In this series, we attempt to offer a more granular view of what might be in store. We examine the possible effects of the war and its ramifications on the key requirements for a more orderly net-zero transition. We explore the war’s potential effect on key sectors and how shifts in energy and finance markets could play out in the aggregate, both globally and within major regional blocs. Finally, we suggest steps that stakeholders could take as they navigate this turbulent period while continuing to drive toward as orderly a transition as possible.
To get a clearer idea visit PART 8 of the series, SERIES – The Net-Zero Transition in the Wake of the War in Ukraine: A Detour, a Derailment, or a Different Path? PART 8 – Earth5R.
Finally, the role of finance will continue to be critical. Financial institutions would benefit from three sets of actions:
- Develop a more robust approach to reducing financed emissions. In a world where emissions could well increase in the short term, strategies that were designed to see a linear and constant decrease in financed emissions are likely to be untenable. Financial institutions need to think through—at least initially—more complex decarbonization paths for companies and provide the right support and incentives to companies on these paths. They also should continue to refine their ability to understand their financed emissions and work closely with clients on an orderly and gradual path of decarbonization.
- Build capability to identify and capitalize on new decarbonization opportunities. As fossil-fuel prices rise and renewable prices continue to fall, new decarbonization solutions along the marginal-abatement cost curve become economical. Financial institutions could build at a greater scale the capability to identify and capitalize on the opportunity to finance these emerging opportunities.
- Develop and scale new financial products and structures to help companies wind down legacy assets. Solutions could include special-purpose vehicles that would enable companies to ring-fence legacy-emitting assets and retire them in line with a science-based, net-zero pathway; financing structures such as long-term purchase agreements from renewables plants (with lower total life-cycle costs) to replace coal-generation assets; and new financial instruments (for example, for negative emissions or for nature-based solutions).
The war in Ukraine has not only unleashed a humanitarian tragedy but has also dealt the effort to achieve net-zero greenhouse-gas emissions a powerful supply-side shock. Yet for public- and private-sector leaders willing to take the necessary bold steps, the new logic of energy security and economics holds the promise of making this a turning point in seizing the opportunity to address the globe’s unfolding climate crisis.
To read the entire series, please stay tuned to https://earth5r.org/.
Source: McKinsey