It’s time for net-zero evangelists to have a climate change reality check
Some central bankers get all the luck. Appointed by George Osborne to help get the UK economy going again, Mark Carney became governor of the Bank of England just as the UK economy was beginning to recover from the traumas of the financial crisis of its own accord.
It seems unlikely that Carney’s trademark “forward guidance” made much of a difference. Yet he was none the less able to claim at least some of the credit. He also managed to quit the post just before the next major crisis – the pandemic – came along.
Leaving the controversies around Brexit aside, Carney’s was in short a relatively uneventful and stable governorship set against the mishaps of both his predecessor, Mervyn King, and his successor, Andrew Bailey. Apparent success, it would seem, is mainly about timing. Not without reason does Bailey believe he’s had something of a hospital pass.
But you can’t have everything. The former governor is not finding his next gig, as chairman of the Glasgow Financial Alliance for Net Zero (Gfanz), nearly as comfortable. Many climate change activists see him not as a facilitator of the desired energy transition but as no more than an apologist for the polluting evils of corporate capitalism.
He was therefore no doubt fully prepared for push-back from the likes of Greta Thunberg, for whom Gfanz – a coalition of financial institutions supposedly committed to rapid decarbonisation of the global economy – is the ultimate form of “greenwashing”.
He would not, however, have expected to be shouted at by prominent members of the United Nations, which in essence is what happened last week at the Cop27 conference in Sharm El-Sheikh. Carney is getting it in the neck for apparently watering down previously agreed commitments to restrict new investment in fossil fuels. Stung by allegations of going soft on 1.5 degrees, the UN has insisted that Gfanz tightens up its standards and blackballs financial institutions that want to go at their own pace and won’t play ball.
Several prominent members of Gfanz, which claims to have signed up 550 of the world’s leading financial institutions with a combined balance sheet of more than $150 trillion (£127 trillion), have already threatened to resign if Carney is held to these standards.
The row neatly encapsulates a lot of what’s wrong with prescriptive net zero goals. Overt climate change deniers are these days relatively thin on the ground. But the debate on what to do about it increasingly divides into two, irreconcilable camps – the purists, who seem to believe that only by returning to the Stone Age can we avoid climate change disaster; and the realists, who think only by preserving and advancing current living standards can we make decarbonising energy transition strategies publicly acceptable.
The former approach is just fantasy; if we cannot keep the lights on at reasonable cost, then public support for net zero will quickly evaporate. The latter requires a high degree of compromise, including the need for new fossil fuel investment long into the future. Yet paradoxically, it is the compromised approach that offers the best hope of eventually delivering the goods.
As things stand, we remain stuck with the fantasy target of limiting global warming to 1.5 degrees. Everyone knows that there is not a snowball’s chance in Hades of this being met, and yet no one dares admit it for fear of the condemnation it invites.
So we have a problem; all the political pressure on chief executives and those who finance them is to stop all new investment in fossil fuels so as to meet decarbonisation goals. Yet global demand for hydrocarbons shows no sign of abating, and in many parts of the world it continues to rise strongly.
Vladimir Putin’s invasion of Ukraine has been a powerful reminder of what happens when even a relatively small proportion of the world’s supply of oil and gas is removed; it has brought the UK and wider European economy to its knees.
As things stand, investment and demand are out of sync. Financial institutions are under growing pressure to cease all future funding for hydrocarbons but the demand for energy remains the same or growing, and for the time being alternative sources of energy supply are simply not there on the scale required.
This mismatch promises an exceptionally costly, disorderly and politically destructive transition. There is a crying need for a more pragmatic and planned approach. Attempting to demonise oil and gas to the point where no one dares invest in them any longer simply will not work.
To understand why this is true, just consider the example of India, a country of more than 1.3bn souls. No one can fault the ambition of Prime Minister Narendra Modi’s plans for 500GW of renewable energy capacity by the end of the decade, a four-fold increase from current levels.
But here’s the problem; even if delivered, all those renewables won’t even cover India’s projected increase in demand for energy by the end of the decade, let alone begin to make inroads into current coal-fired generation.
A successful transition cannot solely be about decarbonisation; it must also address affordability and security concerns. Prior to the Ukrainian war, the West was focused almost solely on decarbonisation. Putin’s invasion has brought affordability and security considerations sharply back into focus.
If we think of energy security as primarily about local production and consumption, or energy selfsufficiency, then for most countries transitioning to a mixture of renewables and nuclear makes perfect sense.
War has given the fossil fuels industry a new lease of life, with governments desperately seeking replacements for Russian oil and gas. But it is only a temporary reprieve. Energy security concerns are ultimately bound to favour renewables at the expense of fossil fuels.
That’s why there is more bipartisan support in the US for Biden’s Inflation Reduction Act, which provides $375bn of grants, loans and tax breaks for renewable investment, than you might imagine. This is about so much more than pursuit of wokery. The US is determined to prevent China, with its focus on monopolising the wind and solar industries, from emerging as the Opec of renewable energy, holding the rest of the world to ransom with its grip on the required raw materials and expertise.
China and India, the world’s two most populated countries, import 80pc of their oil and 40pc of their natural gas and therefore have a powerful incentive to go the renewables route.
The one fly in the ointment is that both countries also have abundant reserves of coal. For both countries, it also makes sense to use coal to generate hydrogen, so as to replace imported natural gas.
All the same, you have to suppose that on balance, war in Ukraine has bolstered the case for a relatively rapid energy transition, rather than undermined it. Unfortunately, few of these subtleties seem yet to have filtered through to UN climate change evangelists. If he hopes for some realism, Carney has a tougher fight on his hands than he thinks.
‘If we cannot keep the lights on at reasonable cost, then public support for net zero will quickly evaporate’