Everyone agrees that decarbonisation is essential. The IMF estimates that global decarbonisation would have a net value of $85 trillion. The IPCC reports have consistently pointed to the pernicious effects of greenhouse gases (or carbon, in common parlance) and that we have probably missed the bus in achieving the goals that we set out in Paris. Despite the criticality of decarbonisation, the results are not particularly encouraging. So, why is decarbonising so tough?
Incentives for decarbonisation: Companies bear the cost of decarbonisation – improving energy efficiency, new equipment, and payment of carbon price/tax. The benefits accrue to the local communities and often to whole regions and may often be cross-country. So, why should businesses pay when they do not benefit? Companies do it for several reasons – the belief that they can earn higher profits due to distinctiveness, moral reasons, due to peer pressure, or simply because they want to “look good.” Except for the first reason (higher profitability), there is a conflict between private profit and social profit, with private profit winning in most situations. The high cost involved acts as a barrier. A recent Morgan Stanley report suggests that the biggest barrier to establishing a sustainability strategy is the high levels of investment required. This is the same reason developing countries find implementing net-zero strategies difficult. Similarly, MSME companies also face difficulties.
Renewable energy adoption is complex. Renewables are the best substitutes for fossil fuels, which currently have a well-developed infrastructure and network. There exists a vast network of powerlines that connect to power stations. Or, there is a petrol/diesel station network where one can refill fuel conveniently. In the case of renewables, this network has to be established. Establishing the network requires time and effort. It is also costly.
Technological changes: Another issue is that no one knows which technology will survive in the long run. Whether electric vehicles will survive or hydrogen cars will rule the roost. This makes capital investment difficult. Unlike in the past, technologies are changing dramatically and rapidly. An investment today may become a burden tomorrow. Capital investments may be laid to waste in no time. In such an environment, the risk-averse will avoid or delay investment.
These challenges are difficult and will not go away easily. The fossil fuel industry has developed since the 1800s, and the renewable energy industry is rather nascent. While we don’t have too much time, we will still need to wait for the industry to develop. At the same time, global leaders will need to find a way to ensure that the developing and developed nations agree on the way forward. Similarly, large and small businesses must negotiate how decarbonisation efforts can progress. A constant sustained effort is the key to success.
Utkarsh Majmudar 