Hamburg (Brussels Morning) On August 14, the Russian President Vladimir Putin expressed his concern at the scale and nature of “absolutely unprecedented” natural disasters that have hit Russia.
Within hours of the publication of the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), which set off the alarm on the imminent dangers of climate change, wild fires were wreaking havoc in Russia.
Whilst fire devours Siberia, burning almost two million hectares of forests, torrential rains in the southern part of the country have caused flooding, evacuations, and the interruption of the electricity grid. Other strategic infrastructure is at risk.
Urging local authorities to do everything possible, the Russian leader said “all this shows once again how important it is for us to make a deep and systematic commitment to the climate and environmental agenda in the future”.
The profundity of this change of perspective in Moscow is demonstrated by an anecdote from Corrado Clini. The former Italian environment minister met the Russian president in 2003 whilst he was heading an EU climate delegation hoping to convince the Russian President to sign the Kyoto protocol. A sceptic about climate change caused by human activity, Putin responded with a joke: “if temperature rises a few degrees, we will harvest more wheat in Siberia”.
The oil world faces the impact of climate change
Today, climate change is no laughing matter for anyone. It has become a matter of national security. NATO and the Pentagon agree.
Oil and gas pipelines and industrial plants are at risk of collapse due to thawing permafrost.
On 29 May last year, an oil tank collapsed, spilling 21,000 tonnes of crude into the Ambarnaya River in Siberia. The pollution devastated an area of more than 80,000 square metres.
The US, for its part, is also at risk. Particularly vulnerable is the Trans-Alaska Pipeline, a key piece of infrastructure in the US energy system. The government has recently authorised safety measures. An innovative cooling system to consolidate the ground is also under construction.
Assuming it works, geo-engineering alone will not solve the problem. Alaska, like Siberia, is warming twice as fast as the global average. The oil industry – and governments – are committing technology, resources, and huge investments to postpone the inevitable. Is it money well spent?
Probably not. With the world’s biggest economies pledging to become carbon-neutral and carbon credit trading systems being developed, pressure is mounting for fossil giants to change course.
For petrostates failing to adapt, this could spell economic disaster. This month, one of the leading Australian industry groups, based in another country resisting calls for tougher climate action, has warned that growing international commitments to decarbonisation are the biggest risk to current Australian trade and they are likely to drive down demand for Australian coal and gas exports.
Even more concerning for Big Oil is the fact that investors and states are starting to factor in the real cost of carbon. On February 26, the White House announced an initial estimate of $51 per ton of carbon to kick off the debate.
Diversification of oil exports is a matter of economic survival. Russia, which has significant capacity to generate wind and solar power, doesn’t exploit these energy sources. Renewables accounted for just 0.32% of its power grid in 2020.
Facing the challenge at hand needs a system shift
If the ecological transition is indeed the greatest challenge humanity has ever faced (I am citing, in no particular order, John Kerry, Antonio Guterres, Ursula von der Leyen, Xi Jinping, Angela Merkel), there is no alternative to international cooperation.
On the domestic front, the discussion must be depoliticised, addressing the challenges with scientific input and awareness of the available technological solutions. Evidence-based governance will be key in testing the resilience of political systems. The ability to collect and act on available data, starting from energy demand and consumption, while developing policy, will be a key test to every system of economic governance. The key questions are where and how we produce the energy we need to power our societies. And rethinking production processes brings to the fore the political question of society’s dependence on fossil fuels.
New governance tools and the possibility of a better world
Tools such as a carbon budget for companies, organisations and individuals is the order of the day. Digital technologies and the rising of AI-driven governance enables effective carbon budget monitoring tools. Even the controversial Chinese Social Credit System shows a potential way forward to more effective environmental governance, as the system is being used in a corporate governance setting.
For citizens to accept profound change in their way of life, policymakers will have to be prepared to tell the truth, publicly acknowledging the scale of the risks and its existential nature. Moreover, they will have to explain the scientific facts in a comprehensible and credible way; describing the choice of available technological alternatives. Above all, they should be able to articulate socially acceptable and desirable future scenarios.
Profound change is happening in the energy market. Renewables were the cheapest source of energy in 2020. According to the International Energy Agency (IEA), solar is the “cheapest electricity in history”. In Europe, where electricity prices are falling during the pandemic, consumers were getting paid to use electricity.
Sweden is leading the energy transformation in Europe, to the benefit of its citizens, with the transformation of households to efficient prosumers, with buildings that both produce and consume the vast majority of their own energy.
In Germany, according to calculations just released, the electricity costs for electric cars are considerably cheaper than those of fuel costs for a conventional petrol car. Calculated annually, consumers could save more than 600 euros on average.
With a temperature increase that is already standing at 1.1-1.2 degrees Celsius, the road to the Paris 1.5C is narrow, but still possible.
Bridging the gap
This is not a challenge that single states can master. To win the fight for the planet’s climate requires political convergence between the major emitting countries (China, the United States, India and the European Union in the lead) and the oil exporters (Russia, Saudi Arabia, etc). The issue is that of defining a shared roadmap of measures to decarbonise the world’s economies.
The international community must work in a perspective of ‘competitive cooperation’ to define a system of rules, a technological, geopolitical, and collective security paradigm while ensuring that of individual states. We need to build a new financial system, update the rules regulating international trade and adapt the workings of finance and tax models to match and support the emergence of the upcoming industrial post-fossil structure.
The ecological transition must be governed. The first challenge is the energy security of the great powers and developing countries. The good news is that we now know the way. And today, even the most sceptical, like the Russian President, are aware that we have no choice other than to follow that path.
While there are some signs that the course of history has been set on new tracks, the situation is still confused. Thanks mostly to EU leadership, carbon markets and ETS (Emission Trading Systems) are developing.
But other forces are pushing in the opposite direction. Resistance is still strong. The American president’s recent appeal to OPEC shows how ambitious ‘green’ programmes still have to contend with the economic and social pressure of the big companies, especially the energy companies. Who will prevail will be a matter for policymakers.
With the presidency of the G20 and the co-presidency of the Glasgow COP, Italy (together with the UK) has a historic opportunity to catalyse the convergence towards a carbon pricing floor for the global economy. In the year of the World Cup and Olympic gold medals, it may be time to go on the offensive.