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The Climate Misperception

Climate MIHAIL

The question of what nations can do to go green grows more relevant as climate catastrophes increase in their intensity. The COP26 summit earlier this year centred discussions. It advised different governments around the globe on the ways in which to tackle deforestation, waste and fossil fuels.

The switch to cleaner energy is both necessary and inevitable. And, with only 19.8% of our global energy consumption coming from renewables in 2020, we still have a long way to go.

As we approach our second major energy evolution, it’s important to remember that we are still in a transitional period. It will take a lot longer to make this switch for two reasons.

Firstly, unlike the switch towards coal in the industrial revolution, green energy aims to be a substitute energy source, rather than complementary. This means a phase-out period is the only solution for a smooth transition.

Secondly, there is a disparity in the public’s economic and environmental expectations and the government’s capabilities, so we should manage our expectations.

The great climate misperceptions

The public tend to have high expectations about where their tax money goes. However, a lot of the time, the true capabilities of the government renders many of these opinions under-informed.

On the one hand, the public has economic expectations for issues like better transport links, and more consumable technologies like 4G or 5G. It also has environmental expectations for ideals such as an increase in renewable energy, recycling, or going greener without price increases and lowering carbon emissions.

On the other hand, the costs associated with these demands will affect the prices that both governments and consumers are faced with.

That being said, there are not only differences in perceptions and capabilities, but also differences in attainability.

Take transport: the latest research from the World Resources Institute estimates that we need $2tn in global annual investment to build low-carbon transport links, whilst the OECD predicts it could be as high as $3tn.

To put that into context, the global annual investment in 2020 was roughly $100bn. Under current policies, it won’t be until 2050 that we meet today’s global investment needs for green transport infrastructure.

Global investment in energy transition by sector 2004-2020
Source: BloombergNEF

Hypothetically, if governments and private companies invested the money needed for the transport transition in the immediate future, this would be absorbed by the price level.

Further, the cost of public transport has increased in real terms by up to 40% in the last 20 years, whilst the cost of driving has decreased by 15%. Investing too soon bears a real risk in increasing pollution as a price spike can incentivise more people towards petrol cars. This shows that emissions can be minimised through transition, not immediate action.

In the case of carbon emissions, it is estimated that roughly $44tn is needed to fund the transition to net zero before 2050. To fund this, it is predicted that global GDP would shrink by 1%.

By balancing these costs with the benefits of cutting emissions, we begin to see a different story. For example, a report found that pollution in China causes economic damages between 9.7-13.2% of GDP, through things like premature deaths related to fine particular matter. Globally, it’s predicted to be roughly 3.3% of GDP.

In this case, should we fail to act now, the world economy is expected to shrink by 18% as the global temperature will rise above 3 degrees Celsius by 2050. Suddenly that 1% of GDP cost doesn’t sound so bad anymore.

And here lies the dilemma. Public discourse focuses around expectations from governments, whilst our governments – most of the time – look more favourably to the economically viable.

It’s a difficult tightrope to walk, balancing economic catastrophe with a climate disaster. People’s lives are at stake in either extreme. Nonetheless, it’s a tightrope that every leader walks.

So the question we must ask ourselves is: ‘how much are we willing to pay for the changes we want to see?’.

It’s not all doom and gloom

Much like other species, we have evolved to survive, and in today’s terms, the evolution is technological rather than biological. Moreover, our efforts continue to make the transition more economically viable.

In terms of an all-out switch to renewable energy, a global effort would require $73tn up-front. However, a report from Stanford estimates that the economic benefits arising from cost-cutting and job creation will see these expenses pay for themselves within 7 years.

Further, the cost of renewable energy has been on the decline for the last decade. As more investment is made in renewables, such is the case that production becomes more efficient.

Source: PopSci

Indeed, the very nature of the production process gives renewable energy a competitive advantage. Fossil fuel plants have to buy mined fuels to operate, accounting for roughly 40% of their expenses, whereas natural resources like sun and wind are free. This allows producers to better-utilise technological advancements to produce at lower costs.

Finally, its important to note that some of the more cataclysmic trends are calculated with current technologies in mind, and do not account for future innovation. Technological progress along the entire sector is only just beginning.

Carbon capture has made significant strides to its development, through plants, power stations and reforestation schemes. Buildings have been optimised with ground source heat pumps and solar panel windows. Transport has made a shift towards being more green through electric vehicles, hydrogen fuelled public transport and biofuel for aviation.

Altogether, the industry itself has made good progress towards going green through hydrogen fuelled production, a return to biomass as a feedstock and energy-efficient gains.

As we continue our patient march towards a greener future, two things affect the process: time and coordinated global action.

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