As the Global Financial Crisis demonstrated, disruptions in one sector can quickly spread across the entire economy and trigger political intervention. This will affect the livelihoods of individuals and disrupt labour markets.
So, what’s the answer to ensure we curtail global warming without enduring net-zero transition risks? From a business perspective, it is best to assume the transition is going to be disorderly. The concept of an “orderly transition” seems very unlikely given the scale of the technological, economic and societal changes needed for decarbonization, especially if greenwashing or stalling on commitments delay the transition. Previous industrial revolutions have also been highly disruptive and disorderly.
Expecting governments to enact the right regulations in a timely manner is a dangerous waiting game. We’re likely to end up with a “too little, too late” scenario. It’s best to take lessons from previous transitions. For instance, the losers from the digital transition waited for change to impact them, rather than driving change themselves.
Instead, see a disorderly and disruptive transition – as in all periods of change – as an opportunity. Even in the COVID-19 pandemic, businesses that are agile, innovative and resourceful have thrived. Many have helped us to adapt to the pandemic by producing vaccines and personal protective equipment that save lives, to providing remote communication tools and home delivery services that help us continue our lives during lockdowns.
Businesses need to be innovative and visionary entrepreneurs. We are entering a new kind of industrial revolution and leaders must adapt or even transform their businesses to become part of the net-zero future – and avoid being adversely impacted by it.
For instance, many governments have committed to phasing out the internal combustion engine, but if the rollout of charge points for electric vehicles (EVs) is too slow then there could be a disorderly transition to EVs. But there’s also an opportunity for businesses.
Dedicated charging companies could win huge infrastructure contracts, utility companies could use charging points to drum up more demand for their clean electricity, oil companies could add charging points to their forecourts, even carmakers and investors have an opportunity. This all assumes that EVs will become the clean vehicle of choice. Other automakers may find technological solutions that unlock the commercial opportunity of using different fuels, like hydrogen.
Also read: India’s transition from coal will be ‘messy & complicated, affect 2 crore people’, says study
The biggest risk is inaction
The risks of a disorderly transition cannot be used as an excuse to slow the journey to net-zero. To the contrary, the longer we wait the more likely we’ll face a disorderly transition. And if we fail to act, the damage caused by unabated emissions and ultimately the long-term consequences of climate change will be even more cataclysmic than the potential transition risks. Just looking at it through a financial lens, the world economy could lose up to 18% of GDP if no mitigating actions are taken to combat climate change.
Although a disorderly transition appears inevitable, it is not too late to smooth out the journey. Governments and businesses can still make bold steps to assess the risks they face, and then take action to drive an innovative, successful and inclusive transition that protects economies and jobs.
Governments need to introduce ambitious climate policies that back up their nationally determined contributions (NDCs) with action. This climate action must be taken in a way that is both transparent and consistent to allow businesses and investors to plan for future changes.
Governments must work with business, in particular the carbon-intensive sectors, to introduce clear incentives to invest in net-zero technologies and to encourage a shift in consumer behaviours that creates demand-destruction for carbon-intensive products and services. The removal of fossil fuel subsidies and the introduction of carbon pricing would be a great first step.
We must also ensure that no one gets left behind. Policies that accelerate the reskilling of workers in carbon-intense sectors – such as the fossil fuels industry – are just one example. New opportunities will be created: by 2050, 42 million people could be employed in renewable energy compared to 11 million in 2018. We must ensure people have the skills to grasp these opportunities.
The road to net-zero will not be perfect. Net-zero transition represents a significant short-term threat to financial and economic stability, yet it offers great opportunities too. But ultimately, it’s on us. As individuals, communities and businesses we need to take steps to adapt and prepare for the changes that will come. To be ready to grasp the opportunities. Hopefully, governments will create a smooth and orderly transition to net-zero. But it’s best to be prepared and for all of us to strap in for a bumpy ride ahead.
Peter Giger, Group Chief Risk Officer, Zurich Insurance Group
The article was originally published in the World Economic Forum. You can view it here.
Also read: Forget 2050. To achieve ‘net-zero’, corporations need to act on oil and gas in the next decade
Source: The Print
