Rocks and Hard Places: Success and Failure in a Changing Climate

There’s no success like failure and failure’s no success at all

Bob Dylan

The global conversation about climate change that began in the last century was about how to prevent the economy from destroying the climate. That conversation is now morphing into one about protecting the climate in order to help save the global economy. This year the global conversation on the climate changed further. It is no longer a marginal issue but has now entered the political mainstream. Political attention is constant. Declarations that it is an ​‘emergency’ are commonplace. Media coverage has broken out of the green ghetto. Climate deniers have returned to obscurity. 

The fact that Greta Thunberg, Extinction Rebellion and Alexandra Ocasio-Cortez are now often referred to simply by their initials: GT, XR and AOC indicates just how dramatically the climate conversation has changed. It would be a mistake, however, to think that it is their activities alone changing the conversation. This spectacle is not just a spasm of attention in the headlines. GT, XR and AOC are riding, and giving powerful expression to, a swelling wave of public anxiety about the climate. This is driven by the increasing frequency of, and impact on, daily lives of extreme weather events. Unusually intense wildfires, floods, storms and droughts, now occurring simultaneously throughout the world, are validating climate science experientially for people everywhere. A recent newspaper front page screamed that 85% of Britons are worried about the climate. 

What climate scientists said would happen is happening only sooner and more dramatically than they previously thought. The Intergovernmental Panel on Climate Change (IPCC) published its first report on the climate in 1990. It has published four subsequent reports. Each has found that the problem was worse than the one before. The sixth report is currently under preparation. It will continue the sequence. 

The changing climate conversation this year has built a deeper connection between climate scientists and the public. People everywhere will find extreme weather events predicted by the scientists continually validated by their experience. Public anxiety will continue to grow and the pressure on politicians to address that anxiety will grow with it. 

Prior to Paris, the question of how best to constrain economic development in order to reduce its carbon burden dominated the climate policy conversation. Unsurprisingly, politicians were unattracted to finding themselves in the middle of a collision between the economy and the climate. Hence the prevarication that has been a such constant feature climate policy in many countries. 

Since Paris, opportunity has become a significant driver of global decarbonisation. The costs of the renewable and battery technologies essential for decarbonising power and transport have fallen both further and faster than was anticipated even then. They are continuing to fall. Globally, renewable energy capacity has quadrupled in 10 years to take power sector carbon emissions 15% below where they would otherwise have been. It is now likely that renewables will become consistently cheaper than fossil fuels early in the twenty twenties. 

This changes the fundamental political equation underpinning the political response to climate change. The political risks of failing to act on the climate are rising and those of acting are falling. In a policy conversation dominated by constraint, climate change looked to most politicians like a choice between today’s winners (the fossil fuel industries and those dependent on their revenues) and tomorrow’s possible losers (future victims of a changing climate) plus tomorrow’s possible winners (renewable industries). Politically, this is a no brainer. You back today’s winners with what you do, and you shield yourself from the future with warm words. 

Since Paris this has begun to change. The low carbon opportunity narrative has taken hold and the growing number of extreme weather events has begun to register with the public. The emerging political equation pits today’s fossil fuel incumbents against tomorrow’s cheaper innovators and increasingly harrowing images of today’s victims. This is much more difficult politically and is, paradoxically, currently intensifying the prevarication on climate policy — as politicians struggle to accelerate the energy transition without alienating key voters. 

The horns of their dilemma have been brought sharply into focus this year. Despite their increasing efforts to paint themselves as energy companies, the oil and gas industry invested nearly half a trillion dollars in new supply last year. This widens the gap between what we need to do to be compatible with Paris and what we are actually doing. 

Reinforcing the political impact of these developments has been the entry of a powerful new voice into the climate debate: central bankers. Since Bank of England Governor, Mark Carney, gave his first climate speech in 2015 an organised network of central bankers, the Network for Greening the Financial System has emerged. It now has 42 members representing countries with over half of global GDP. When central bankers speak, investors and politicians listen. 

Subsequently the Bank of England has developed a regulatory framework for the financial services industry’s management of climate risk through the Financial Conduct Authority and the Prudential Regulatory Authority. This public sector response has been matched in the private sector by the creation of the investor led Climate Action 100+ network designed to tackle both the emissions reduction challenges and low carbon technology opportunities of climate change. It now involves 289 investors from 29 countries with over $30 trillion in assets. 

With both the public and financial institutions increasingly concerned about climate change, the pressure on governments to act urgently and effectively is growing. It is now clear that technology is not an insurmountable problem. Thirty years of deep analysis and innovation mean that we have, or have in sight, the technology we need to stop burning fossil fuels without depriving people of affordable energy services. 

Nor will we wreck our economies to do so. Some two-thirds of the energy from burning fossil fuels is simply waste heat that does no useful work. Much of the $1.8 trillion the world invested in energy last year added no real economic value. As we make the energy transition out of fossil fuels by spending that capital on a carbon free energy system we will also be improving the overall productivity of the economy. 

It would be wrong to think that there are no real technological and economic problems to avoiding dangerous climate change. There are. However, the amount of systematic study of both over the past thirty years has been sufficient to justify a high level of confidence that they can be dealt with should we so wish. 

This is not true of the political problems of making the transition to a carbon free energy system. Very little sustained effort has been put into identifying, let alone solving, these problems. The scale and pace of the technology changes that climate policy success requires will be accompanied by a similar scale and pace of change in the patterns of winners and losers in the energy world. 

Politics is how we collectively choose who wins and who loses. Typically, those interests that will lose make a noisy and sustained effort to oppose the changes. Those that will win tend to quietly get on with taking advantage of them. Prevarication is a typical response of governments faced with hard choices, and it is often a wise way to ease the pain of change. This will not work for a time bound problem like climate change. Climate policy not only fails if we miss the goal of ending the combustion of fossil fuels, it also fails if we don’t get there by the middle of the century. 

The change from fossil fuels to carbon free energy will create large numbers of jobs and opportunities for investors. But they will not be jobs or opportunities for the same people with the same skills in the same places. Climate policy makers have a great deal to say about the shape of an energy policy that is Paris compatible. They have had far less to say about the labour, skills and regional development policy that must accompany it. Without such a policy, the political obstacles to the energy transition will be formidable. 

The EU countries derive some ​‘400 billion a year in revenues from taxation on the fossil fuel industry. While we can see how to replace the energy from fossil fuels by new technologies, it is much harder to see how to create the same opportunities for taxation and dividends. There is far less headroom for the extraction of rents. Climate policy makers have had nothing serious to say yet about how those revenue streams are to be replaced. There are already some politicians in Europe arguing that dealing with climate change will lead to a prolonging of austerity. 

For climate policy to succeed we must end the burning of fossil fuels by around the middle of the century. This will have significant geopolitical consequences which are yet to be fully understood. Many countries depend critically on revenues from oil and gas exports for their national budgets. Russia raises about 40% of its national budget from the export of its abundant fossil fuels. The EU is currently developing a European Green Deal that will put the EU on course to end its imports of fossil fuels from Russia by mid-century. 

In the worst of worlds this will be a reason for Russia to act now to slow down or disrupt the world’s effort to build on the Paris Agreement. In the best of worlds it is an incentive for much closer cooperation between the EU and Russia to share in the opportunities of the energy transition. 

China, which already burns half the world’s coal, has recently reversed its current constraint on coal investment in response to slowing growth. This makes the worst of worlds more likely. China is more exposed than other major economies to the water and food insecurity that will result from climate policy failure. Yet, it is leading the world in the deployment of renewable energy and electric vehicles and has more to gain than most countries from the best of worlds. 

Faced with political challenges like this, and no time, there is a growing risk that governments will be caught between a rock and a hard place. As the scale of the political obstacles to the necessary change for climate policy success becomes more apparent, the temptation to continue prevaricating will grow. But as climate events drive an ever more anxious and better-informed public to demand urgent action the inducement to panic will also grow. Governments oscillating between prevarication and panic are probably the least able to construct an orderly path to a carbon free global system. 

We are faced with a choice between two worlds. There is a world of climate policy success in which we no longer burn fossil fuels. This world is only available if we take the opportunity to revitalise the global economy by making the long-term investments of public and private capital that the energy transition requires. 

There is also a world of climate policy failure multiplying the existing stresses on the system of global rules on which our prosperity and security depends. In this world, that rules system will bend further and eventually break taking prosperity and security with it. One way or another this is a choice that will be made over the next three decades. The consequences will be with us for much longer. 

Moody’s recent announcement that they were considering downgrading the debt of Exxon, one of the world’s most consistently successful companies, because of climate change is a powerful indicator of urgency of this choice. In the same week, Christine Lagarde indicated that climate change would feature strongly in her review of the central purpose of the European Central Bank. It is no longer just our children who want us to make the right choice. Some very grown up people indeed are adding their voices to the call.