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Tech & Digitalisation

Should Tech Make Us Optimistic About Climate Change?


Paper28th April 2021


Chapter 1

The Climate Emergency

Climate change is affecting millions of lives around the world, whether through rising sea levels, vanishing ice sheets or record-breaking heatwaves. Fuelled by extreme temperatures and extensive drought, the Australian bushfires of 2019–2020 killed more than 30 and destroyed over 11 million hectares of parks, forests and natural ecosystems. Indonesia’s climate-induced flood in early 2020, meanwhile, claimed more than 60 lives. In the same year, a super-cyclone broke out over the coasts of India and Bangladesh, causing severe destruction, while flooding damaged hectares of land from which people in Kenya, Central and West Africa make their living. Over in Europe, record heatwaves killed more than 1,400 people in France during the summer of 2019. A few months later, on 28 November of the same year, the European Parliament declared a global climate and environmental emergency.

Not only has climate change manifested itself more visibly in recent years, but its impact on socioeconomic development has been significant too. In 2019, an estimated $100 billion of economic losses were attributed to extreme climate events. Since then, severe winter storms sweeping across the US have undermined energy security in Texas, cutting power supply to four million customers. In Africa, where an estimated $35 billion is spent on annual food imports, the burden of feeding the continent’s teeming young population will be multiplied dramatically. Food insecurity, infrastructure vulnerability, mass migration and civil unrest are some of the existing and anticipated knock-on effects of the emergency.

Figure 1

Figure 1 – Extreme weather and natural disaster events occurring with greater frequency since the 1970s

Source: Our World in Data

Extreme weather events and natural disasters (Figure 1) are set to occur with greater intensity and frequency. While it has been observed that natural disasters happen three times more frequently today than they did in the 1970s, economists have predicted annual GDP loss related to climate of between 2 and 10 per cent in the coming years. By 2050, the potential value of climate risks will multiply between two and 20 times while undermining living and working conditions around the world. Analysis indicates, for instance, that the risk of extreme precipitation will increase fourfold in Central Africa, China and the east coast of North America. Without strong mitigating measures in place, food supply will be disrupted, and prices will increase; physical assets and infrastructure services will be destroyed while natural capital will be lost.

The scale of the challenge is formidable. Greenhouse gas emissions have continued to rise (Figure 2) and even if all current targets are met, the world will not meet the goal of the Paris Agreement to limit global warming to 2°C. Rapid decarbonisation is the only realistic route to bending the emissions trajectory sufficiently downwards. At present, it remains uncertain if or when global emissions will peak – or indeed begin to decline.

Figure 2

Figure 2 – Trajectory of greenhouse gas emissions in multiple scenarios

should-tech-make-us-optimistic-about-climate-change - Figure 2 – Trajectory of greenhouse gas emissions in multiple scenarios

Source: Our World in Data

The question is, can we be optimistic about tackling the climate emergency? Political debate persists, riddled with disagreement and rancour. Some argue for a ‘degrowth’ economy as a way to upend emissions. Others argue for incremental changes to business-as-usual approaches. While countries are committing to net zero targets, views on them are highly divergent with fairness and adequacy as widely debated as the scope and roadmap for how to achieve them. Market-based approaches, including the cap-and-trade or carbon tax systems that some governments have relied on, have been challenging to scale. At a time when the world is recovering from another emergency – the Covid-19 pandemic – governments are preoccupied with short-term goals that quite frequently do not align with climate objectives. So, can the world address the climate emergency before it is too late?


Chapter 2

The Promise of Technology

Technology and innovation provide a critical opportunity to address the climate emergency. Across all key economic sectors, technology has the potential to unlock emission reduction and move the world towards net zero using levers such as demand optimisation, fuel substitution, efficiency improvements and carbon capture.

Figure 3

Innovation levers for bringing about emission reduction per sector by 2030

Innovation levers for bringing about emission reduction per sector by 2030

Source: Author, UNEP Emission Gap Report

As seen in Figure 3, the power sector presents a significant opportunity for emission reduction through technology. Countries around the world have used fossil fuels to drive industrial development, contributing significantly to greenhouse gas emissions. In the era of climate innovation, however, new technologies are taking centre stage, including renewables, energy storage, hydrogen, grid optimisation systems and more. The cost of solar energy has been slashed by 99 per cent over the past four decades. In the US, where coal provided 46 per cent of power generation in 2010, fossil fuels today account for approximately 20 per cent. Investment in renewables has continued to grow significantly, reaching a record of more than $500 billion globally in 2020.

Agriculture and farming produce more than a quarter of the world’s greenhouse gas emissions, with the sector accounting for 45 per cent of methane and 80 per cent of nitrous oxide globally. With a global population projected to hit 9 billion by the middle of this century, food production must increase by 60 per cent. The challenge is enormous. The world needs to produce more food more efficiently, under volatile environmental conditions, with a net reduction in emissions. Promising technologies that are being embraced in the 21st century – from gene editing to protein substitutes – are supporting this ambition, helping to improve agricultural productivity while limiting emissions.

Transport, through fuel combustion, generates more than 24 per cent of global emissions. While road vehicles constitute nearly three-quarters of the sector’s emissions, aviation and shipping are also becoming significant contributors. The recent Suez Canal gridlock caused by the accident of the Ever Given container ship shone the spotlight on the shipping industry and its impact on climate. Despite such high emission levels, however, the transport sector is witnessing a growing range of new technologies that are reversing the trend. Climate technology start-ups in the mobility and transport sectors have received sizeable portions of climate-related investment from venture capitalists over the past decade.

Industry operates at the heart of economic development, as an engine of growth and key source of job creation. Responsible for a third of global energy consumption and a quarter of greenhouse gas emissions, there is no slowdown in its contribution to the problem with iron, steel, cement and chemicals leading the pack. New technological responses are making an impact, though, turning this sector into a platform for large-scale greenhouse gas reduction. Industries can leverage advances in combustion efficiency, circular economy, waste-heat recovery, hydrogen and other opportunities to mitigate emissions.

Buildings are significant energy users, consuming half of the world’s electricity. When indirect emissions from upstream power generation are considered, buildings accounted for 28 per cent of energy-related CO2 emissions in 2019. Having grown consistently since 2013 after a temporary plateauing, these emissions are unlikely to decrease as the current 230 billion square meters of building space around the world grows by an estimated 30 per cent by end of this decade. While the impact is significant, major advances in climate-friendly technology range from optimal design of building envelopes to efficient lighting, heating and cooling systems and more energy-efficient appliances.

Forestry, which acts as a natural carbon sink, offers a low-cost opportunity for making significant emission savings. Deforestation today causes almost as many emissions as road travel but by leveraging the nature-based solutions of forestry conservation, land management and restoration, and by using technology optimally, the world could achieve 7Gt of CO2-equivalent emission reduction per year. Nature-based solutions are typically low-cost, at a value of between $10 and $40 per ton of CO2 depending on the project location.


Chapter 3

Closing the Innovation Gap

Navigating climate innovation can be complex given the wide range of technology options and the unique cost, risk and benefit profile of each one. Cost curves related to carbon abatement (Figure 4) – a tool that has been applied in a broad range of markets – offer a starting point for policy leadership on climate innovation. In this figure, capital intensity represents how much needs to be invested in a technology product above the business-as-usual alternative in order to reduce emission levels by a unit, while abatement potential represents the emission reductions obtainable when specific climate technology options are deployed to their maximum potential. By developing strategies along the abatement curve, policy leaders can address gaps using the full spectrum of climate technologies. Three broad policy approaches are critical to the success of climate innovation, as follows:

Standardise

  • For climate technologies – which have already achieved significant market momentum including LED lighting, and building efficiency retrofits – the strategy is to standardise performance and regulate the market to ensure maximum emission abatement.

  • Smart technologies including smart home and office equipment will play an increasingly significant role in the future of efficiency. Product tools such as the energy-star symbol may have provided a solid start in terms of consumer and business awareness but there are further opportunities to unlock system-level efficiency through these technologies. Governments need to adopt improved performance standards to ensure they deliver maximum abatement potential.

Scale

  • For climate technologies – such as utility-scale energy storage, hydrogen and large-scale nature-based conservation – whose suitability for the medium to long term has been proven albeit with a high-cost-barrier, they should be scaled up by governments using targeted incentives. For example, manufacturing companies operating in an industrial cluster may be incentivised to invest in certain carbon-capture technologies through trade-zone agreements, carbon prices and tax credits.

  • Nature-based conservation projects may be implemented in developing countries where cost advantages are achievable.

  • A particular focus may be given to enabling technologies like the charging infrastructure for electric vehicles, hydrogen refuelling stations and other low-emissions enablers including virtual power plants. Supporting direct investments will significantly propel climate innovation in the medium to long term.

Support

  • The third group is a suite of emerging technologies, some of which may be considered moonshot concepts from direct air capture to nuclear fusion.

  • The strategy for this category should be to support investment based on the potential of emission reduction, feasibility and the potential to catalyse further innovation and create positive spillovers.

  • Policy attention must be paid to lowering the learning curve for these technologies in order to attract growing commercial interest from potential markets.

  • Specific sectors including shipping and aviation have proven to be tough to decarbonise. Incentivising innovation of second-generation fuels and mobile carbon capture would help drive down steep costs.

  • Carbon pricing alone is likely to be insufficient as a policy instrument. Therefore, more of a complementary and targeted approach sustained over the long term will be essential to closing innovation gaps in carbon capture.

Figure 4

A three-pronged policy strategy for climate technologies based on a carbon abatement cost curve

A three-pronged policy strategy for climate technologies based on a carbon abatement cost curve

Source: Author, McKinsey

 

We propose a list of 21 technologies (Figure 5) as a starting point for opportunities to close the gap between climate innovation and net zero commitments. But it is by no means exhaustive. From advances in geoengineering to progress in extraterrestrial exploration, there are several other technological areas that will contribute directly or indirectly to climate mitigation. The list of 21 gives a clear reason to be optimistic, reflecting our human capacity to address the pernicious challenge of climate change through a portfolio of innovative solutions.

  1. Building efficiency retrofits

  2. Gas, low penetration solar, wind, combined heat & power

  3. Electric cars, e-mobility solutions

  4. Grid optimisation, load shifting, balancing

  5. Low carbon fuels, biofuels, biomass, sustainable aviation fuels

  6. Clean hydrogen

  7. Industrial retrofits, motor efficiency, heat recovery

  8. Agro-resource management – manure, land, livestock

  9. Meat substitutes, alternative proteins

  10. Nature-based solutions, soil carbon sequestration

  11. Gene editing, modified crops

  12. Low-carbon steel, aluminium

  13. High-penetration wind, solar

  14. Large-scale energy storage

  15. Electric, hydrogen vehicle recharge infrastructure

  16. Virtual power plants, low-emission system enablers

  17. Carbon capture and storage

  18. Direct air capture

  19. Other early-stage negative emission technology

  20. Long-range wireless power transmission

  21. Modular fusion reactors

Categories: Standardise Scale: Stretch Goal Areas Scale: No-Regret Option Support

Lowering cost and improving scalability

Many climate technologies follow learning curves, which means their costs reduce as more experience is gained through wider adoption. The cost of renewable energy has dropped dramatically as the cumulative installed capacity continues to grow, as the example in Figure 6 shows. Since the 1970s, the price of solar photovoltaic (PV) modules has declined by more than 99 per cent as total cumulative installed PV capacity reached over 100,000MW in 2019. Meanwhile, the price of electricity generated by solar and onshore wind declined by about 89 per cent and 70 per cent respectively between 2009 and 2019. Since the cost of energy derived from fossil fuels does not decline in a similar way, the difference between them and cheap renewables can be expected to grow significantly in the future. Renewables are now projected to account for about 95 per cent of the net increase in global power capacity through to 2025.

Figure 5

A fall of 99.6% in the price of solar photovoltaics since 1976

Source: Our World in Data

 

Case Study

Government Support for Climate Tech: Stimulating Battery Storage in South Korea
01

Chapter 4

Should We Be Optimistic?

In the middle of a climate emergency, it is challenging to stay upbeat. Yet the good news is that investment in climate technology has continued to grow since the early 2010s. US-listed companies involved with providing technology solutions that support global decarbonisation have consistently outperformed the average since 2019 (Figure 7). Venture capital (VC) investment in the sector grew tenfold between 2013 and 2018, representing five times the growth rate of the overall VC market. By comparison, the growth rate of VC investment in Artificial Intelligence was a third of climate tech between 2013 and 2018 although AI is renowned for its uptick within the same timeframe. Beyond VC, public investment in climate technology research has continued to grow too. In 2019, government research and development funding for energy technologies alone stood at $30 billion, with around 80 per cent of it aimed at low-carbon solutions.

Figure 6

The strong market performance of climate tech companies

The strong market performance of climate tech companies

Source: Energy Impact Partners (EIP); Nasdaq

In addition to the positive role of technology, political leaders are increasingly showing a willingness to make ambitious commitments on climate. The Paris Agreement is a case in point. The international treaty was adopted in 2015 and ratified internationally within a year – a much quicker pace than its predecessor, the Kyoto Protocol, which took eight years. The Paris deal grew into a political snowball, galvanising further commitment from most of the world’s leading emitters and arguably becoming the most symbolic climate event of the 21st century. The US withdrawal from the Paris Agreement in 2019 dealt a political blow to the global pact although the decision, since reversed by President Biden, did not resonate or last long enough to have any major impact.

The Biden-Harris administration has already indicated that it will not sit on the fence but will instead revive the country’s leadership on climate action. In the UK and elsewhere, similar efforts can be observed as more countries commit to some form of net zero target. More than 100 countries have pledged a commitment towards net zero, with estimates suggesting that over 70 per cent of global GDP and 55 per cent of CO2 emissions are now covered by a similar target. A Climate Action Tracker Report indicates that the cumulative effect of countries’ pledges to the Paris Agreement – if kept and fully achieved – could keep global temperature rise below 2.1°C by 2100, putting the stated goal of 1.5°C within striking distance.

As explored in our recent Institute paper, there are also important insights for politicians in terms of applying lessons from the Covid-19 pandemic to the climate emergency. Although the pandemic is different in scale, complexity and timeline, it offers an immediate window into how policy leaders can adapt and make decisions in order to better support climate innovation. Countries can also apply the “recovering better together” principles outlined by the UN, which calls for a commitment to climate-related actions as economies recover from the Covid-19 slowdown. More than 60 countries, including high emitters, are already making an explicit promise to link their nationally determined contributions (NDC) to Covid-19 recovery, supported by the United Nations Development Programme’s Climate Promise programme. Countries in the Global South are equally aligning their climate mission with international support for various NDC support programmes. A green recovery can cut the level of 2030 emissions to 25 per cent lower than projections based on pre-Covid commitments and put the world close to a 2°C pathway. The pandemic has also highlighted the significance of tech innovation, not least in record-breaking vaccine delivery but also in the suite of digital solutions developed for contact tracing, compliance monitoring and management of health-care records.

The global financial landscape is evolving to become more responsive to climate innovation. Since they were first issued in 2007, green bonds have grown into what is now estimated to become a $1 trillion market. Analysts expect as much as $500 billion of green bonds this year as the EU raises capital for its Covid recovery fund. From target-linked to transition bonds, innovations in this green market are being used to bring projects in energy, transport, buildings and other economic sectors to life. Investor-led initiatives such as Climate Action 100+, whose members control over $50 trillion of assets, are actively using funds to ensure the world’s largest corporate greenhouse gas emitters commit to climate action. Other investor networks are pursuing a similar agenda, including Europe’s Institutional Investors Group on Climate Change (IIGCC) and Australia and New Zealand’s Investor Group on Climate Change (IGCC). Humanity’s competence in technology and innovation will be central to the race in mitigating and tackling climate change.

There are significant hurdles to be crossed, however. A recent report by the International Energy Agency (IEA) lays this out clearly when it says: “roughly half of the reductions that the world needs to swiftly achieve net zero emissions in the coming decades must come from technologies that have not yet reached the market today”. There is a huge gap between the bold, ambitious net zero commitments being made by political leaders around the world and the technology needed to meet them. Research, development and large-scale deployment of climate technologies demand urgent attention to keep the world from the brink of a climate catastrophe.


Chapter 5

Conclusion

Governments need to act with speed, strategy and foresight to scale promising technologies and address the climate emergency. To simply stop investing in coal will not suffice. Neither will simply sticking to Paris Agreement commitments. Policy leaders must move decisively to initiate, grow and scale these technologies up much faster than climate change is happening. For every year the world fails to act, the difficulty of decarbonising goes up. Approaches such as degrowth will only stall progress. Sacrificing economic advancement for a decarbonisation agenda is counterproductive. Incremental changes will not set the right pace either. On a topic as critical as climate change, progressive politics must see leaders fully embracing technology and innovation.

Through innovation, the world has a unifying pathway towards addressing the climate emergency while multiplying jobs and creating economic opportunities. Rich countries can flatten the research and development curves of the technologies, drive down costs and make adoption easier on a global scale. Low-income countries, on the other hand, offer a large market for climate technologies once they become sufficiently affordable. By adopting a global outlook, progressive leaders across the world can harness the full benefits of climate innovation and defuse the emergency.

It is a fight we must all take up today.

Lead Image: aaaaimages/Getty Images

Charts created with Highcharts unless otherwise credited.

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