Ally Leighton ‘25
“Net Zero” would at first glance appear to have a zero percent shot at success. To reach a carbon-free economy by 2050, the BNEF forecasts a total reduction in emissions by 3.5 billion metric tons. And this isn’t cheap. According to the International Energy Agency, achieving net zero requires shelling out 4 trillion dollars a year.
But, if you break it down, it really isn’t that much. To achieve this 4 trillion mark, the net increase of investment in renewable energy is around 1% of GDP, a large, but not unprecedented amount. In the 1850s, railroad expenditures were 2% of GDP and widely supported by Wall Street.
While there is growing pressure for political change, the U.S. government does not have the funding. But, the private sector can come to the rescue. This funding for net zero is an investment, not a cost. It can bear significant economic gains. Wall Street prefers companies that engage in ESG (environment, social, and corporate governance) efforts, and thus these companies may enjoy a lower cost of capital and higher valuations. Companies will benefit from future lower energy costs due to greater spending on renewable energy sources. With such benefits, over 1700 companies in the United States alone have committed to net zero by 2050. Among them, Google and Microsoft have set their sights even higher to achieve “carbon-negative” status.
Favoring long-term sustainability over short-term profit-maximization speaks to the changing economic landscape in a post-pandemic world. The outbreak of COVID-19 shattered any stability, leaving businesses to pick up the pieces, uncertain of what would happen next. Similarly, the pandemic pointed a shining light on our vulnerability to climate change. If businesses crumbled under COVID-19, what could be said to their future under rampant global warming? Therefore, companies seek stability, and an investment in net zero is an investment in greater financial stability in a future that is increasingly likely to enforce net zero objectives. As such, the transition to net zero signals faith not only in the ability to reach sustainability targets but faith that the company will be around for at least the next few decades to reap the benefits. Since this investment communicates confidence, it generates higher credibility which promotes greater interest from investors. Overall, the gains in the transition to net zero can be a self-fulfilling prophecy.
There is one main issue: even if companies want this new climate-saving technology, it might not be available. A significant amount of this technology is in its developmental stages and for manufacturing to achieve such a high scale of production, costs must be lowered. Here, the government can initiate tax credits, set a price on carbon, or even subsidies to incentivize higher production to meet growing demand. This help from the government, albeit relatively small compared to the efforts of the private sector, may be what is necessary to generate the 4 trillion dollars. Thus, coordination from the government and private sector is an important factor in the successful transition to net zero.
A commitment by the private sector to net zero raises the expectations for businesses to engage with social responsibility. If profits and social initiatives are acknowledged as not only compatible, but in many cases interdependent, the private sector can play a dominant role in promoting necessary change now and for future generations.
Sources:
https://sponsored.bloomberg.com/article/pwc/financing-the-net-zero-transition
