Beyond promises: The $120 trillion path to a “net zero” world
This is an extraordinary moment for clean energy. The world’s largest countries and corporations have vowed to transition to “net zero” emissions, in which there’s a near-perfect balance between the release and removal of greenhouse gas emissions — and the planet stops warming.
But there’s a problem now that “net zero” commitments have been made. “No one really knows how to get there,” said Arun Majumdar, the Chester Naramore Dean of the Stanford Doerr School of Sustainability, in setting the political backdrop for the session on climate economics at the 2023 SIEPR Economic Summit.
The International Energy Agency estimates that reaching the goal of “net zero” will cost $4 trillion a year over the next 30 years. “That’s on the order of a $100 trillion to $120 trillion, plus or minus a few trillion here and there,” Majumdar told the hundreds of policymakers, business leaders, and academics gathered for the Summit.
What happens next anchored an hour-long conversation on how economic mandates and private sector investment are likely to pave the way given that different countries have different degrees of motivation to move to clean energy.
“We need globally harmonized incentives,” said Robert Litterman, founding partner of investment firm Kepos Capital. “Incentives will work, whether they are carrots or sticks.” He favors a stick approach in the form of carbon pricing, in which emitters are required to pay for the greenhouse gases they produce.
Litterman and fellow panelist, Catherine Wolfram, focused much of their discussion on the fresh carrots the United States recently harvested in three new federal laws: the Inflation Reduction Act (IRA), the Bipartisan Infrastructure Law, and the CHIPS and Science Act.
Wolfram, who recently served as deputy assistant secretary for climate and energy at the U.S. Treasury Department, called the IRA “a transformative piece of climate legislation” for giving clean energy investors huge incentives to develop new technologies, including carbon capture and sequestration, through tax breaks. It also imposes the first-ever federal cap on carbon, for methane emissions.
“The legislation really puts the U.S. back on the world stage” as a leader in climate change initiatives, said Wolfram, a professor from the University of California, Berkeley, who is currently on leave while visiting at Harvard.
Still, she said it could be problematic for trade relations. Europeans, she said, are very unhappy about the new U.S. subsidies.
“If we get into subsidy wars and we’re just competing for the same resources and spending more and more government revenue [to outcompete each other], that’s not a good thing,” Wolfram said. “Policymakers will really have to pay attention to the extent to which climate policy interacts with trade and how what we do influences what other countries do.”
There are other international trade concerns, Majumdar said. “Anything to do with energy is a national security issue,” he said, noting the war in Ukraine and how Russia has weaponized access to electricity and water. There are also supply chain considerations around, say, ensuring access to battery minerals needed for electrification and transportation.
The path to net zero “is not just climate and economics,” he said. “And when you overlap security assurances on top of trade, the landscape changes.”