🔥 Tracking climate progress
Since 2015, I’ve tracked the challenge of climate change and the actions we are taking to mitigate it and decarbonise our economies. In May 2019, I introduced a regular component in the Sunday newsletter which reminded us of one important indicator - the concentration of carbon dioxide in the atmosphere.
Many of you told me how important this element was for you – a weekly reminder of the urgency of the mission.
Since then, things have changed and I wanted to update how we tell the story. Here are some of the indicators that have shifted.
There is much more concordance around the reality of environmental degradation and its social and economic costs. Consumers now care.
There has been a substantial move in organisational commitment towards tackling the carbon crisis. Today hundreds of firms, including Microsoft, IKEA, P&G, BT and many others, as well as 130 countries have commitments towards net zero. These commitments cover 70% of global GDP and 70-ish% of carbon emissions.
Carbon markets, while patchy, are expanding. The importance of a carbon price, perhaps more than one, to accommodate development and transition paths and issues of equity and welfare, is more widely recognised. Even the American Petroleum Institute now supports a carbon price.
Several sectors, most notably electricity generation and personal transport, are now on a fast path to defossilise. That journey is not complete but the path is clear. And as such, they provide a precedent, the proof that this transition is possible and profitable, to other sectors. [Source: Statista]
Capital markets recognise the role they play in the transition. Take EV member, Celine Herweijer, who positioned HSBC’s role here. Or Mark Carney’s coalition of $130 trillion of assets to address the issue. Asset managers, including the world’s largest Blackrock, also realise that there are significant financial returns to be made by investing in the decarbonisation of the global economy. As Blackrock’s Larry Fink says: “Every company and every industry will be transformed by the transition to a net zero world. The question is, will you lead, or will you be led?”
Entrepreneurs have spotted the opportunity and are building companies to tackle the reinvention of our economies around principles of greater sustainability and lower resource usage. From clean cement to nuclear fusion to circular economy to improved recycling to better batteries to improved manufacturing and better simulation, commercial innovation in the climate tech sector is booming. In 2021, 14% of VC investment went into climate tech, more than 200% higher than the previous year.
This shift represents a phase change in societies orientation towards climate change and the environmental crisis. It means that we are past the point of persuading ourselves that this is real. And we are past the point of hoping progress might avail itself to us. Rather, we can see a real, tangible shift and an emergence of a portfolio of approaches that might address this challenge. That doesn’t mean the journey is complete (it isn’t and won’t ever be) nor does it mean we have every answer. But it does mean that the tone, the hue, of the discussion can shift.
Exponential View on our climate future
To address this, we’re going to change how Exponential View presents the story of our climate future, one that captures the rising CO2 levels as well as the positive indicators that can capture some element of our progress.
Like a pilot flying a plane, we need many instruments to guide us. The most important is the altimeter. But that isn’t sufficient. Our rate of climb or descent matters too. And that depends on our airspeed, oil pressure, availability of thrust, remaining fuel.
As we track our climate progress, I’ve gone back and forth on how to represent this matrix of indicators in a way that doesn’t overwhelm with data or trivialises the nuance.
I wanted to track the most important indicator (carbon PPM) as well as some measures of how well-positioned we are to respond. So we’ve settled on three indicators which we’ll report weekly.
Carbon parts per million. We’ll take weekly readings of the Keeling Curve maintained by Scripps Institution of Oceanography and present them largely as we have. The level we want to avoid is 450ppm, roughly. Lower is better. This level is, of course, to be treated with some caution, but there is some consensus that 450ppm marks the threshold to keep temperatures on average below a 2ºC rise; 430ppm for a 1.5ºC rise.
The price for carbon in the European Emissions Trading System Market. By showing a current price for carbon and its trend we can present a measure for how capital markets are pricing carbon risk. Roughly speaking, as this number rises, it should create incentives for economies (both governments and firms) to invest in lower-carbon processes. You can find the latest prices and price trend here. I’ve chosen the European ETS because it is big and mature as a market, but note that carbon pricing is all over the place (as we discussed in COTW this week).
The value of public companies building technologies to support decarbonization as proxied the EIP Climate Index. This is a measure of Mr Market’s sentiment towards decarbonization technologies. In 20-30 years our economies will largely have decarbonized. This will happen by the application of new technologies (like bio-based manufacturing, renewable power, storage systems, nature-based carbon removal, electric vehicles) and new business models (second-hand reuse marketplaces, rental models and circular economy approaches). Energy Impact Partners’ Climate Index is a reasonable measure for how the public markets view this process. EIP have selected a basket of public stocks tackling decarbonisation and they add to it from time to time. Of course, this index has limitations. Tesla makes up 85% of its value, so in a sense, the index is currently largely about Tesla sentiment. It is also subject to the vagaries of stock market mood. Many of the stocks here are high beta, which means highly volatile. And in addition, being technology and growth-oriented, they can be unseasonably affected by mid-term considerations like rising inflation, even if their long-term outlook is robust. We’ll use 1 Feb 2018 as our reference date for reporting on this index.
There have been trade-offs. Unfortunately, we haven’t worked out a digestible way to present this as our ‘remaining carbon budget’, the height of our plane above the looming mountain. We’re still thinking about that and might iterate it. If you have ideas, let us know.
We’ve also excluded measures that don’t change weekly, like the frequency of extreme weather events, the patterns of temperature anomalies, total venture investment in climate tech, the effectiveness of gigacorns, the number of countries with pledges, growth of compulsory pricing, consumer trends towards recycling, the renewable power energy mix as reported by our friends at Electricity Map, etc. There are also other measures that we could consider. For example, we could track the amount of carbon locked in KlimaDAO (current 15 megatons) or readings of methane levels or city-level air pollution data. We’ll draw attention to some of those during the year.
We are short of measures that track “systems change”. For example, shifts in how cities prioritise vehicular traffic over walking lifestyles or the cultural value we place on consumption (and its attendant waste).
What it will look like
Our dashboard will initially look something like this:
If you think of us in an aeroplane, flying low over the Climate Change Mountains. Our job is to avoid hitting the peak of Mount 2 Degree Disaster. Ideally, we’ll sail well above it.
The left box is our altitude, how close are we to hitting the peak. We’ve decided that 450ppm is a good way to think about the height of the mountain. Our altitude gauge is a bit weird. We need to stay below 450ppm.
The middle box represents, in some sense, our fuel. The higher this price, the more we can expect investment shifts towards decarbonisation.
And the right-most box, roughly, represents our thrust... is there enough thrust to power us above Mount 2 Degree Disaster. We’re proxying this with the financial sentiment of the market to fund decarbonisation, the financial capacity of public firms tackling decarbonisation, the oomph we can rely upon to build capabilities to decarbonise the economy.
Telling new stories
With so many people working on this problem in so many different ways and in so many different parts of the world, I also want to ensure we capture the diversity of these stories. There is a future positive which many, many different people are building.
I’ve asked EV member, Marshall Kirkpatrick, to help me tell these stories each week. Marshall has been thinking about climate justice and technology for many years. He’s been a technology journalist & entrepreneur. He tries to synthesize knowledge from various sources to try to change the world.
We’ll roll out this new section on Sunday. It’s a work in progress. We’re experimenting. All of this might work, none of it might. We’ll find out by trying – and we’re, of course, open to feedback. You can add comments here. And annual premium members who are part of the Exponential Do community can, no doubt, contribute in the Slack group there too.