Industry continues to burn fossil fuels; each year global emissions are about 35 billion tonnes of carbon dioxide and this increases the stock of CO2 in the air by about 3 ppm each year. This in turn increases the global temperature by about 0.03 degrees Celsius per annum. To limit temperature rises, the fossil fuel age must end soon and long before reserves run out, with remaining stocks becoming stranded and unburnable due to the atmospheric increase in CO2.
Who speaks for the global society?
These 17 UN Sustainability Goals are the culmination of a process that aims to determine what is acceptable within communities globally. Businesses are encouraged to follow these, particularly if they expect support within that society. Items 7 (clean energy), 12 (responsible consumption and production) and 13 (climate action) talk directly about a company’s actions in this area. Those firms wishing to maintain a social license to operate3 must articulate to their stakeholders how their aims are compatible with the UN SDGs.
However, the burning process cannot just be switched off in a few years. Just as the assets that we wish to replace took time and effort to source, renewable energy sources have taken time to research and develop and are still not fully mature. Considerable government subsidies were applied to solar and wind generation in the past, however these industries are now getting to scale and achieving cost parity or even superiority over fossil fuels. These forms of generation are renewable and sustainable because they deplete resources less than fossil fuels, most importantly they do not use the atmosphere’s limited capability to carry greenhouse gases.
To get renewables to this scale took investment, and it will take further outlays before these technologies become dominant. Fossil fuel energy is such a large part of our current economy that replacing it will take considerable time. The larger a project, typically the longer the horizon required to pay it back, and past investment was made in oil and gas before it was known if its assets would become stranded. These factors increase the resistance to writing fossil assets off, however there is the need to now plan for their obsolescence before they are depleted.
Within a series of Conference of Parties (COPs), Governments have announced their commitments to eliminating emissions within their economies, through committing to so-called“net zero emissions” carbon policies: India by 2070, China 2060 and EU+US 2050. Additionally, some stock exchanges are aiming for low-carbon status, and pension funds are declaring dates at which they aim to be net zero, many earlier than their governments.
Therefore, one focus of climate action has moved to investment, and the world of finance is a new front line in the green battle. Although financial investors seek high returns, and the shorter the term the better, the type and longevity of projects they choose have effects on both the economy and the environment over long horizons. Now that investors are seeing good returns from renewables and faster payback periods, they are starting to scale up their investments.