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.
There are parallels to be drawn with the 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.
Momentum, particularly in the run up to COP26 in Glasgow last year, has meant the vast majority of global emissions are now subject to some form of net-zero target. This is, after all, reflective of the ambition needed to meet the pathways set out in the IPCC’s reports. Yet, 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.
Figure 1: The timing of net-zero targets (per cent of GHG emissions)
Source: Aviva Investors, 2022. Data from Net Zero Tracker, 20211
COP26 also saw a number of significant corporate 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).2
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, but 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.
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,3 with all the associated global security and social impacts mass migration triggered by climate change will cause. Species loss is expected to be at least twice as severe at 2°C than it would at 1.5°C.
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, 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. 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.
With climate litigation increasing, and the UN Human Rights Council voting to recognise the universal right to a healthy and sustainable environment,4 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. For instance, in 2017 at COP23 in Bonn, Portugal committed to phase-out coal by 2030.5 In 2021, it shut down its last coal- fired power station, nine years ahead of schedule.6
The speed of the transition is regularly underestimated
Evidence also 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.7 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.8
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.
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.9 Maersk, a member of the First Mover’s Coalition, is the market leader with around 20 per cent global market share.10 In 2018, Maersk set a 2050 target, but in January 2022, it announced it was moving this a decade earlier.11
Another of the world’s most significantly polluting sectors is steel, responsible for around seven per cent of emissions12 (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 2030,13 citing customer demand for fossil-free products as one of the drivers of change.
Aviva has accelerated its own net-zero ambition from a commitment in October 2020 to transition its workplace pension funds to net zero by 205014 to a company-wide 2040 target only a few months later.15
An era of radical change
When we put our minds to it, change is not only possible but may happen faster than we expect
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. There are, however, enough examples to suggest that when we put our minds to it, change is not only possible but may happen faster than we expect.