Davos 2020

Photo by Evangeline Shaw on Unsplash

Climate urgency

The attention of business leaders and experts on the climate emergency is higher than ever. This is what emerges from the latest Global Risks Report published every year on the eve of the launch of the World Economic Forum. For the first time, the 750 business leaders and experts from all over the world ranked five environmental and climate issues as the most important risks facing the world in the coming year. In particular, it is climate inaction, extreme events and biodiversity loss that concern world decision-makers, factors that hadn’t made the list before ten years ago.

What is also interesting is how consistently ‘green’ the top five risks have been in recent years; extreme weather has been Risk #1 for four years, climate change has been in the top five for eight of the last ten years, and natural disasters for five years in a row. Look back eight years and you see energy price volatility and oil price shocks were front of mind for world leaders. It goes without saying these are all deeply intertwined; transitioning to renewable energy not only helps to prevent climate change but also greatly reduces the risk of energy price shocks.

Biodiversity in danger

Biodiversity loss features for the first time, ranked as the second most impactful and third most likely risk for the next decade. According to the report, “the current rate of extinction is tens to hundreds of times higher than the average over the past 10 million years”. The authors point out that this loss has critical consequences going from the collapse of health and food systems to the disruption of entire supply chains.

Oil and gas in the radar

Also in Davos, the International Energy Agency (IEA) presented a report on the impact of the energy transition on the oil and gas industry. Dr. Fatih Birol, the IEA’s executive director, said “As of today, around 15% of global energy-related greenhouse gas emissions come from the process of getting oil and gas out of the ground and to consumers. A large part of these emissions can be brought down relatively quickly and easily”. The reports underlined the need for oil and gas companies to boost investments in the cleaner fuels such as hydrogen, biomethane and advances biofuels. Currently, average investments by oil and gas companies in renewable has been less than 1% of the total expenditure, mostly on solar and wind projects. The agency called for “a grand coalition” of policymakers, investors, and oil executives to work together to tackle the climate urgency, highlighting that “No energy company will be unaffected by clean energy transitions. Every part of the industry needs to consider how to respond. Doing nothing is simply not an option”.

Such a report from the IEA is another demonstration of the shift for the industry that faces huge opposition from investors and consumers. An article on Davos in the FT quoted a long-time energy consultant as saying during the event “There’s a real mood of shock – suddenly these companies are finding it hard to hire students, say. So the conversation is changing”.

Carbon tax

Carbon tax is becoming common language. During Davos many economists once again called for a global levy garnering support from many, including HRH The Prince of Wales. Ursula Van der Leyen reaffirmed the Commission plan for the implementation of a “border adjustment mechanism” on imports from countries which don’t respect international climate goals. This plan is an important part of the European Green Deal and is designed to protect the continents’ businesses from “carbon dumping” outside Europe. There is confidence that this will pass WTO rules, and if they do could bring a meaningful global price to carbon. Chinese steel imports are among the many products that could be impacted by this EU border tax. The President of the European Commission said she was encouraged by Chinas’ efforts to impose a domestic carbon price – the country is in the process of launching its national ETS market this year – something that would help Chinese industry meet the EU requirements.

David Craig, the CEO of Refinitiv, the provider of financial markets data and infrastructure, estimated in a report out this week a global carbon tax bill of $4 trillion to be required to meet proposals from the IMF around tackling climate. The figure is based on the suggestion that carbon taxes will need to rise to $75/tonnes of CO2, a figure the IMF reports is needed to keep warming below 2°C. Currently only 20% of global emissions are taxed and at a wide range of prices from as low as $1 up to $150, with the majority of emissions far below the $75 target. There will be many companies ill-prepared for such a change in emissions prices.

Nature based solution?

Restoration of nature is one of the solutions to tackle climate change. In Davos, the WEF has launched a global initiative to grow, restore and conserve 1 trillion trees around the world – a proposal to promote reforestation efforts, restore biodiversity and help fight climate change. The 1t.org project designed to support the UN Decade on Ecosystem Restoration 2021-2030, led by UNEP and FAO. The 1t.org offers a platform for leading governments, businesses, non-governmental organisations and civil society to unite for a “mass-scale nature restoration”.  And even climate sceptic Trump has pledged to back its work and wanted to show “strong leadership in restoring, growing and better managing trees and our forests”. For some this suggests a signal from the Republican president that climate change ‘avoidance’ may no longer be the vote-winner it once was.

These ambitious projects could be achieved with the help of artificial intelligence and drones, such as that of UK tech company Dendra, which itself is aiming to plant 500 billion trees by 2060. The drones can plant 120 seedpods per minute which would enable governments to restore forests 150 times faster than planting trees by hand and up to 10 times more cheaply.

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