Transition Risk and the Road to Net Zero
Key Highlights from our March 17, 2021 Event on Transition Risk and the road to net zero with James Meadowcroft and Peter van Dijk
Canada is committed to reaching net zero carbon emissions by 2050, and many financial firms have started to align their targets for financed emissions with this aim. Getting to net zero will require major changes to the large-scale systems that are necessary to meet societal needs, which creates vast uncertainties for investors, lenders and insurance companies as they try to understand how this will impact lines of business.
In this webinar, we explored the realities of net zero for sectors and regions with our speakers James Meadowcroft, Research Director of the Transition Accelerator and professor at Carleton University, and Peter van Dijk, GRI Executive in Residence. The session was moderated by Alyson Slater, Senior Director of Sustainable Finance at GRI.
Defining transition in a broader context – Professor Meadowcroft interpreted transition as a series of changes in major societal systems with distinct dynamics, obstacles, and enabling factors for change. While carbon reduction is the mainstay of transition, there will be other disruptive and transformative forces in key Canadian sectors driven by factors like technology, innovation and market demand. Getting to net zero requires the reduction of emissions in sectors such as energy, transport, agri-foods, utilities, and buildings to the lowest possible levels. Carbon capture and storage technologies are not yet viable, and carbon credit trading or offsets will be scarce and costly to purchase as all major economies commit to net zero.
Credible, capable, and compelling – these are the three criteria highlighted in the recent report published by the Transition Accelerator, “Pathways to Net Zero: A decision support tool” when assessing the extent to which options can contribute to the transition pathways. Meadowcroft identified key sectors and their respective policy goals, and provided a case study on the transformation options and market outlook for light-duty vehicles.
The cost of transition is cheap compared to the cost of inaction – Peter van Dijk highlighted that the global costs to align with the net-zero-by-2050 goal will amount to trillions of dollars, with the annual cost in Canada estimated to hit $13.8 billion per year until 2030. While the public sector needs to direct investments into this transition space, private capital from institutions and individual investors are much needed. He proposes that the government should act as a catalyst to unlock private capital by creating conditions that are attractive, policy directions that are clear, while reducing the excess risk level of climate-related investments.
Carrots and Sticks – The government will likely utilize multiple policy instruments in a coordinated manner to target the different stages and maturities of sectoral transition.
Sticks: levelling the low-carbon playing field, phasing out fossil fuel subsidies, and further expanding on carbon pricing by broadening the base being included.
Carrots: enticing private capital and reducing excess risks in climate change solutions, rolling out tax incentives to scale new clean technology adoption, providing refundable R&D tax credits, and encouraging enhanced RRSPs and TFSAs in qualifying transition investments.
Actions to take:
Immediate term low-hanging fruit that can be prioritized for action to bring emissions down while also boosting the economy were discussed. These include workforce skills-building in infrastructure retrofitting and adaptation, clean energy options, energy storage technologies, accelerating the phase-out of coal, geothermal and hydrogen production, investing in the supply chain for electric vehicles, and others.
Peter van Dijk