The Strategist

Climate targets met, economic targets missed: Is less growth the only way to stop climate change?

Since the Paris Climate Agreement, countries have failed to take the necessary measures to limit global warming to +1.5°C. Only during the economic state of emergency caused by the Covid pandemic or in the context of economic contractions, such as recently in Germany, have Western countries actually been able to achieve the promised reductions in emissions. This raises the question: Do we need to accept economic losses to avoid a climate catastrophe?

Antonia Strachwitz, LGT, Cedric Baur, Equity Analyst, LGT Private Banking
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The Strategist Klimaziele erreicht, Konjunkturziele verfehlt
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Lifestyle compromises are hard to sell

Humanity currently consumes more planetary resources per year than can be sustainably regenerated. The Global Footprint Network estimates that we would need 1.75 Earths to sustain our lifestyle. Global warming is continuing to increase as a result and is likely to be significantly higher than the +2.0°C or +1.5°C targets by 2100. However, very few people want to make compromises in their everyday lives. Sacrificing for a goal far in the future is hardly likely to gain majority support politically, and personal responsibility alone cannot be relied upon. Surveys conducted by the ZDF Politbarometer in Germany in 2023 show that although people recognise the need for more climate protection (48% say too little is being done), they already perceive the burden as very high (46%). But are there solutions that don't require sacrifice?

Energy is a key factor and growth driver

A decisive step towards achieving the climate targets is to end our dependence on fossil fuels. Clean energies, electrification, energy efficiency and CO2 capture/storage offer the greatest potential here. Renewable energies are very attractive to consumers: according to Bloomberg New Energy Finance (BloombergNEF), solar and wind (onshore) are already among the cheapest forms of energy on average. However, in order for clean energy to reach where it is needed, investment and the necessary grid infrastructure must be significantly increased. Clean energy is also a growth driver for the economy. According to estimates by the International Energy Agency (IEA), it contributed around 10% to global GDP growth in 2023. Already today, more people worldwide work in renewable energies than in the fossil fuel sector. In addition, the industry as a whole is attracting young talent - a trend that is likely to continue in the future. The relevant sectors are being specifically promoted by programmes such as the "Inflation Reduction Act" in the US or the Green Deal in the EU.

Successful energy transition requires systemic change

The "green transformation" of the energy system will significantly increase the use of certain materials. For example, aluminium and rare earths will be required for batteries and battery storage systems as well as for electricity grids. However, a study by the Breakthrough Institute and the University of California shows that there is no shortage of aluminium, steel or rare earths. Furthermore, the demand for land that renewable energies entail is often criticised. According to BloombergNEF, this in turn should not conflict with food production. The decline in the use of arable land for the production of alternative fuels should also make additional land available. Last but not least, there are various technologies that can be used depending on the circumstances. Countries with limited land, for example, are more likely to rely on wind or geothermal energy than solar energy.

At the same time, the energy transition should not give further impetus to the overexploitation of the planet. A key challenge in the coming years will therefore be to reduce overall resource consumption and utilise raw materials more efficiently. Moving away from the linear model - "produce, use, dispose" - towards a circular model is an important step here. When designing and recycling products, care must be taken to use materials sparingly and keep them in the economic cycle for as long as possible. In the wind power sector, for example, recyclable rotor blades will be used in future, which will significantly reduce secondary waste and emissions in the production process. A US manufacturer of solar cells, on the other hand, already collects around 90% of its materials and reuses them. Cables for power transmission are also highly recyclable. According to the IEA, material use has already decreased significantly: by almost 60% (polysilicon) for solar cells compared to 2010 and by almost 30% (lithium) for electric cars.

The time to seize opportunities is now 

Measures to combat climate change are underway, but climate models show that many things need to happen much faster and on a larger scale than to date. The window of opportunity that allows us to keep the world in a moderate climate scenario is closing. Ultimately, we will need a mixture of technologies to reduce CO2 emissions and measures to adapt to the new climate. However, for financial reasons alone, adaptation does not seem to be a very attractive option: the higher the rise in temperature, the greater the costs are likely to be. A study by the Potsdam Institute for Climate Research (PIK) concludes that by 2050, around USD 38 trillion per year can be expected in costs for economic damage in connection with climate change. This is around six times higher than the estimated investment required to keep global warming on a maximum path of +2.0°C. This does not yet take into account so-called "tipping points" in ecosystems. Tipping points describe critical limits in Earth systems, which, if exceeded, can lead to irreversible or even intensifying climate change. Science cannot yet predict how many of them there are, and when or how they will ultimately react. The above figures are therefore rather conservative estimates.

To avert a climate catastrophe, entire sectors will have to change at record speed. In this article, we have deliberately left out socially and culturally complex issues, such as our Western consumption and eating habits, which also contribute massively to our emissions. The energy transition, on the other hand, seems almost simple in comparison. The technologies for the "green transformation" of our energy system are already available, realisable and financially attractive. If you think in economic terms, you will invest today rather than pay the unpredictable price of the consequences of inaction in the future - and indefinitely.

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