Between a Rock and a Hard Place: Net-Zero Goals and Geopolitics Collide

By Stan Aronow | March 25, 2022 | 0 Comments

Supply ChainBeyond Supply ChainSupply Chain Strategy, Leadership and Governance

In his first major speech since last autumn’s COP26 climate summit, U.N. Secretary-General Antonio Guterres said the following about nations turning to more fossil fuels due to the Russian invasion of Ukraine: “This is madness. Addiction to fossil fuels is mutually assured destruction.”

Guterres is right, even as the future impacts of these decisions aren’t immediately visible to us. As someone who recently lost power at home amid frigid winter weather, I can also empathize with European natural gas customers on the potential non-receiving end of Russian supply. At a minimum, shifting some demand to alternative sources has led to massive energy bills for them this winter.

Beyond wartime disruptions in the energy market, many of our customers have shared difficult stories tied to balancing energy transitions. Last year, some needed to shut down production at their China-based factories as an energy crunch — caused partly by a reduction in coal-powered electricity — led to rolling blackouts. In many ways, we’re literally finding ourselves between a rock and a hard place.

In unpacking this dilemma, let’s start with what it would take to maintain global temperatures below a 2 degrees Celsius rise above preindustrial levels. The ideal goal identified by the 2015 Paris Agreement is staying below a 1.5 degrees Celsius warming compared to preindustrial levels. Relative to 2010 levels, this would require collectively halving emissions by 2030 and shifting to “net zero” emissions by 2050.

Based on our current trajectory, 2 degrees Celsius is looking more realistic. To be clear, there are massively different ecological outcomes caused by this additional half-degree change that are summarized in the following infographic. The above chart shows that if we peak at roughly 42 billion tons of emissions in 2022, we’d need to reduce to about 36 billion tons by 2030 and then down to 12 billion tons by 2050 to stay below the 2 degrees Celsius mark. This is going to be quite challenging to pull off based on our current trajectory.

Now let’s look at the projections for global energy consumption by type through 2050. While the share of renewable energy sources increases over time, on an absolute basis the amount of fossil fuels (e.g., natural gas, oil and coal) projected to be consumed in 2050 is nearly identical to the equivalent level in 2018, the last year of actual consumption data in the chart. The 2050 mix of fossil fuels shifts toward a larger percentage of natural gas, which emits less carbon and other greenhouse gases than coal, but the math still does not add up in the context of a 2 degrees Celsius climate pathway. The bottom line is our energy needs are increasing and we’re not investing enough in renewables to draw down total fossil fuel consumption.

Coming back to our present-day situation, it is not as though the current supply of fossil fuels is even ours to freely use based on restrictions in the marketplace. There is growing consensus in the West to sanction Russian oil exports. Russia is the world’s largest oil exporter at more than 7 million barrels a day and countries backing sanctions represent just under 5 million of those barrels. There is some upside capacity in global oil markets to fill this gap, but most of it resides in places with higher geopolitical risk.

Mind the Gap

Assuming we make it past our near-term challenges, how on earth can we make this massive transition to a low-carbon economy considering all the headwinds?

  • Practically speaking, at a national and regional level, we may need to make some uncomfortable short-term decisions to “keep the lights on.”
  • As supply chain leaders, we’ll all need to make good on our ambitious “net zero” goals. Recognizing future financial and reputational risks, many of us will need to make these in the first place. And while carbon credits are useful for bridging near-term goals from an accounting standpoint, in the long term, we can’t buy our way to net zero through carbon credits. Scope 3 emissions reductions with suppliers and customers, which often represent 90% or more of total value chain emissions, will be the hardest to measure and manage.
  • Significant green financing will need to be brought to bear to ease our transition to renewable energy sources. To put this in perspective, it has been estimated that $125 trillion in investment will be required between now and 2050 to transition to net zero emissions. In 2021, the total global economy as measured by the gross domestic product (GDP) of all countries was $94 trillion.
  • We may need to shift our paradigm toward a degrowth model or at a minimum promote economic growth through expansion of lower-carbon-consuming services and reduction of discretionary goods consumption outside of core needs, such as food and shelter.

In the face of one of the greatest challenges of our lifetimes, what is clear is we can only cross this chasm together in partnership.

Stan Aronow
VP Distinguished Advisor
Gartner Supply Chain


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