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Let us go anywhere,

I do not care where.

So long as it will be

Different from this

Awful place we are in now.

These lines are an excerpt from a French poem, Memory, by notable poet Charles Baudelaire written in the 18th century. 

However, these lines fit pretty well with the emotions of every Delhiite in November when the entire city lives under the dark grip of pollution and smog, and everyone is longing for relief from the abysmal state of the environment we live in. Stubble burning, wind patterns, and vehicular pollution are some of the attributable causes to the giant mess, but writing on the wall is pretty straightforward.   

Climate change has become too real for anyone to ignore. If we continue to live under the rock and stay oblivious to the truth, the world, as we know it, would soon be a shadow of its glorious, beautiful past. Uncontrollable fires in Australia, hurricanes in the US, and massive floods in various parts of the world establish a new normal in which the world operates.

The Paris Agreement

Countries all over the world unanimously agree to only a few things. One such point is that carbon emissions are responsible for climate change. This unusual harmony manifested in the Paris agreement is designated as the mother of all initiatives at the global level towards tackling climate change. One of the central aims of the agreement is:

“Holding the increase in the global average temperature to well below 2 °C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 °C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change.”

The world needs to become carbon neutral by 2050 to achieve this ambitious plan. 

5 Key themes for a Carbon Neutral World

All the paths to carbon neutrality meet at one crossroad, which unequivocally requires urgent and unfettered efforts from all stakeholders. The five themes encompassing carbon neutrality are:

Theme 1: Carbon Pricing

Carbon pricing has been touted as the biggest weapon in the war against CO2 emissions. However, carbon prices in the world are far too low to make any reasonable impact. Carbon pricing could be defined as tax charged by the government per ton of carbon emitted by the producer.

How does the Carbon tax work?

It works based on the principle that carbon tax would dissuade the producer from continuing with the present production methods and innovate and use new carbon-neutral technologies. 

Take, for instance, the automobile industry. The expenditures incurred in owning and maintaining the vehicles run on petrol or diesel viz-a-viz electric cars reduce considerably by levying carbon taxes. Thus, it nudges the industry and consumers to produce and buy electric cars. 

Carbon Pricing levels:

The High-Level Commission on Carbon Prices, a group of leading economists working with the Carbon Pricing Leadership Coalition, concluded that the explicit carbon-price level consistent with achieving the Paris temperature target is at least USD40–80/tCO2 by 2020 and USD50–100/tCO2 by 2030 (Stiglitz & Stern, 2017).

In the EU, the average price has reached EUR 33/t CO2e. This is the level at which economic behaviors start getting impacted. It stimulates change in consumer preferences and promotes an industry shift from coal or gas-based plants to renewable energy plants in the European region.

Infographic: How the World Puts a Price on Carbon | Statista You will find more infographics at Statista

According to the IMF, the current global average price is USD 2/t CO2e. Furthermore, only about 22% of CO2 emissions all over the world are priced. These low carbon prices are too small to make a difference.

These prices can also be determined through the exchange-traded system (ETS). In this mechanism, carbon emitters purchase carbon allowances subject to government ceilings. It’s based on a cap-and-trade mechanism. It is most prevalent in the EU region and provides a market-determined rate for carbon prices.

Theme 2: Green Finance -Financing the energy transition

Energy transition at any scale requires an enormous amount of funds. It’s the need of the hour that investors make sustainable investing a central theme to their investment policy decisions and provide funds to stimulate the rapid energy transition.

This, however, means to dump the securities of carbon-emitting sectors like oil & gas cos, automobile sector, but to provide funds to these companies so that they can innovate and transition to new energy sources. Further, simply selling the stake in these sectors would lead other buyers to buy these shares, not bringing any real change in the business scenario.

Many industries that are key emitters of CO2 gases do not account for any carbon liability in their business models. But as the world starts taking climate change more seriously, many of these companies would start accounting for carbon taxes based on their emissions level. 

This has the potential to make many businesses unviable at present business models and pricing mechanisms. Financial models and products that appropriately measure the energy transition impact on various industries could simulate various industries’ look under different energy transition scenarios. 

Further innovative investment products need to be developed for Climate finance, like green bonds. Presently, the focus of climate impact funds is on equity markets. Debt markets (esp. government debt) have been following but are at a very early stage. When the impact of sustainable investing on sovereign borrowing rates starts reflecting in the interest rates, governments worldwide would have a huge incentive to move to the energy transition. 

Theme 3: Innovation

Innovation and adaptability to change would be the key differentiator amongst winners and losers in the low-carbon transition world. Just like phones replaced telegrams, android replaced Nokia, WhatsApp replaced BBM, the companies that are slow to adapt to change are unlikely to survive. 

Decarbonization shall be the yardstick to measure the winners and losers in the coming decade. To make the world carbon-neutral, a wide range of activities, i.e., switching from coal-fired power stations to wind farms, from petrol/gas cars to electrifying vehicles, insulating every building, making agriculture more efficient, etc. are required. 

Arenas such as renewable energy infrastructure, carbon capture systems, and recycling techniques would create the winners of new-age businesses. The sectors that are slow to adapt or fail to innovate shall be the ones selling Nokia windows phones to iPhone users.

Theme 4: Owning responsibility for Climate Catastrophe

The following tweet shows that just 20 fossil fuel companies have been responsible for 35% of all energy-related carbon dioxide and methane worldwide since 1965.

However, we need to assess who is the real culprit here? It’s the producer or consumer. Since these companies have been the source of energy for industrial progress, world development, and satisfying the needs of our modern lives, does the blame fall on these companies.!!!

But the blame game is no solution for this. We need to find a knight in shining armor to fight the climate war for us and lead humanity to a better future.

So, who will be the Earth’s Savior in Climate Calamity?

Avengers!

Justice League!

Or Shaktimaan, maybe!

Even Google is searching for the correct answer.

As much as we would like to believe otherwise. The answer is – “Us.”

We are the first generation to feel the effect of climate change and the last generation who can do something about it.

Former US President Barack Obama

Political masters do hold the elder wand to turn things, but others can be just as influential.

The call to action is not just for academicians, government, or environmentalists—it is for all of us who want a better, greener, more humane world. 

The environment is too important to be left to environmentalists. Right!

Life on our planet earth and the survival of humanity now depends on us. 

And the clock is ticking!!!!!

Theme 5: Measuring the Outcomes

The Carbon Clock – Keeping the Track

Mercator Research Institute on Global Commons and Climate Change, a scientific think tank, runs a Carbon Clock. The Carbon Clock shows the extent of CO2 that can be released into the atmosphere to limit the rise in global temperature as per agreed Paris Accord goals.

Currently, there are only 7 years and 8 months left for the 1.5°C scenarios, and 25 years and 6 months for the 2°C scenarios. Click on the link to access the clock.

Keeping track of carbon emissions and progress towards a carbon zero world is a key milestone in achieving a carbon-neutral world.

Conclusion:

There is a little doubt that today’s global climate is at an inflection point, with the crumbling of the standard order and debilitating effect on the environment. And carbon pricing alone cannot help us achieve a carbon-neutral world. If history is any guide, a new order will emerge, be it from the ashes of the world as we know or through a gradual adjustment process.

For humanity to survive, global collaboration, unlike the prevalent international competition, holds the key to a better inhabitable world for the generations to come. 

Infographic: The Road to Net Zero | Statista You will find more infographics at Statista

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Shubham Gupta
Author

I am a finance enthusiast, CA by profession, with keen interest in clean energy, public policy and corporate strategy. Having worked for 3 years in Deloitte and 4 years in IOCL, I gained rich and diverse experience of industry and consulting sector. Learning something new every day about anything and everything is on top of my daily to do list.

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