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Climate Change

The COP28 climate summit, which took place in late 2023, aimed to draw global attention to the essential measures for preventing catastrophe. It led to an official recognition that fossil fuels are the fundamental cause of climate change. Although the Paris Agreement sets a goal of limiting global warming to less than 2°C over pre-industrial levels, the current trajectory suggests that this target will be surpassed, despite countries' voluntary efforts to decrease carbon dioxide and other greenhouse gas emissions. A mere increase of 1.5°C in temperature is highly probable to result in severe environmental consequences and extensive displacement.

Climate Change

Transitioning to Clean Energy

To combat climate change, swiftly moving to clean energy is essential. "Electrification of everything" symbolizes this shift, but recent power outages in Texas and California highlight the need for resilient, intelligent, adaptive power infrastructure. In 2020, renewable energy, including solar, wind, geothermal, biomass, and hydroelectric sources, comprised about 14% of global energy, only slightly up from the previous year. The decreasing cost of renewable energy, thanks to technological advancements and economies of scale, now rivals fossil fuels. Over the last decade, wind energy costs have fallen by 66%, and utility-scale solar by almost 90%, per Lazard’s analysis. Renewable mini-grids are empowering communities in underdeveloped countries, while industrialized nations see reduced grid reliance, supported by credits and incentives.

However, decarbonizing transportation remains a challenge. Germany and China aim to phase out internal combustion engines, anticipating a massive increase in electric vehicles by 2030, yet only representing 15% of cars in operation. GM's 2021 commitment to exclusively produce electric vehicles by 2035 sets a significant industry benchmark. The Energy Transitions Commission forecasts that aviation and shipping could account for 40% of CO2 emissions by 2050, suggesting efficiency and demand reduction strategies. Battery storage costs impede renewable energy adoption. Enhancing lithium-ion batteries to match liquid fuels and improving battery supply chains are critical. The World Economic Forum’s Global Battery Alliance addresses these challenges.

Sustainable Land Use

Effective land use strategies can combat climate change while ensuring food security and biodiversity. Agriculture contributes 25% of global greenhouse gas emissions, with land area equal to Asia's size. Deforestation for agriculture releases greenhouse gases. Addressing land degradation and forest conservation is key. As of 2015, Earth had 3 trillion trees, declining by 15 billion annually. The Tropical Forest Alliance 2020 focuses on sustainable forestry to reduce deforestation in commodity production. Innovations in land use can enhance carbon storage, water management, and biodiversity.

However, public fund scarcity in less developed nations limits innovation. The UN's Food and Agriculture Organization notes high returns on land use R&D investments. The Fourth Industrial Revolution offers solutions through satellites, drones, autonomous vehicles, big data, biotechnology, renewable energy, and financial technology. The World Economic Forum’s New Vision for Agriculture and Innovation with a Purpose projects are crucial for sustainable land use, addressing climate change and feeding a growing population.

Building Climate Coalitions

Effective climate action requires engagement across various sectors. In recent years, businesses, cities, and regions have stepped up, especially following the U.S.'s initial withdrawal from the Paris Agreement. The We Are Still In alliance and We Mean Business coalition mobilize businesses and investors for climate action. Over 150 companies in We Mean Business aim for 100% renewable energy and set emission reduction targets.

Public sector coalitions like the C40 Cities Climate Leadership Group and the Global Covenant of Mayors for Climate & Energy are gaining prominence. C40 cities, representing a significant portion of the global economy, aim to facilitate dialogue for a low-carbon economy. Climate Action 100+ engages major corporate greenhouse gas emitters. The Alliance of CEO Climate Leaders, formed by the World Economic Forum, fosters public-private cooperation for the Paris Agreement and Sustainable Development Goals.

The Social Cost of Carbon

Pricing carbon-intensive items reflects their environmental impact and promotes eco-friendly energy. Carbon pricing, through emissions trading or fees, is implemented in about 57 projects globally. The World Bank reports many countries considering carbon pricing to meet emission reduction commitments. However, challenges like public opposition, as seen in France and Washington state, necessitate alternative strategies like redistributing revenue to low-carbon consumers or reducing unrelated taxes.

The High-Level Commission on Carbon Prices and corporate initiatives like CDP support efficient carbon pricing. A G20 initiative aims to reform fossil fuel subsidies. Institutional investors urge companies to price carbon internally, manage climate risks, and invest in low-carbon technologies. BlackRock's 2020 decision to integrate climate risk in investment strategies marks a significant shift. Yale economist William Nordhaus's work on climate change and carbon pricing earned him the 2018 Nobel in Economic Sciences.

Understanding Climate Risks

The increasing occurrence of extreme weather, rising sea levels, and resource scarcity highlight tangible climate risks. Since 2005, the hottest years on record have occurred, with the average temperature now 1°C above pre-industrial levels. Fossil fuel combustion and agricultural practices have raised atmospheric CO2 levels, intensifying the greenhouse effect. Munich Re reports 2020’s climate-related disasters caused over $200 billion in losses. The U.S. National Climate Assessment predicts annual losses of $300 billion by the century's end.

The Paris Agreement aims to limit global temperature rise well below 2°C, but the Intergovernmental Panel on Climate Change emphasizes the importance of a 1.5°C limit to protect ecosystems and sea levels. Meeting this goal requires surpassing Paris commitments and achieving net-zero emissions by 2050, necessitating widespread societal changes for a sustainable, equitable world.

Investing in Climate Action

Investing in eco-friendly sectors can rejuvenate economies and build climate resilience. The Business Commission for Sustainable Development suggests $320 billion yearly in sustainable business investments could create $2.3 trillion annually by 2030. The OECD finds combining economic and climate initiatives could increase G20 productivity by over 3% by 2050. The International Finance Corporation identifies $23 trillion in climate-smart investments in emerging markets by 2030. Despite COVID-19, 2020 saw over $500 billion in decarbonization investments, including $50 billion in offshore wind.

Government incentives and innovation funding can spur private investment in climate resilience. The Global Commission on the Economy and Climate's 2018 report estimates $90 trillion in new infrastructure investments by 2030, mostly in developing countries. Sustainable, climate-aligned investments can yield economic gains of $26 trillion by 2030 compared to conventional practices. These investments present an opportunity to bypass outdated infrastructure and accelerate the global shift to efficient, climate-resilient, low-carbon economies.

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