Despite concern over the substance behind many national and corporate net-zero commitments, could the pace of change surprise on the upside? Tom Tayler assesses the state of play.
Read this article to understand:
- How public commitments to reach net zero are growing and some key emitters are aggressively bringing targets forward
- How ‘S’-shaped innovation trajectories suggest the pace of change could accelerate
- Practical constraints that inhibit change
How does change happen? Slowly, then all at once.
That point was made by Ernest Hemmingway in his first novel, The Sun Also Rises, when Bill Gorton asks fellow veteran Mike, “How did you go bankrupt?” “Two ways,” Mike says. “Gradually, then suddenly.” This helpfully encapsulates the nature of systemic shifts – piecemeal at first, then hitting a tipping point and accelerating dramatically.
Systemic change is not linear. It tends to follow an S-curve,1 with change beginning gradually and then doubling and re-doubling in short order. Once critical mass is reached, the pace of change becomes exponential. Then there is a tiny residual part where momentum drops once again, as everyone adapts to the new reality.2
In 2007, one in every two mobile phones sold around the world was a Nokia. People didn't ask whether you had a Nokia, they were known solely by their number – 3210 or 3310. People would ask how good you were at “Snake”, and that meant something.
Then Steve Jobs walked onto the stage at Macworld Expo and pulled out an iPhone.
In 2008, Nokia's market share fell to 40 per cent, the following year it was 35 per cent, and by 2013 it was just three per cent. There are other famous examples of companies unprepared for systemic shifts; think Kodak with digital cameras or Blockbuster Video with online streaming.
The iPhone’s transformation of consumer electronics shows how quickly markets can shift. Mobile phones have displaced CDs and MP3 players, cameras and sat navs. We pay for things with a fingerprint rather than cash. Texting and WhatsApp have changed the way we communicate. Imagine how different lockdown might have been in the pre-digital age.
When will decarbonisation become the norm?
There are parallels to be drawn with transition to a net-zero economy. Net-zero commitments are now ‘must haves’ for every head of state, CEO or asset manager. But there is increasing (and welcome) scrutiny from those seeking to ensure these pledges are robust and genuine.
Net-zero commitments need to mean something. They need to be linked to immediate and material steps to transition business practices, reallocate capital expenditure, and decarbonise operations before the end of the decade as required by the pathways dictated by science. They also need to result in measurable emissions reductions in absolute terms, consistent with making a fair contribution to achieving a-net-zero economy.3 But we need to mindful about the complexity involved, because commitments are not action and carbon accounting is a young art (see details in Carbon accounting: Measuring what matters).
COP26 in Glasgow saw a number of significant commitments, including 450 financial firms working across 45 countries responsible for over $130 trillion of assets who pledged to join the Glasgow Financial Alliance for Net Zero (GFANZ).4
However, we still have less than 100 months to cut global emissions to less than half 2010 levels, and even that only gives a 50/50 chance of limiting warming to 1.5°C above the pre-industrial average.5 And emissions are still rising. Although they fell in 2020 due to COVID-19 shutdowns, 2021 saw the second-largest jump on record.6
Net-zero targets have undergone a transformational shift. In 2015, the Paris Agreement temperature goal was “well below two degrees Celsius (°C), pursuing efforts to limit the increase to 1.5°C”.7
In 2018, the Intergovernmental Panel on Climate Change (IPCC), a group of the world’s leading climate scientists, released a Special Report – Global Warming of 1.5°C8, which showed the impact of two degrees of warming would be substantially worse than a 1.5°C scenario. This reflects the fact 1.5°C represents what Johan Rockstrom calls a “planetary boundary”;9 beyond it, we may lose the ability to limit further temperature increases – even if emissions are cut – if tipping points are crossed and feedback loops triggered.
Net-zero commitments need to be linked to steps to transition business practices, reallocate capital expenditure and decarbonise operations
The IPCC’s Special Report also set out the need to stabilise emissions and greenhouse gas absorption (by natural and technological means) to reach an equilibrium. This “net zero” would see no more greenhouse gases being emitted than can be absorbed or removed and needs to be reached by or before 2050 to limit warming to 1.5°C.
This focus has become the basis of climate commitments from countries (beginning with the UK, the first to enshrine a net-zero 2050 target into law) as well as cities and companies.
Momentum, particularly in the run up to COP26, has meant the vast majority of global emissions are now subject to some form of net-zero target (see Figure 1).
Figure 1: Assessing net-zero targets globally (per cent)
Note: Country-level coverage only.
Source: Aviva Investors, 2022. Data from Net Zero Tracker, 202110
Most national commitments have 2050 as their goal (Figure 2). This is, after all, reflective of the ambition needed to meet the pathways set out in the IPCC’s reports.
Figure 2: Carbon neutral goals go mainstream – 136 countries have net-zero targets, most do not include route maps
Source: Aviva Investors, 2022. Data from Visual Capitalist, 202111
However, despite significant progress and momentum, if you look closely at the nature of the commitments, we are still not on track to limit warming to 1.5°C. This is, in part, because a small number of the largest emitters, notably China, India, Russia and Brazil, have targets that fall after 2050. Some global emissions are covered by pledges science suggests will be too late.
Figure 3: The timing of net-zero targets (per cent of GHG emissions)
Source: Aviva Investors, 2022. Data from Net Zero Tracker, 202112
With an average, there will of course be variation. If some cannot achieve net zero by 2050, others are going to have to achieve it earlier. The world’s biggest emitter, China, responsible for nearly a third of global emissions,13 has set a target of 2060, and India, with the world’s third highest emissions, has pledged a 2070 goal. The realities this represents in terms of our collective warming pathway are reflected in the latest projections from Climate Action Tracker (see Figure 4.)
Figure 4: Warming projections in context – global temperature increase by 2100
Source: Aviva Investors, 2022. Data from Climate Action Tracker, November 202114
The transition is not inevitable and should not be taken for granted, but it is imperative we undertake it. While 1.5°C may be the ‘least bad’ plausible scenario, we are currently heading for temperature rise closer to 3°C. The differences between the two scenarios are stark, and the impacts of increasing temperature, like the systems-change curve, are non-linear. So, the impacts of the 3°C scenario are not twice as bad as the 1.5°C scenario – they are expected to be much, much worse.
At 1.5°C, 14 per cent of the global population would be exposed to at least one severe heatwave every five years. At 2°C, that figure is 37 per cent,15 with all the associated global security and social impacts mass migration triggered by climate change will cause. The risk of a summer free of Arctic Sea ice moves from a one in 100-year possibility to one in ten.16 Species loss is expected to be at least twice as severe at 2°C than it would at 1.5°C. The reality will be warmer, more volatile oceans with collapsing marine biodiversity, extreme weather systems turbo-charged by higher temperatures on land and sea and suffering for millions of people, animals, and ecosystems. If we do not make the transition, humanity is at risk.
The case for positive thinking
Despite the catastrophic consequences if we fail to transition quickly enough, there are several factors that give cause for hope (albeit with a dose of realism).
First, at the country level, a number of net-zero commitments have been set earlier than 2050. By far the most significant in scale and geopolitical terms is current G7 President, Germany – the world’s fourth-largest economy17 and sixth-largest emitter. Its current net-zero target is 2045, ahead of the EU’s 2050 goal. That reflects the change made after its national climate law was successfully challenged in court for leaving too much decarbonisation to achieve until after 2030. At that point, the court ruled that pathways to net zero would be far narrower and therefore the old law infringed citizens’ human rights, particularly those of future generations.18
With climate litigation increasing, and the UN Human Rights Council voting to recognise the universal right to a healthy and sustainable environment,19 I suspect Germany will not be the last country asked to “sharpen its pencil” in this way.
The second factor is more directly linked to the way systemic change happens. When targets are set, technology, finance, policy, or all three, often move faster than anticipated and the target can be achieved earlier than expected. For instance, in 2017 at COP23 in Bonn, Portugal committed to phase-out coal by 2030.20 In 2021, it shut down its last coal- fired power station, nine years ahead of schedule.21
It is possible other targets might be exceeded in time and scope, although some energy specialists suggest the process of decarbonisation will get progressively harder after comparatively easy wins in the early stages. (AIQ’s Building back better: The path to net zero sets out low-hanging fruit; The going gets tough: Can heavy industry decardonise? explains the challenges in hard-to-abate sectors.)
For example, India’s 2070 net-zero commitment at COP26 was an unexpected bonus. “That is the nature of tipping points,” said Thomas Hale of the Blavantik School of Government at the University of Oxford. “Once critical mass is reached, it is very hard not to join in.”22
India’s target for 50 per cent of its power to come from renewables by 2030 is significant, particularly as it implies a shift away from coal.23 Although the national net-zero target is set for 2070, the trajectory is broadly aligned with the IEA’s sustainable development scenario, which would see India achieve the goal in the mid-2060s.24
Similarly, China, which obtains 84 per cent of its power from fossil fuels,25 added more offshore wind capacity in 2021 than the rest of the world managed in the previous five years,26 as well as adding solar capacity.27 China continues to deploy renewables faster than anywhere else on earth, and in early 2021 had 35 per cent of the world’s total PV capacity.28 The acceleration of renewables deployment suggests a plausible pathway to swifter decarbonisation than implied by its 2060 target.
In fact, evidence suggests the speed of the transition is regularly underestimated. Analysis by the Institute of New Economic Thinking at the University of Oxford noted the IEA’s World Energy Outlook has consistently misjudged how far and fast the costs of renewable energy sources would fall.29 Similarly, BloombergNEF’s own assessment of its outlook for electric vehicles was “getting it wrong on the downside” as it underestimated the speed of the transition.30
It is worth considering whether the pace of innovation in hard-to-abate sectors will step up
Lastly, it is worth considering whether the pace of innovation in hard-to-abate sectors – the sectors that might ultimately delay progress - will step up. These areas are being targeted in a plan coordinated by the US and World Economic Forum, who intend to direct government funding and incentives to companies to accelerate solutions in areas like aviation, shipping, trucking, steel and chemicals production through a “First Mover’s Coalition”.31
Inspired by the pace of innovation in the recent COVID-19 vaccine drive, the intention is to jumpstart technologies that are not economically viable yet.32
Corporate targets growing in ambition
Many companies are only now starting to assess what their net-zero commitments really mean for their business strategy, and shareholders are pressing for meaningful evidence of the robustness of their plans and progress. As they do so, some are finding they can go further, faster.
Shipping is essential to global trade and is responsible for around 2.5 per cent of global emissions.33 To put that in context, if ranked against countries, it would stand sixth on the list between Japan and Germany. Maersk, a member of the First Mover’s Coalition, is the market leader with around 20 per cent global market share.34 In 2018, Maersk set a 2050 target, but in January 2022, it announced it was moving this a decade earlier.35 (Incidentally, of the approaches analysed by the New Climate Foundation (see footnote iii), Maersk’s target was found to have the highest integrity). The company described the acceleration as “a strategic imperative”.
Another of the world’s most significantly polluting sectors is steel, responsible for around seven per cent of emissions36 (in country terms, only China, the USA and India emit more). In January 2022, Swedish steelmaker SSAB brought forward its 2045 target for eliminating carbon emissions from its production to 2030,37 citing customer demand for fossil-free products as one of the drivers of change.
Aviva has accelerated its own net-zero ambition to a company-wide 2040 target
Aviva has accelerated its own net-zero ambition from a commitment in October 2020 to transition its workplace pension funds to net zero by 205038 to a company-wide 2040 target only a few months later.39
In every case, the targets need to be approached with eyes wide open, at practical and technical levels. How much radical change is involved at the operational level, and how much will it cost? For example, change at Maersk will require a rethink around fuel. Bio-methanol, alcohol-lignin blends and green ammonia are all being considered as low-carbon alternatives, but each has associated issues – around land use with bio-methanol, or storage and design issues with green ammonia. Nonetheless, evidence of accelerating progress gives cause for cautious but stubborn optimism.
An era of radical change
We are in the early part of the S-curve of the net-zero transition in terms of delivery. Nobody can realistically claim to have a clear picture of exactly what is needed, how much of it or where, to achieve the goal. As Sir Nicholas Stern put it: “The drive for net-zero emissions will result in the biggest and most fundamental transformation in the global economy that has ever occurred during peacetime”.40
When we put our minds to it, change is not only possible but may happen faster than we expect
While the scale of the challenge is enormous, it is encouraging to see an acceleration of commitments. Let’s not forget that at the start of 2021 around 50 per cent of global emissions fell under net-zero commitments; the figure reached 90 per cent by the end of the year. A laser-like focus on delivery is needed next.
As we peer into the future, we do not know precisely which approaches and which technologies will prove fundamental. We do know that if we are to achieve the global ambition of limiting warming to 1.5°C together, we will need a lot more S-curves. There are enough examples to suggest that when we put our minds to it, change is not only possible but may happen faster than we expect.