Building the economy of tomorrow: clean energy brings exponential growth

Over the last two decades our understanding of the climate challenge has changed dramatically. Where once the debate focussed on achieving a “safe” level of greenhouse gas emissions, we now know we must eliminate emissions from our atmosphere entirely – the only safe level is none at all. And where investment once centred on ‘ESG 1.0’, which examined how a company operates, the finance industry is recognising the need for deeper analysis, one that assesses what investments are doing to accelerate the transition to a sustainable economy.

At Lombard Odier’s recent sustainable finance leadership course delivered with contributions from researchers at the University of Oxford, including from the Smith School of Enterprise and the Environment, thought leaders from across academia and finance gathered to explore both the science and the economics of the environmental transition.

Geological net zero

Opening the conference, Professor Myles Allen, Director of the Oxford Net Zero Initiative and Professor of Geosystem Science at the University of Oxford, said that while the concept of net zero is straightforward – total carbon emissions must be equal to, or lower than, carbon removed from the atmosphere – complicated accounting is muddying the picture. Nature-based solutions, he warned, while having an essential role to play in carbon storage, are at risk of being overcounted, with “managed land” (land preserved for nature) too often giving rise to exaggerated claims of carbon sequestration.

To solve this, we must aim not just at net zero, but at “geological” net zero, Professor Allen explained, with the carbon we have mined or pumped from deep underground (in the form of fossil fuels) returned back via carbon capture and storage (CCS).

Today, just 0.1% of carbon emissions are stored in this way, but while the problem may appear vast, it is achievable. “The oil industry is going to have to go into reverse. Take from the atmosphere and put into the geosphere. The difference between what we pay for gas right now and what it costs to supply is enough to capture every molecule of CO₂ that gas generates and pump it back under the North Sea,” he concluded.

The sustainability paradox

Whether nature-based solutions or CCS do the bulk of carbon sequestration, reducing emissions in the first place will be essential to achieving net zero. However, this creates a paradox, explained Dr Caitlin McElroy of the Smith School of Enterprise and the Environment. Building a net-zero and sustainable future is itself highly resource intensive – for example, in the EU alone, manufacturing sufficient batteries to support the rollout of renewably-generated electricity will require 60 times more lithium and 15 times more cobalt by 2050 than is currently supplied to the entire EU economy¹.

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For batteries in particular, we are already seeing innovations in alternative materials in order to get around bottlenecks in supply. To maximise resources, however, our broader materials system will need to undergo a fundamental rewiring. A ‘circular-by-design’ approach will be key, Dr McElroy explained, with products built to be shared, re-used and re-purposed multiple times before being recycled, and with critical materials made easily separable during the final phase.

Echoing Dr McElroy, Professor Sir Charles Godfray, Director of the Oxford Martin School, noted that our food system is facing a paradox of its own. As the global population rises, food demand is projected to grow by up to 60%, with demand for land-intensive meat and dairy products growing fastest. At the same time, however, we must return 1 billion hectares of agricultural land to nature, so that biodiversity can be restored, and natural landscapes can play their part in sequestering carbon.

To achieve this, Professor Godfray said, we need to do four things. First, we must modify diets to replace some of our meat and staple crop consumption with legumes, fruit and vegetables. Second, we must increase food production sustainably, via ‘precision’ farming technologies that reduce the use of water, fuel and other inputs, and by replacing conventional agro-chemicals with clean alternatives. Third, we must reduce waste via distribution and storage innovations, and by improving recycling rates. And last, we must stress-test the global food system to ensure import-reliant nations are not at risk from market and other disruptions.

Electrifying the economy

These deep system transformations are being complemented by an energy transition that has the potential, according to Professor Cameron Hepburn, Director of the Smith School of Enterprise and the Environment at the University of Oxford, to be “the greatest opportunity in the history of capitalism.”