Sustainability Oxford 2023

Net zero targets drift out of reach but dynamic change is still possible

Net zero emission targets may cover most of the global economy, but the world is not going to deliver on its net zero promises, warned Oxford University’s Cameron Hepburn, speaking at Sustainability in Practice.

Hepburn, who is Battcock Professor of Environmental Economics and  director of the Economics of Sustainability Programme at Oxford’s Institute of New Economic Thinking, said there is not enough accountability or transparency to hold governments and corporations to their net zero promises.

“We are not holding each other to account,” he said, adding that if the world stopped burning coal, invested in renewables and electrified heating and transport systems, it would be possible to cap warming although 1.5 degrees is now “a huge stretch.”

The scale of the problem

Hepburn said it was difficult to electrify an entire economy. It requires trillions of capital not only going into renewable energy production but also industries like plastics, and food systems. Society also needs to tackle legacy emissions, taking carbon out of the atmosphere not just by planting trees and natural solutions but also putting carbon into depleted oil wells, for example.

Indeed, Hepburn flagged that consideration of electricity storage lags, and society has not understood the “storage challenge.”

Investment in the transition is also complicated because the dynamics are not linear and investment can trigger unexpected events. It involves understanding where the tipping points are in the system, and where investors have the opportunity to make a difference. The explosion in solar energy shows that progress is rarely linear.

“Solar is no longer an expensive joke,” he said.  He said to expect similar leaps forward in diet as the world moves from a traditional food system.

He warned that investors are holding stranded assets, and that assets are mispriced. “It is important that we have an orderly transition and start pricing assets correctly for financial stability.” He said an orderly transition is within our control, diversification is possible to prevent value being destroyed and urged for a tighter connection between climate and science.

Hepburn said change was dependent on leadership. He said it would be possible to run the entire UK economy on wind and solar.

Change is possible

When change happens, the global system will move into a new dynamic. This could see billions of market capitalization wiped out, and financial shifts moving large amounts of value around the market. Beliefs, incentives, and new laws will also start to move capital and systems, he said.

“Beliefs will change the status quo because if enough people believe it can happen it will be self fulfilling,” he said. He said the way technology and beliefs penetrate a system can cause sudden changes and shifts.

He stressed the urgency of new policies. But said in the absence of policy, investors should use their heft to put pressure on regulators to move the needle on policies. These policies will then allow investors to tap climate alpha when they invest in solutions. “The door will slide opend as the government becomes more amenable and moves the needle on the regulatory side.”

He said moving forward requires credible targets and corporates are floundering on how to make progress. “I hear board after board ask how do we make money with doing what we know we have to do?”

He called for more granular modelling in the financial system and said many of the today’s tools are ill-equipped, warning that often data doesn’t say anything useful

He said that if nuclear is to have a significant role it needs to come down the cost structure and deliver cheaper power.

Some 150 countries now have a net zero target. Of those Hepburn estimated 20 per cent have enshrined those targets into law resulting in governments getting punished if they fail to deliver. “Laws can be changed, but it gives a sign of strong confidence,” he said. “Countries that don’t have this as their baseline scenario don’t know what they are doing. We are just at the starting point where this takes off.”

He said that nature-based solutions are not permanent solutions. Nature based solutions involving managing the land and reducing biodiversity loss can deliver a great deal but they really only “buy time.” “They are very valuable because time is valuable, but they are not solving the problem in one go – they are storing it up for others to deal with.”




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