Governments alone cannot achieve these goals. Private enterprises will need to reallocate capital to low-carbon investments and find ways to make large-scale emissions reductions possible.
To make faster progress, governments must adopt policies to drive decarbonisation across the global economy. Here are four ideas that could help move the world closer to net zero emissions.
When it comes to climate-related financial reporting, companies can choose from a variety of voluntary disclosure standards formulated by non-profit organizations. However, these disclosure requirements vary widely depending on the methodology and framework each organization uses, making data inconsistent and incomparable.
Requiring publicly listed companies to disclose certain information – including their major emissions, largest facilities and best suppliers – would help establish common baseline standards and thus help investors better understand climate risks and opportunities . This information would allow investors to decarbonize their portfolios and instead invest in more sustainable assets and businesses.
Mandates should also be industry specific, as different sectors of the economy face different types of climate challenges. For example, it would not make sense to impose the same disclosure requirements on oil and gas, healthcare, restaurant and technology companies. All requirements must extract the most meaningful, materially relevant data from each industry.
If we provide investors with this information, it will be easier for them to separate the climate leaders from the laggards, measure the likely performance of different investments, and determine which companies are able to thrive during the low-carbon transition.
Expanding and improving global carbon markets
Carbon “offsets” create a financial incentive to reduce emissions or remove carbon from the atmosphere because the reduction or removal can be sold as a credit and used to offset other emissions. This encourages investment in low-carbon activities, including green technologies and energy efficiency.
To build on the progress made at COP26, policymakers need to put in place better mechanisms to verify offset projects to ensure they deliver real emissions reductions without double counting, which remains a challenge.
More broadly, governments need to promote greater transparency and consistency in carbon markets, while figuring out how best to integrate offsets into their national climate policies.
Put a price on carbon
In most parts of the world, carbon emitters do not have to compensate society for the full cost of their pollution. A well-designed economy-wide carbon price would help correct this by making emissions more expensive. This would reduce the relative cost of low-carbon energy and products, increasing the attractiveness of renewable energy sources and clean technologies.
By realigning incentives across industries, a price on carbon emissions can help drive a virtuous cycle of green investment and lower emissions.
I realize that in the current high inflation environment carbon pricing is probably not a political factor. But taking a longer view, it would accelerate the reallocation of capital and revaluation of assets that are critical to reaching net zero.
Help developing economies navigate the low-carbon transition
Even with rapid expansion of carbon trading and pricing, many developing countries will still need additional transition support from advanced countries.
One solution is to expand the use of blended finance arrangements, where governments provide concessional or below-market loans to make clean energy projects more attractive to private sector investors.
Scaling up blended climate finance would require close cooperation between public and private institutions, including multilateral financial institutions. It all starts with identifying the climate-related projects where government assistance (a) is most needed and (b) can have the greatest impact.
In many ways, the history of climate change is a history of understatement. For decades, markets and policymakers underestimated how quickly global temperatures would rise and extreme weather events would increase. On the plus side, they also underestimated how fast renewable energy would grow.
Today, many people have become pessimistic about the world’s ability to reach net zero. But this may be another case of understatement.
When governments feel united by a sense of urgency and mission, historic change can happen quickly. Let’s hope our leaders muster the unity and purpose needed to tackle the climate crisis.