Getting to a Net-Zero Resilient Economy

Daniel Raimi: Let’s start by defining the term, “net-zero resilient economy.”

Billy Pizer: First, we should unpack the meaning of “net zero.” We’re not necessarily going to reduce our emissions of carbon dioxide to exactly zero. We’re going to reduce emissions a lot of the way, but there may be some sectors, like aviation and other industries, where it’s not easy to get that last little bit of fossil fuels out of the system. Therefore, we’ll use some sort of negative-emissions technology, nature-based solutions, or other options to compensate for what’s left over—the positive emissions that remain.

The “resilient” part recognizes that, even if we manage to achieve net zero by midcentury according to the general timeline that’s talked about, we’ll still see significant climate impacts. We’re already seeing wildfires and droughts and flooding. Those sorts of things will continue. So, we’ll have to build resilience and adaptation into the economy to effectively manage the impacts of climate change.

When we say “net-zero resilient economy,” we’re combining all those things into one vision of the future of the economy.

Achieving a net-zero economy entails actions, and multiple routes are available to achieve this net-zero resilient economy. Private organizations, corporations, and governments have announced targets and timelines to achieve net-zero emissions in recent years. Some of those targets and timelines are on the order of net zero by midcentury—with some timelines landing earlier or later.

Can you give us a few examples of these targets—some that you think are particularly important? And can you highlight for us what the targets indicate about our collective ability to reach net zero, economy-wide?

At the highest level, we have commitments from governments in the form of their nationally determined contributions under the Paris Agreement, which are part of the international negotiations that occur every year. This year, the negotiations will be in Egypt.

For example, the United States has a goal of around 50 percent reductions from 2005 levels by 2030. This target is consistent with ultimately trying to get to net zero by midcentury and establishes a point along the way so we can measure progress.

If we add up all the commitments that countries have pledged under the Paris Agreement, the total probably still is not enough to get to net zero by midcentury. But summing them up gives us a starting point for that sort of calculation.

If we drill down further, as you’ve noted, different states, companies, academic institutions, and others also have set goals for reducing net emissions to a particular level by a particular date. It’s these sorts of commitments that push toward net zero for the whole world by midcentury. But it’s actually a bit of a chore to add them all up. The national-level targets can be added up, but when we have all these different pieces inside the economies of particular countries, we can be worried about some people double-counting the emissions that somebody else is doing, and vice versa.

Do you have a gut sense about how close we are to achieving the Paris Agreement goal of keeping planetary warming under either 1.5°C or 2°C, based on your rough estimates that combine those private- and public-sector actions? When you think of the big picture, what percent of the way there are we?

I think, if we add up all the international commitments that have been made under the Paris Agreement, we would be falling quite a bit short of the goal. But it’s also hard to know, because most of those sorts of commitments are only through 2030, rather than on a midcentury timeline.

A process in the negotiations, called the Global Stocktake, is attempting to do this sort of calculation; it will come out next year. But I think most of the folks who have considered this question are assessing that we’re not exactly on track to get to net zero by midcentury. The goal is still within striking distance, perhaps, but it’s certainly not where the current policies and even the commitments are necessarily headed.

Another relevant benchmark, maybe more immediate and tangible, is from the United States. As I mentioned, the United States has a goal of about a 50 percent reduction by 2030. And with the recent passage of the Inflation Reduction Act (IRA), that target really is much closer to being within grasp. Originally, projections predicted that we would hit about 30 percent below 2005 levels without the IRA, but now we are closer to 40 percent with the act in place. So, we’re getting much closer to the goal.

As people wait for the Global Stocktake to come out, another resource available in the meantime is the Climate Action Tracker, which provides regular updates on where these nationally determined contributions are getting us.

I want to ask you more about the IRA, which passed in August this year. Most experts consider it to be the most substantial piece of climate policy that’s ever been passed at the federal level in the United States. Can you talk about what the IRA does, along with other recent legislation, like the Infrastructure Investment and Jobs Act, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act, and other recent policies?

The IRA certainly is the most significant piece of legislation to combat climate change that we’ve ever passed at the federal level, in terms of its scope.

The CHIPS Act and the Bipartisan Infrastructure Law both provide a lot of underpinnings. The Infrastructure Law, for example, focuses on transmission infrastructure for the electricity sector, with other smaller incentives. The CHIPS Act orients around industry and manufacturing. But neither of those on their own were projected to have a sizeable impact on emissions. Consequences for emissions really comes from the IRA.

The majority of the emissions reductions in the IRA will come from the power sector. That’s not surprising, because the power sector is the most amenable to near-term emissions reductions. New technologies are available that work and are not too expensive. We know what we’re doing, and we just have to do more of it. We have to provide the financial incentives for power companies and investors to build more wind and solar and maintain the nuclear fleet.

Another thing the IRA does is provide incentives for households to make investments in higher-efficiency appliances, including heating, cooling, and water heating. The IRA provides incentives for people to adopt electric vehicles. Those sorts of actions represent other chunks of the emissions reductions in the IRA—so, in the buildings and transportation sectors. And the IRA contains incentives in the industrial sector to improve production techniques and reduce emissions.

There’s also money to encourage advanced technologies such as direct air capture (DAC). As I mentioned, to get to net zero, you can’t just get all your emissions to zero. You’re going to have some emissions left over, and you need to leverage negative-emissions technologies. DAC is a leading method that people want to employ for reducing emissions, but it’s very expensive right now. The IRA provides additional incentives for DAC and hopefully can move it along, so that by the time we really need DAC at scale, it’ll be ready to go. The IRA also has some support for managing carbon in forests, which can act as both a sink to store carbon or a source of emissions due to wildfires or land conversion. Major support for nature-based climate solutions, however, probably will come through other policies.

But 2030 is only seven or eight years away. The projections as you go past 2030 are where it gets more challenging, because at that point, we’ll have to depend on technologies that haven’t been commercialized yet. And we don’t know whether we can bring down the costs as much as we might project—although history suggests that, when you invest a lot of money and provide incentives, people figure out how to leverage technology effectively.

The IRA is providing a lot of incentives for all this to happen. It’s all carrots and not really a lot of sticks. No specific reductions are legally required. On the one hand, the estimated reductions are based on assumptions that we’ll find ways around some of the barriers to reducing emissions that have existed in the past. On the other hand, I’ve heard speculation that a lot more take-up of these incentives—and more reductions—could happen in the future than these current best estimates. This speculation suggests that the estimate of 40 percent emissions reductions by 2030 is exactly that—an estimate with a bit of uncertainty.

What are some of the biggest pros or cons of taking this incentive-based approach?

Coming from a background in economics, I think the biggest con is that subsidies require government revenue to be operationalized. You have to either add new revenue or spend existing revenue on these efforts, rather than spend it on other things, which increases the societal cost of these policies. But the nice thing about subsidies is that they don’t burden the people who receive them; instead, subsidies are a reward.

Some folks, especially environmental justice advocates, can be skeptical of the term “net zero” because they don’t like the word “net.” The implication of “net” is continued positive emissions from fossil fuels and industrial activities. Can you talk about this potential tension? Can we resolve the tension between trying to reduce emissions rapidly, and reducing emissions in a way that is equitable and addresses considerable historical environmental injustices?

You’re pointing to a really important issue that folks at RFF are well-positioned to speak to, which is to think about the equity and distributional consequences of different policy choices. For example, how power lines connect different resources and load centers, and how those connections affect electricity prices and the costs and benefits to different customers and companies. As another example, we can point to the siting of particular technologies, and how siting influences patterns of pollution and harms to different communities that are downwind of those facilities.

These communities have to be involved in the conversations. It’s not just a matter of traditional organizations based in Washington, DC, doing analysis and handing the conclusions to these communities. The communities have to be part of the process; they need to feel that their concerns have been thought about and addressed and that their ideas are analyzed by trusted sources and compared to other options.

At the end of the day, we all have to face the fact that we’re all going to be burdened by climate change, and we all need to be part of the solution. But I think we all can agree that the only way we can achieve equitable outcomes is by having good information about who actually sees those costs and benefits. We won’t be able to mitigate emissions fast enough, and we won’t be able to employ all the environmental justice solutions brought forward by communities, but we have to do better than what we’ve done in the past.

Unfortunately, there’s a lot of scope for improvement. I think we can demonstrate intent and effort, even as we admit that we haven’t solved all the problems. We’ll need to make efforts toward balance, even though we can’t satisfy everybody at every moment in time. But these considerations are not an excuse for inaction. We have to move along and do the best we can.