Doing the math with the planet’s carbon budget
Here’s the intro from this note by Nawar Alsaadi:
Here is the simplest way to think about climate impact investing: The global remaining carbon budget to stay within 1.5C is 400 billion tons of CO2 from 2020 (66% certainty – IPCC AR6 Page 29). Meanwhile, current global CO2 emissions stand at 42 Billion tons per year (inclusive of land use change). At the current rate of emissions, we will exceed the remaining 1.5C budget in 8 years (and 25 years to stay under 2C).
Investors often get stuck into assessing decarbonization alignment trajectories for various economies and industries, but the more they dive into the alignment logic, the more they lose sight of the big picture. In simple terms, and going back to first principles, the maximum impact an investor could have on climate change is bankrolling technologies that can avoid, remove, or cancel out the largest amount of currently emitted or currently floating CO2e from the atmosphere, as soon as possible, and at the lowest cost.
According to this McKinsey report, five technology groups (Electrification, Agriculture, Power Grid, Hydrogen and Carbon Capture) can abate 40% of emissions by 2050, with agriculture technologies being the most impactful, with potential to remove 10 billions tons through such technologies:
· Zero-emissions farm equipment
· Meat alternatives
· Methane inhibitors
· Anaerobic manure processing