Essentials of Investing in a Low-Carbon, Clean Energy Economy
One way for businesses to implement measures that would curb climate change is investing in a low-carbon, clean energy economy, which brings numerous benefits. For one, it helps conserve the planet’s resources, leaving businesses with more materials for future products and services. In addition, a low-carbon, clean energy economy means fewer risks associated with climate change such as pollution or public health problems.
Climate change is an issue businesses can no longer afford to ignore. Unmitigated climate change has serious economic risks. It can cause crop yields in the US Midwest and South to fall by at least 10 percent in the next 5 to 25 years. It can also leave USD701 billion worth of existing coastal property below sea level by 2100. Unmitigated climate change can result in various health problems such as dehydration, allergies, Lyme disease and mental illness, all of which contribute to lower productivity.
The Goal: At Least 80 Percent Less Carbon Emissions by 2050
In its 2016 report From Risk to Return: Investing in a Clean Energy Economy, climate change organization Risky Business claimed that to effectively address climate change, greenhouse gas (GHG) emissions in the US and across all major economies must be reduced by at least 80 percent by 2050. Risky Business added that such a high amount of emissions reduction can be achieved by transitioning to a low-carbon, clean energy economy. This transition requires private sector investments worth USD 320 billion a year until 2050.
This amount may seem daunting, but US businesses actually make more expensive investments. For example, US businesses’ annual investing in computers and software over the past decade reached a staggering amount of USD350 billion per year. In sharp contrast, investing in clean energy can help cut fossil fuel spending by USD366 billion every year.
Moreover, investing in a low-carbon, clean energy economy can generate new markets and jobs. Jobs in the US coal mining and oil and gas sectors are anticipated to fall by at least 130,000 by 2030 and 270,000 by 2050. On the other hand, investing in clean energy can lead to the creation of an estimated 460,000 new construction jobs by 2030. By 2050, this number is even expected to grow up to 800,000.
The Three Pillars of a Clean Energy Economy
In its report Risky Business identified what it called the “Three Pillars of a Clean Energy Economy”—electrification of the economy; low and zero-carbon electricity generation; and greater energy efficiency. The organization argued that the transition to a clean energy economy is dependent on these three pillars. After all, less dependence on fossil fuel-based electricity means less carbon dioxide emissions, which will eventually reduce climate change and its impacts. High carbon dioxide emissions is one of the main causes of climate change.
- Electrification of the Economy – According to the US Environmental Protection Agency (EPA), carbon dioxide made up 81 percent of the total GHG emissions in the US in 2014. The burning of fossil fuels releases GHGs, including carbon dioxide, into the atmosphere. The GHGs then trap solar energy in the atmosphere, resulting in climate change. Climate change can trigger a host of natural calamities such as droughts, wildfires, hurricanes and famines.
The electrification of the economy can therefore alleviate climate change by considerably lowering carbon dioxide emissions. Electric vehicles run entirely on batteries instead of on petroleum. As a result, they do not produce tailpipe pollution, rendering them more sustainable than their petroleum-powered counterparts.
- Low- and Zero-Carbon Electricity Generation – Electricity should be decarbonized for it to be able to facilitate the transition to a clean energy economy. Fossil fuel-based electricity should be replaced with electricity from renewable sources such as wind, solar, geothermal and hydro. Electricity from renewable sources is sustainable as well as cost-effective. From 2009 to 2016, wind energy prices fell by 41 percent. Since 2008, the costs of solar energy installation decreased by 64 percent.
- Greater Energy Efficiency – There are many ways to achieve greater energy efficiency. In homes, these can be as simple as using LED bulbs and unplugging appliances when not in use. Companies can do their share in achieving energy efficiency by maintaining their heating and cooling systems every year and replacing old office equipment with newer, more energy-efficient versions.
Four Pathways to 80 Percent Less Carbon Emissions by 2050
Once a clean energy economy is in existence, it should be effective enough to be able to reduce carbon emissions by at least 80 percent by 2050. There are four pathways that help realize this objective. These pathways are:
- Heavier reliance on renewable energy – In recent years, several countries have been investing in renewable energy to meet most, if not all, of its energy needs. In 2015, Sweden announced that it would spend USD546 million in clean energy in 2016. In 2016, an estimated 57 percent of the country’s 159 terawatt-hours (TWh) of power production came from renewables. By 2040, Sweden aims to become 100 percent reliant on renewable energy.
- Increased reliance on nuclear power – Despite events such as the 2011 Fukushima nuclear disaster, nuclear power investments are increasing. China, for instance, had 34 operating nuclear reactors in 2015. These reactors have a total capacity of 27 gigawatts. In 2016, the country was building 20 additional reactors. These new reactors are expected to add more than 22 gigawatts to China’s existing nuclear power capacity. Due to its high level of nuclear power investing, China is expected to overtake the US as the country with the highest nuclear electricity output by 2032.
- More investing in fossil fuel plants with carbon capture and storage – Carbon capture and storage (CCS) involves capturing carbon dioxide emissions from major sources such as fossil fuel plants, converting the emissions into fluid and then storing them underground. Experts consider CCS an effective way to address climate change. According to the US EPA, CCS can capture up to 80 to 90 percent of fossil fuel plants’ carbon dioxide emissions.
- Combine the three aforementioned pathways (also known as the Mixed Resources pathway) – Investing in the three pathways simultaneously is possible for an organization or government. A government, for instance, can build wind turbines on its country’s mountainous regions, construct a nuclear plant on the plains and install a fossil fuel plant with CCS in the city. For the Mixed Resources pathway to be able to effectively reduce carbon emissions by at least 80 percent by 2050, there needs to be investments of USD220 billion each year from 2020 to 2030; USD410 billion per year between 2030 and 2040; and USD360 billion per year between 2040 and 2050. These investments may be costly, but they will generate fuel savings worth USD70 billion each year from 2020 to 2030; USD370 billion each year from 2030 to 2040; and USD700 billion from 2040 to 2050.
The Role of Public Policy
Solving climate change is a community effort. The private sector cannot tackle climate change by itself. The government must help by creating a policy and regulatory framework that supports the transition into a low-carbon, clean energy economy. This policy framework must do the following:
- Create laws that require organizations to internalize the costs of their carbon pollution, such as the payment of carbon taxes.
- Avoid investing in activities that lead to higher climate risks, such as tax breaks for fossil fuel generation.
- Streamline government investing in related infrastructure, research and development, education and workforce training.
- Address regulatory and financing constraints to investing in clean energy projects.
- Provide assistance to sectors that will be negatively affected by the transition, as well as to those that are already experiencing climate change impacts that can no longer be prevented.
A policy and regulatory framework that supports the transition to a low-carbon, clean energy economy will encourage businesses to include climate risks in their investment decisions. When businesses see that addressing climate risks means receiving government support and experiencing numerous economic benefits, then they are more likely to venture into sustainable investing. Sustainable investing will then help alleviate climate change.
Investing in a Low-Carbon, Clean Energy Economy: The Private Sector’s Solution to Climate Change
At present, climate change is already posing serious economic risks. If left unabated, climate change could deplete entire economies. The good news is that businesses can help curb climate change by investing in a low-carbon, clean energy economy.
Investing in a low-carbon, clean energy economy largely involves creating a clean energy economy that is sustainable enough to reduce carbon emissions by at least 80 percent by 2050. While there are businesses that are already investing in it, the government can encourage further investing by extending financial and technical support. By doing so, more businesses will include climate risks in their investment decisions and investing activities. This outcome will then prompt them to consider investing in a low-carbon, clean energy economy, ultimately addressing climate change.
ADEC Innovations (ADEC) helps organizations recognize business drivers for sustainability practices and offers cost-effective sustainability risk management solutions, providing guidance on industry best practices and sustainability programs.