THE BLOG

The Carbon Budget For the Rest of Humanity's Time on Earth

BREAKING NEWS: the global economy is decarbonizing. Oil companies are abandoning the search for Arctic oil. One of the world's largest multinational companies, Unilever, has announced it will be running 100 percent renewable energy by 2030. Germany's Allianz, one of the world's largest investment companies is substantially reducing investments in fossil fuels. And Sweden has announced it aims to be one of the world's first countries free from fossil fuels -- well before 2050.

For the first time, the world has reached a tipping point towards sustainable development. At this rate, we may well be on the pathway to attain a prosperous and equitable future for a rapidly growing world population, all with the same right to development, on a small finite planet.

Whether we push over this tipping point hinges on events in Paris this week and next. Will the world, through collective action at the Paris COP21 summit, create a strong enough market signal to tip the scales towards deep decarbonisation?

We believe so. A reason for seeing light at the end of the tunnel, is the rapid shift in the climate logic. The science on potentially catastrophic climate risks is established and understood. The International Energy Agency predicts renewable energy will be the single largest source of electricity growth in the next five year. And by 2020, renewables -- wind, solar, hydro -- look likely to provide 26 percent of global power generation. Higher than the combined electricity demands of Brazil, China and India. For the first time, fossil-fuel-free modern energy systems and sustainable management of ecosystems are increasingly seen as possible, competitive and attractive for jobs, health, growth.

The impossible is happening before our eyes: the unstoppable rise in emissions of the pollutant carbon dioxide looks like it is about to stall.

But there is no time for complacency. Now is the time for the biggest push of all. Because the crisis is real. Earth has warmed 1°C (1.8°F) since the start of the industrial revolution. It might not sound like a lot but we are already seeing the effects. Latest research from Greenland and Antarctica show an alarming shift in the rate the ice sheets are melting and that this may well be unstoppable in the short term. When we look into the deep past, sea levels stabilized at around six metres higher than today with just a 1°C rise in temperature.

Moreover, science shows that insecurity and climate change cannot be separated. The unprecedented drought in the Middle East has been linked to manmade climate change and according to some researchers may have contributed to political instability in Syria as rural areas were abandoned as people swarmed to cities, no longer able to make a living in the country. So, climate action now becomes refugee abatement in the future.

The global economy is pushing up against the boundaries of the planet. This risks setting off unexpected and unwelcome tipping points. In the last decade, we -- Homo sapiens --went from being a small world on a large planet, to becoming a big world on a small planet.

The stability of Earth's life support systems is under threat. We risk leaving the stable environment of the last 11,000 years, the uniquely favourable period since the last ice age that has enabled the modern world as we know it to develop. We are now in a new geological epoch, the Anthropocene, where humanity is the dominant force of change on the planet. We have reached a saturation point. We can no longer take for granted the planet's capacity to absorb our impact on the climate and ecosystems. Development must now occur within the safe operating space of a stable planet. This turns all economic logic on its head. Any economic model, from neo-liberalism to Marxism, that ignores this logic may provide short-term gains for some but will be disastrous for our future as a global society.

So, this frames the core of the Paris climate negotiation. It is necessary for the world to stay under the climate guardrail of 2°C, which translates to a carbon budget of less than 900 billion tons of carbon dioxide to spend, giving us at the current emissions trajectory only some 25 years left in a fossil-fuel powered world economy. As Christiana Figueres -- the head of the United Nations Framework Convention on Climate Change -- has so eloquently put it, this is not a budget for the next decade, nor the next century nor the next millennium. This is a carbon budget for the rest of humanity's time on Earth. This is the reality of life in the Anthropocene. Earth's biosphere is in our hands. Moreover, even if emissions dropped to zero. We'd still only have a 66 percent chance of success.

So then, we need bold and ambitious action on climate change. But how bold and how ambitious? World leaders meet in Paris for the 21st time. All efforts to strike a binding agreement have failed to dent greenhouse gas emissions. At this stage, it is unlikely Paris wil deliver a globally binding agreement that ties nations within a 2°C global carbon budget. Instead, Paris should be judged on its ability to sustain and accelerate the transformation towards decarbonisation, which sends strong enough signals to investors, financial managers, business leaders, societies at large, that we are leaving the fossil fuel era behind.

The key therefore is confidence. In a complex network with limited central control, the ebbs, flows and vagaries of the global markets and financial flows are influenced by confidence. Think not of well ordered platoons or battalions marching in unison and controlled by an iron grip. Think of a herd of animals. Confidence is an ephemeral commodity built on trust, guided by goals and shaped by heuristics -- simple rules of thumb -- all can follow. It is confidence that is pushing the world over the edge and onto a trajectory of rapid change.

In business the 80:20 rule of thumb is often invoked when a disruptive innovation or product hits the market. As we pointed out recently new solutions reach a tipping point, scale rapidly and become mainstream only once they have penetrated around 20 percent of the marketplace or society. Remarkably, in the last five years, renewable energy has achieved this level of penetration in many key markets. By this logic, if Paris puts more than 20 percent of the world's key nations and companies on a path to eventual phase out of fossil fuels by 2050 this momentum can cascade through the whole global economy.

And, remember, carbon emissions globally need to fall at around six percent per year to reduce the risk of crossing the 2°C threshold. The pledges collected by the UNFCCC from nations fall short of this. If we are lucky the temperature will stabilize at 2.7°C, but we are at grave risk of crossing irreversible tipping points.

To get up to a 1-2 percent emissions decline takes modest policy changes to redirect the economy. A 2-3 percent decline takes more ambitious efforts, but still incremental, within the current policy and infrastructure domain. But the world needs systemic change, requiring novel policies, such as a carbon tax and elimination of fossil fuel subsidies, and closure of coal mining, to truly get onto a transformational trajectory of greater than four percent emissions reductions per year. Once we are on the transformational trajectory the internal machinations of the markets push through the disruptive technologies until they become mainstream.

The most important lever in all of this is the global flow of capital. It is estimated that developing countries need $100 billion per year to adapt to climate change and move to low-carbon energy systems. But this is a drop in the ocean. The World Resources Institute estimates that $5.7 trillion is needed for low carbon infrastructure to meet 2°C -- by 2020. Others put the figure much higher.

But clearly capital is flowing. In five years it has moved from a trickle to a stream to a river. The opportunity now is to create the conditions to open the flood gates. And the cracks are being seen. The Portfolio Decarboniation Coalition (PDC), an international coalition of large institutional investors, just announced the decarbonisation of $230 billion in assets, surpassing their goal of $100 billion.

This is how Paris must be judged. Success may well be an agreement that ensures about 20 percent of countries put themselves on a course for emission cuts of about four percent a year starting in the next five years to wedge the flood gates open.

And this is a very realistic goal: the UK's emissions pledges for example put it on course for five percent annual emissions reductions. And if Sweden is going to be free from fossil fuels by 2030-2040, it will need similar levels of ambition.

The Paris summit promises to be a remarkable end to a remarkable year. A year where, for the first time, we can now seriously talk about prosperity and a thriving global economy fueled by clean energy and sustainable innovation.