How to Avoid a Climate Disaster: Net-zero will require a serious effort, now!

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April 01, 2021 6:00 AM

Coming from Bill Gates, this book on climate change will keep the topic right at the centre of all the policy-making agenda documents in global forums

The exhortation that the author has to the governments and businesses for investing in green is not just moral.The exhortation that the author has to the governments and businesses for investing in green is not just moral.

The book ‘How to Avoid a Climate Disaster’ by Bill Gates should be a required reading for anyone interested in:

—The ‘big picture’ of greenhouse gas (GHG) emissions (where do the 51 billion tonnes of GHG come from),
—What are the sub-components of the key areas (energy, transport, materials and agriculture) that contribute to the change,
—What innovations are taking place or are required over the next few years/decades for the transition to net-zero (and the associated areas that could be interesting for investments), and
—How the three pillars—government, business (markets, technology, innovations) and society (you and I as consumers and voters)—can forward to piece together the solution.

As the name makes it clear, the fact that a climate disaster awaits us is a premise that the book takes as a given. This book is not about the science of global warming. That is taken as self-evident as the two upward sloping charts on page 29 show: carbon emissions have been rising since 1850s and so are the global average temperatures. The various related extreme weather phenomena associated with increasing temperature, hence, naturally follow. The book also takes as given that this change will wreak havoc across the poorest sections of the society and the coastal areas of the world—this is described with vivid examples. For those interested in the ESG (environmental, social and governance) aspects of investing, these examples serve to link E with S and G: How the changes in environment impact the sustainability of societies and businesses and what governance/policy responses may be required.

The book directly tackles the key issue of why we, as society, consumers and policymakers, have not moved to green when being green is so obviously better in the long run than not being green: It is expensive. Across most innovations and new technologies, a Green Premium (GP) is calculated which shows how much the price to the final consumer of that good or service will rise if they were to move from the current tech to the green one: This GP ranges from 10% to >200%. There are two ways of reducing GP: (a) lower the cost of the innovation for the final consumer, or (b) increase the cost of the current (carbon) product/service via appropriate market design, or taxes and levies. The use of newer, cleaner standards to drive the way forward is also a key recommendation.

While there is techno-optimism (which the author himself says that he is naturally inclined to), the book is rooted in a sense of realism. There is no overnight change to electric vehicles (EVs) or the replacement of old gas-based heaters that are baked in the path to net-zero. The reality of having long transmission lines from areas of high sun and wind and the associated right-of-way wrangles are not glossed over. Net-zero does not mean no carbon emissions at all—it means that some carbon will continue to be emitted even as capture technologies will also need to kick-in. Since the changes will impact different countries and their people and economies differently, building a global consensus is going to be critical. All this also serves to underline the point that the change must start ‘now’.

The exhortation that the author has to the governments and businesses for investing in green is not just moral. He deeply believes that since being green is going to be important, investment in research and commercialisation will open new markets and hence be a new source of wealth.

One aspect which the book does not specifically address—and this is a book written specifically for investors—is that it is not obvious that the return on capital employed on these new technologies is going to be worth the risk of investment. Many new technologies are simply too nascent and exploratory and hence may not work (the author gives many examples of ideas that did not work), many technologies may not be able to crack the market (see GP above), or simply the transition will need new standards or new compromises (which the society may or may not approve). These investment decisions will not be for the faint-hearted.

Overall, it is an important book especially coming from the author—this will keep the topic right at the centre of all the policy-making agenda documents in global forums. This trend is a fiend; make it your friend!

Post script: Fun-fact from page 25: “During the age of the dinosaurs, when the average temperature was perhaps 4 degrees Celsius higher than today, there were crocodiles living above the Arctic Circle.” Always remember that the Earth and its various life ecosystems will probably survive the higher temperatures (or lower ones, as in Ice Age)—it is the human species that may face challenges and hence all this anthropocentric push for change will continue to remain very strong in our lifetimes!

The author is with the National Investment and Infrastructure Fund. Views are personal

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