Key Challenges to Achieving Net Zero I

How much capital is needed for net zero and where will it come from? 

Garnering enough capital is the most critical theme when it comes to climate goals.This includes money to fund green R&D and technology innovation, and to create green employment at global scale to support the move away from our fossil-fuel-based economy. The IPCC report says financial flows to limit global warming are three to six times lower than levels needed by 2030. The IPCC believes barriers to directing capital to climate action are the problem. From within the financial sector, they include:  

• Inadequate assessment of climate risks and investment opportunities
• A regional mismatch between available capital and investment needs
• Country indebtedness
• Economic vulnerability
• Limited institutional capacities
• Home bias factors

Barriers from outside the financial sector include:

• Limited local capital markets
• Unattractive risk-return profiles, in particular due to missing or weak regulatory environments consistent with ambition levels
• Limited institutional capacity to ensure safeguards
• Standardisation, aggregation, scalability and replicability of investment opportunities and financing models
• A pipeline ready for commercial investments

The IPCC says the biggest challenge in climate finance is likely to be in developing countries, given that developed economies have well-developed financial markets and high sovereign credit ratings.

Even if many of the barriers to capital flows are in the process of being addressed, it’s broadly accepted that public finance alone will not be able to bridge the financing gap. By definition, significant allocations of private capital are needed. Getting enough money for climate-based investments will involve truly massive redirection and potential return give-up to make climate change the principal focus of the public and private investment.

That’s asking a lot. So, what if governments took capital allocation into their own hands and enforced mandatory directed lending? Officially mandated capital allocation would up-end the current version of free-market capitalism and notions of efficient capital allocation, but bringing in some form of control economics would ensure capital was allocated to the right destinations from the perspective of climate goals.

Are our lifestyles preventing net zero?

Our collective complacency is fanned by the lack of scientific consensus or scientific certainty about the impacts of climate change – or even that climate change is real or that it is man-made. Refusing to accept that we will need to live our lives differently to meet climate goals is a form of climate denial and a major block to action. 

As for our economic systems, these are driven relentlessly in the West by an imperative to grow in perpetuity. We’re told that failure to do so will result in ruinous consequences for us all. Growth is built on over-consumption and driven by an unremitting pursuit of cheap and non-recyclable goods that don’t allow producers to factor in the costs required to make that production sustainable because it will result in goods being more expensive.

Ambitious climate policies and legislation are moving us in the right direction. And so will innovative technologies and new production processes. But achieving net-zero will also require us to make significant changes to our lifestyles. And those changes may not be voluntary.