Net-zero transition must balance costs and opportunities post-Covid

Industry experts have emphasised the need for action as well as ambition on net-zero issues, stressing the need for a balance between the costs of a net-zero transition and the potential opportunities this might present, particularly amid a Covid-19 recovery.

Speaking at the Pensions and Lifetime Savings Association (PLSA) Local Authority Conference 2021, Storebrand Asset Management senior portfolio manager, Henrik Wold Nilsen, highlighted the International Energy Agency’s (IEA) recent report and findings as setting "new standards" for investors considering its call to avoid investments into new oil and gas fields starting next year.

However, he also emphasised that whilst targets have previously focused further into the future whilst the focus of investors is "much shorter", there have been improvements in recent years.

“I think increasingly the world has improved on spelling out the details, and I think stakeholders have been increasingly good at demanding this as well,” he explained, noting that the EU is currently working on a policy package due this summer, for instance, which will outline specific plans to reach its climate ambitions.

“So I think the stage has improved really a lot of the last couple of years, and there is huge momentum behind this.”

East Sussex County Council councillor, Gerard Fox, also highlighted the findings of the report as having made the gap between ambition of reaching net zero by 2050 and the actual detail of policy required to deliver that outcome "very clear".

"If I look through the list of IA requirements in order to achieve that goal, I do find myself thinking some of these things just won’t be done between 2021 and 2030.

"So, it’s going to stimulate a very useful and legitimate debate about whether we’re doing the right thing here and if we have to move faster," he stated.

He also emphasised that policy must be “entrenched on reality”, and that reality “must reflect a proper consideration of costs from adaption and damages from not acting sooner.

He continued: “The policy designed to deal with [climate change] is very much trying to get a balance between damages from climate change and the costs of adaption.

"Obviously as climate change damages are initially incremental but potentially ultimately become exponential, and are also not evenly suffered, it becomes quite difficult to make that deliberation.

“It would seem to me that what you must do is be realistic about what can be done, and do your level best having decided to deliver it."

"There has been perhaps too much aspiration and too little detail,” he added, noting that the UK for instance, first outlined its decarbonisation expectations over 10 years ago, in 2008.

Wold Nilsen also clarified, however, that the framing around the transition has shifted amid a potential post-covid-19 recovery, transitioning from concerns over “huge costs that are going to hurt” to interest in the growing opportunities, such as in the job market.

“After Covid it’s being pitched more as a recovery mechanism, and the IEA report also points out that there is huge job creation taking place," he continued.

“I think that’s an interesting reframing for it which makes it more appetising at the moment."

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