Even as every region of the world is experiencing extreme climate events, the global consensus for achieving net zero emissions by 2050 is starting to fray at the edges.
However, Right Honourable Claire Perry O’Neill, a former U.K. Energy Minister, is not dismayed by what she describes as “the age of climate realism”.
“I don't think it's a retrenchment. If you actually look at what is happening at the regulatory level, no government has abandoned net zero” she told the audience at RBC Capital Markets’ Energy Transition Conference in London.
A chance to reset
O’Neill points to continuing momentum in European regulation, China’s green industrial strategy, and India’s adoption of renewable energy and climate technologies, plus the persistence of much of the clean energy tax credits that were part of the U.S. Inflation Reduction Act.
Security and affordability may now be rivalling sustainability at the top of the energy agenda, but O’Neill is simply pleased that countries are now treating energy as a strategic priority.
As a former President-Designate for the COP26 summit, she suggests that that the 1.5°C temperature threshold that formed the basis of the Paris Agreement was unrealistic, therefore it is not unsurprising, she says, that the targets are being missed.
While hailing the U.K.’s success in cleaning up its electricity system, she believes its wider targets were unrealistic too: “I did bring forward the U.K.’s legislation for a net zero economy by 2050. At the time, we did not fully consider the implementation costs and how they should be funded.”
O’Neill now sees an opportunity for leaders to reset. “I think this age of climate realism can be quite positive in allowing us to reframe the targets, think really hard about the costs, and scrape off some of the orthodoxy which has limited action,” she says.
“I think this age of climate realism can be quite positive in allowing us to reframe the targets, think really hard about the cost, and scrape off some of the orthodoxy which has limited action.”
RIGHT HONOURABLE CLAIRE PERRY O’NEILL, FORMER U.K. ENERGY MINISTER
Fund carbon removal at scale
That orthodoxy has sometimes dismissed efforts in carbon capture and climate adaptation as defeatism. O’Neill believes climate activists need to acknowledge that “fossil fuels still make up 82% of the world's primary energy needs” and will be powering our economy for years to come.
Carbon removal is still subject to debate in some territories. “There are pathways that say governments and companies should not engage in carbon removal credits until they have reduced 90% of their emissions. That, to me, is like saying ‘I need to lose 10 kilos, but I can't go to the gym until I've lost nine and a half’,” she says. “We need to do this, and we need to do it at scale and urgently.”
O’Neill is leading by example as a board member at Occidental Petroleum Corporation. The company is currently investing in the world’s biggest direct air capture (DAC) plant. Production costs will halve over the period of the plant’s construction, since this will be the first DAC project delivered at scale. O’Neill identifies funding for this type of scale-up as one of the biggest transition challenges. She wants to see more of the blended capital stacks that have drawn in investment from family offices and philanthropic capital. She also cites the private equity groups forming their own blended finance units for energy transition investments.
“We urgently need new capital structures,” she says. “These investments are different. They are longer term, carry a different risk profile and, in many cases, they're subject to regulatory shifts, and they have extreme political importance.”
“The world's biggest businesses and financial institutions are staying the course. They're resilient, and they're quietly getting on with it.”
RIGHT HONOURABLE CLAIRE PERRY O’NEILL, FORMER U.K. ENERGY MINISTER
Climate leaders stay resilient
O’Neill suggests the most impressive leaders she encounters in the private sector are prioritizing practical decarbonization wins, while also generating solid returns, rather than long-term schemes which might be undeliverable. “They’re focusing on action, rather than perfection,” she says.
She also sees a trend towards “radical disclosure”, whereby, companies could consider disclosing their emissions per share, to offer an easily comparable financial metric. Many are also forging new alliances for climate efforts, to provide collective solutions across value chains.
O’Neill salutes these companies’ commitment to energy transition: “I think the world's biggest businesses and financial institutions are staying the course,” she concludes. “They're resilient, and they're quietly getting on with it.”
