To reach net zero by 2050, DAC will need to be scaled up to capture more than 85 million metric tons of CO2 per year by 2030 and approximately 980 million metric tons per year by 2050, according to the IEA. To put the level of infrastructure in place to realize these goals will require targeted government support including grants and public procurement.
A cheaper option to remove CO2 is planting trees, and reforestation efforts have increased in recent years. The IPCC suggests that increasing the total area of the world’s forests, woodlands, and woody savannahs could store around one-quarter of the atmospheric carbon necessary to limit the rise in the global average temperature below 1.5 degrees Celsius—though this would require adding up to 24 million hectares of forest (roughly the size of the U.S. state of Oregon) every year from now until 2030.
Recent national reforestation efforts are nowhere near that level, despite several countries having announced ambitious plans. But people in 2050 are nevertheless likely to see more woodland areas. Encouragingly, the shift toward plant-based diets may free up to 20 percent of farmland for other uses, according to the UK’s Climate Change Committee, a statutory body.
Planting trees may be cost-effective but it may not be the most efficient method to pull CO2 from the air, given how large reforestation areas have to be in order to make a difference. Moreover, trees can burn in wildfires or be cut down, causing much of the stored carbon to be released. Simply, reforestation cannot reduce emissions on its own.
Can net zero ever be achieved?
Achieving net zero is a huge task with enormous challenges, as we described in a recent article on the green energy transformation.
One of these is the hefty price tag. A 2019 World Bank estimate suggested the necessary global infrastructure investment would cost $90 trillion. Spread over 30 years, this would amount to about 0.2 percent to 0.3 percent of GDP per annum, which is manageable, in our view. Moreover, the same study also estimated that the investment could be recouped four times over.
Certainly, the cost of inaction could very well be higher than the investment needed. Reinsurer Swiss Re recently estimated that the global economy could be seven percent to 10 percent smaller in 2050 than now as a result of the cost of climate change (including the damage from extreme weather), as well as parts of the planet becoming uninhabitable, fueling hunger and migration.
Though the solutions for countries to achieve net zero do exist, or are in early development, many need to be scaled up, a process that is capital intensive and fraught with difficulties. It is an encouraging sign that at the recent UN climate summit, COP26, not only did nations pledge to meet net-zero targets by 2050, but so did more than 5,000 businesses.
That said, just as the uptake of both solar and wind energy over the past two decades was encouraged by policy support, such as tax credits, subsidies, and government-backed loans, the same approach and resolve will be needed to help these technologies become commercialized.
Pragmatism should prevail
For investors, this represents both risks and opportunities. Our view is that investors should maintain a pragmatic approach given the serious gaps between net-zero ambitions and potential outcomes. High-emissions companies that do not adapt are likely to incur difficulties. Those that adapt or develop new technologies, if given support to reach commercialization, will likely find themselves in a position to benefit from this transformation.
