Why isn’t the world decarbonising fast enough - and what can we do about it?
We know we need to decarbonise much faster. Our 2021 Net Zero Economy Index shows just how fast we need to reduce the carbon intensity of our activities - 12.9% a year. Currently, we are achieving less than a fifth of that rate.
Why so slow? One reason is that reaching net zero involves a huge transition. Over 80% of our energy still comes from fossil fuels. Changing this will require a rewiring of the entire global economy¹. Complex change like this is going to be complicated. No one actor can achieve it alone. It requires a wide array of actions over time from multiple actors across the world - in both the public and private sectors.
In this article, we offer one way to start to break down the complex challenges of reaching net zero, and to start to map the complementary roles that both public and private sectors can play in achieving such a deep, far-ranging transition.
We don’t mean to suggest an artificial distinction between public and private sector roles. Both government and business can innovate, grow markets, create value, develop and deliver goods and services, and shape consumer behaviour². Our focus is highlighting how business can contribute and what the government is uniquely well-positioned to do. If we want change at speed, both need to work together with their efforts building on and amplifying each other.
To see how the public and private sectors can together help complex net zero transitions begin to become reality, let’s start with an emerging success story: electric vehicles.
"Political and business leaders have a compelling and common interest in ensuring we achieve the outcome of a zero carbon economy. Every business, and every aspect of business will be transformed along the way."
Electric vehicle adoption has reached an inflection point. The Financial Times observed that ‘the revolution is finally here.’³ In the first half of 2021, global electric vehicle sales grew at an annual rate of 320% to reach 26% of new vehicle sales, while major carmakers are revealing targets for electric vehicle adoption, like Mercedes-Benz announcing from 2025 onwards, all newly launched vehicle architectures will be electric-only.
How has this tipping point been reached? Many actions by government and business, supported by the public’s demand and desire for change, have reinforced each other over time, finally building to a ‘perfect storm of progress.’ Here are 4 key ways in which public and private sector actors have built momentum for electric vehicle adoption:
- Policy and Regulation. For example, governments gave clear market signals through emission standards and planned phase-outs of internal combustion driven vehicles.
- Innovation & Product Development. Technological improvements in battery storage (battery costs have dropped 88% since 2010⁴) and electric vehicle range, driven by both private and public sector investment and research, have increased electric vehicles’ feasibility, affordability, and appeal.
- Market Making. Government and private sectors have both helped to create a functioning market for electric vehicles. Governments have invested in charging point infrastructure to encourage and enable use, and incentivised vehicle purchase through rebates and other subsidies. Companies like Tesla have invested for years (often at a loss) as they sought to build a market for electric cars. In 2021, a wide range of carmakers are releasing over 200 electric models (including popular sport utility vehicles), encouraging mass adoption by making it easier for consumers to find a model they like.
- Political and Public Will. Public and private sector actors advocated for electric vehicle adoption as part of a necessary transition to a sustainable way of life.
Many of these actions amplify or enable each other, each positive step forward encouraging others and speeding the ‘flywheel’ of progress.
We chose the metaphor of a flywheel because a flywheel collects and amplifies momentum. The flywheel model helps us unpack some of the complexities and sticking points that must be navigated on our way to net zero. And the model helps us map the roles the public sector and private sector can play in navigating these complexities and pushing the flywheel forward. For example, here are some challenges on the way to achieving net zero, and some ways the public and private sectors can help.
How to accelerate the flywheel of progress on net zero
Problem Sticking Points for Progress |
Solution Accelerators of Progress |
||
|---|---|---|---|
Public Sector Example Actions |
Private Sector Example Actions |
||
Innovation & product development |
Lack of market-ready, affordable, appealing green options |
Invest in (early stage) R&D and proof of concept development |
Innovate green tech to enable net zero Design, develop, and deliver market-ready products Apply skills in supply chain, manufacturing, distribution, marketing & sales, product support, scaling etc. |
Policy & regulation |
Policies discourage or fail to incentivise green transition Bureaucratic barriers |
Reporting requirements Price externalities e.g. carbon pricing Emission standards, fossil fuel phase-outs, building standards etc. Subsidies and incentives |
Align business strategy with policy signals and evolving regulatory environment Proactively report on climate performance |
Market-making |
Infrastructure lacking Risk too high Incentives lacking Finance unavailable Demand too low Supply chains broken |
Regulate carbon markets Financing provision Risk-sharing Incentive creation Procurement power Public education campaigns Supply chain support |
Align business strategy with net zero transition Leverage net zero market opportunities Proactively explore and act on company risks and opportunities related to net zero transition |
Political & public will |
Difficult to marshall political will to act Social and human impact erodes support for transition |
Marshall, amplify, and demonstrate vocal support and leadership on net zero Ensure a just transition both within and between countries, managing the social and human impact of the green transition and climate change itself |
Marshall, amplify, and demonstrate vocal support and leadership on net zero Deliver appealing, affordable carbon neutral options to build public support for transition |
The flywheel model can help us solve discrete sub-problems on the way to net zero. For example, take the problem of greening rented housing. Buildings such as housing contribute nearly 40% of greenhouse emissions (including building construction and operation).⁴ Over a third of the world’s population lives in rented housing, so we need to green our rented housing stock.⁶,⁷
Here’s the problem: who has the incentive to green rented housing? Landlords can lack incentives to invest in greening buildings when tenants often pay the energy bills. Tenants typically lack incentives to invest in green upgrades for a building they don’t own.
Both the private and public sectors could play a role in breaking this market impasse. For example, government could institute green standards for new and existing buildings. Private and public sectors could work together to create new financing models that share the energy saving benefits between landlords and tenants. Government could fund early stage R&D innovation to lower the cost of greening buildings; private sector could productise, market, and scale these innovations.
How to accelerate the flywheel of progress on greening rented housing
Problem Sticking Points for Progress (Flypaper) |
Solution Accelerators of Progress (Flywheel) |
||
|---|---|---|---|
Public Sector Example Actions |
Private Sector Example Actions |
||
Innovation & Product Development |
Green options like solar panels and heat pumps require high initial investment and long payback period |
Fund (early stage) R&D innovation to create rapid payback methods of greening buildings |
Develop, productise, market, and scale rapid payback methods for greening buildings |
Policy & Regulation |
Lack of green building standards for rental housing |
Create green standards for rental housing⁷ |
Support and apply green standards for rental housing |
Market-Making |
Landlords lack incentives Tenants lack incentives |
Work with private sector to create new financing models that share energy savings between landlords and tenants |
Work with public sector to create new financing models that share energy savings between landlords and tenants Align rental housing business strategy/investments with net zero Offer rent and utilities as a package⁹ |
Political and Public Will |
Political will may be lacking Social and human impact erodes support for change |
Take leadership, explaining need for change and building support Chart realistic path to change that is sensitive to effects on landlords and tenants |
Support and enable green rented housing standards Help chart a realistic path to change |
Note: The above are examples only.
The flywheel needs time to reach critical speed. The sooner we act, the greater the number of shoulders pushing the wheel, the faster we can gain momentum and efforts can amplify each other, further speeding our momentum. We must aggressively pioneer and scale carbon neutral alternatives, both to maintain public support for the transition and to help ensure a just transition that minimizes negative effects on the lives and livelihoods of billions of people.
Political and business leaders have a compelling and common interest in ensuring we achieve the outcome of a zero carbon economy. Every business, and every aspect of business will be transformed along the way. We have an extraordinary opportunity - and responsibility - to ensure that our market economies are harnessed to deliver on this basis, and our ambition level should not settle for less.
We will close with 3 questions to keep in mind. To accelerate progress toward net zero, public and private sectors should ask themselves:
What change do we need?
Why isn’t it happening?
What can government and business do together to break the logjam and build momentum toward net zero?
¹ ‘The Great Disrupter’ The Economist Sept 2020
² See Mariana Mazzucato’s The Entrepreneurial State for an exploration of the government's ability to fuel innovation, entrepreneurship, and progress.
³ ‘Electric Vehicles: The Revolution is finally here’ Financial Times Oct 2021
⁴ Battery prices have fallen 88 percent over the last decade
⁶ International Study: Renting Landscape in 30 Countries Around the World
⁷ See PwC’s analysis of how to activate a green recovery through infrastructure
⁸ Green building standards must be carefully designed to navigate the differing needs of retrofitting old housing vs building new green housing, and with constant attention to unintended consequences.
⁹ Some landlords like Segro have started buying utilities for their tenants to make sure they can get sight of the Scope 3 emissions, help source green electricity, and analyse and help improve consumption.
Follow us
