Words by Ajit Dayal
As China fights to contain the coronavirus, is the world ignoring a larger impending threat? Ajit Dayal, Conduit member and Founder of Quantum Advisors India, asks if the approach to mitigating the impact of deadly viruses can be applied to the world’s largest-growing source of greenhouse gas emissions.
The Paris Agreement on climate change wishes to maintain the Greenhouse Gas (GHG) emissions at the current level of 60 billion tonnes through 2035. In 1990, the total GHG emitted on planet earth was 40 billion tonnes: India (3%), China (7%), and the USA (9%) accounted for 19% of that global total. The world added two billion consumers after China formally joined the World Trade Organisation in 2001 and when India steered its economy in 1991 to look more like the USA and less like Russia. By 2017, total global GHG had increased by 50% to 60 billion tonnes: India accounted for 6%, China for 20% and the USA for 10%.
The Big Three economies now account for over a third of GHG emissions. By 2035, India and China could each account for over 30% of the targeted 60 billion tonnes of GHG. Whether you believe the science or not, the maths indicates that we will fail and pierce the 60 billion GHG limit. Scientists were able to track HIV, SARS or coronavirus to their geographical origins and use this information to develop effective cures. Could this same approach be applied to GHG emissions?
The Impact of Developing Economies
The globalised economy has set aspiration levels of the awakened 2.4 billion Indians and Chinese to look and behave more like the average American and European. Businesses want the tribal Adivasi in India or Tibetan monk in China to consume like John Doe. Data from Global Carbon Atlas suggests that, in 1990, the GHG footprint of a typical American was 22 tonnes per annum, nine times that of a Chinese person (2.4 tonnes) and 17 times that of a typical Indian (1.3 tonnes). By 2017, in their march towards consumerism, an average Chinese person generated 8.2 tonnes per annum of GHG (an increase of 3.4x) and an average Indian 2.7 tonnes (an increase of 2.1x), while American consumers saw an 18% decline due to stricter regulations in USA and the adoption of more efficient technologies.
An analysis by Quantum Advisors shows that if an Indian in the year 2035 consumes like a Chinese person did in 2017, then India will contribute an additional 8 billion tonnes to GHG. In that case, India alone will ensure that the Paris Climate Accord target level of 60 billion is breached by 13%. If an Indian in 2035 behaves like an American did in 2017, India will contribute an additional 18 billion tonnes of GHG and the Paris Climate Accord target of 60 billion tonnes will clock in at 82 billion tonnes – a breach of 35%. And right behind India and China are a billion people living in Indonesia, Vietnam, and Africa ready to swagger like the typical western consumer onto the GHG heat map.
A Save The World investment bucket?
Scientists and entrepreneurs in wealthier countries have exhibited the ability to influence change in production methods to allow potential consumers in China, India, Indonesia and Africa to enjoy the same comforts that citizens of developed nations enjoy, but minimise the GHG emissions by implementing new methods of production. Think Tesla.
There is enough wealth in the world to pay for this re-tooling of production lines. UBS estimates that the top 1% of the wealthiest in the world have an estimated wealth of USD 90 billion. Sovereign Wealth Funds and pension systems control another USD 90 trillion. Although pensions and sovereigns see themselves as custodians of future income generation, they sit in demarcated silos and invest as per 20th century archaic definitions of asset classes like fixed income, real estate, and private equity. The CIOs and Trustees of these long-term pools of capital evaluate expectations of risk and returns for solving 21st century problems with a 20th century monocle. With this limited approach, many suggested hybrid solutions do not fit neatly into asset-class buckets. When potential solutions don’t align to a silo, they are not funded.
Perhaps it is time for the trustees of pensions and Sovereign Wealth Funds of countries that are signatories to the Paris Agreement to create a “Save The World Bucket”, allocating 1% of sovereign and pension wealth towards efforts to fight potentially higher GHG emissions each year for the next decade. This USD 1.8 trillion annual pool of long-term capital could avoid a long-term catastrophe. The SWFs and pensions are home to some of the world’s smartest people; imagine if they were to direct their energies towards identifying investments that will help achieve the targets set out in the Paris Climate Agreement.
What action are you taking?
The world is wasting too much energy trying to convert those who believe climate change is a hoax. Instead, the spotlight must be cast on those who do believe that climate change is an existential threat to our planet and have pledged their faith to the Paris Agreement. We must ask them bluntly: what are they doing about it?
The august list of signatories of the Paris Agreement give great speeches and hold countless meetings in Davos and Madrid – but their inaction will set the ground for failure. Until now, ironically, POTUS has done more for the fight against climate change than all his critics combined. On 31st July 2018, the Trump Administration allowed the IFC and the World Bank to be sued in US courts for funding projects in developing countries that have been a risk to their environment.
It is time for those who have the capital and the conviction to start focusing on India, Indonesia and Africa as the ‘patient zero’ for the fight against climate change. The Wuhan virus is a clear and immediate threat; the GHG emissions are invisible but pose a potentially more disruptive danger to humanity. It’s time for a “Save The World” investment allocation.
Ajit Dayal is the Founder of Quantum Advisors India, an India-focused investment firm.
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