THE VALLEY OF DEATH
- private sector decarbonization and how the government can be a force multiplier -
How do we build a global green economy in less than 30 years, and what can governments do to foster that transition? That’s a humungous question (its fun just to think about how big it is) and could easily be the topic of libraries full of books.
Amazingly, the answer is taking shape. In Good Enough for the Climate, I talk about the colors of carbon, including Black Carbon (Chapter 11) representing engineered solutions to climate change. This encompasses solutions for all the energy, transportation, infrastructure, and materials of our modern world. In every sector there are initiatives to build a green economy. The aviation sector is developing biofuels, more efficient aircraft designs, electric aircraft, more efficient routing, and the electrification of ground operations to minimize emissions. The steel and concrete industries are developing standards for zero carbon materials using new methods of production, tightening the circle of reuse of recycling, decarbonizing their supply chains. These are just a couple of examples.
Why are business sectors doing this? It’s good for business. Their balance sheets are at risk. Plant, equipment, and raw materials that can’t be utilized in a carbon neutral or negative way won’t be worth much in the future. Their operations and bottom lines are at risk. Climate change disrupts supply chains and increases operating costs. Building new resilient supply chains costs a lot of money. Climate change if unchecked will also hurt demand. Finally, their customers and investors are demanding they decarbonize. It seems like these trends don’t get enough attention in the media, even the news outlets dedicated to climate.
One of my favorite podcasts for climate and sustainability related insights might seem surprising. It’s The Bid from BlackRock (https://www.blackrock.com/us/individual/podcasts/the-bid#listen-now). In a recent episode. COP26: Why this climate summit was different, they Jon Posen, Head of Strategy for Sustainable Investing (https://www.linkedin.com/in/posen/) and Paul Bodnar (https://www.linkedin.com/in/bodnarpaul/), Global Head of Sustainable Investing talked about COP26 and the major themes and outcomes from this huge annual meeting to address climate change. The COP meetings have almost always focused on what countries can do to address climate change – what pledges and commitments can they make to reduce emissions, how can those commitments be tracked and enforced, what is equitable and fair for big rich developed countries to demand from small less developed countries, etc. These themes again all dominated much of the media coverage. However, to mitigate climate change we will need a lot of black carbon solutions, that aren’t really organized into nation states. This was a main theme of Jon and Paul’s insightful discussion.
The global economy for energy, transportation and materials operates within the framework of nation states, but each sector has its own supply chain, production standards, technology stack and customer requirements. This dynamic was described by Paul in his review of how COP26 was different than previous COPs. In many ways this a hopeful sign. The work to mitigate climate change needs to propagate across all levels of human endeavor and all sectors quickly. The financial sector is demanding it. In this context what can governments do to be a force multiplier to accelerate change. The response to the COVID pandemic gives us some clues.
I’m sure a lot of folks think about our response to the COVID pandemic, and it feels like a shit show. It’s been a chaotic, politicized mess. However, we developed and deployed multiple vaccines and other therapeutic remedies in about a fifth of the time it might normally have taken. What did the government do and what are the lessons for climate change?
First, they enabled the research. Through government spending on national labs, university research and other initiatives, they backed the basic science in ways that helped the private sector move fast when necessary. They have done the same on climate change and can do more. The work of NIST, NOAA and the IPCC are great examples of how dogged research has enabled the case for climate change mitigation.
Second, they guaranteed demand. This is perhaps the most important thing for climate change mitigation solutions now. The government promised to buy hundreds of millions of doses of vaccine. Thus, they bridged the valley of death for businesses and their investors. They can do this for many climate mitigation solutions. The government sector at all levels is a huge buyer of black carbon solutions. If they demand zero carbon supplies of energy, transportation solutions and materials, that de-risks private sector investment in these zero carbon solutions. It fills the chasm allowing companies to survive the “valley of death”.
Third, governments can incentivize consumer behavior for zero carbon products and services to further ensure demand. Carbon tax or cap and trade systems are effective in many parts of the world, and even in the U.S. this is the case, thanks to CARB and RGGI. Subsidies, rebates, and mandates should all be part of the mix as well. We need all the tools in the shed.
Finally, as pointed out in The Bid, we can’t simply build a green economy on top of a dirty one. The transition will be hard and fast for many sectors and their constituents – the people working in them, communities supported by them. If we want the transition to go smoothly governments will have to provide a “safety net” (I know that’s a loaded term) to ensure a just and humane transition, where everyone benefits. Perhaps this last part is the most encompassing and hardest to deliver.