition to globally coordinated policies. Many if not all of the areas of reducing emissions require innovation, be it the better insulation of buildings, electromobility, inventing new CO2-neutral fuels or even financial innovation to enable investment into developing countries. To illustrate the magnitude, The OECD (Link to pdf report) estimates the required investment into infrastructure at $6.9 trillion per year for the next 15 years to enable growth and remain below the 2°C goal of which 0.7 trillion is related to climate alone (Link to pdf report from New Climate Economy).
We are talking about a disruption of our way of live and of our economy and I believe this will create massive opportunities across many sectors — energy, agriculture, mobility, construction, finance to name just a few. Let us not only look at the “cost” of tackling climate change but the investment opportunities.
Together with the digital revolution, the climate revolution has the potential to become the next big thing.
