How to avoid a climate disaster and what microfinance can do
Last year, I made a presentation about what microfinance can do to help its clients deal with the climate crisis. I read a lot to know about the subject. “IPCC reasons for concern regarding climate change risk” was the best read to know why it is a problem.
Just a 1 to 2 degree rise in the global temperature causes catastrophic damage to human beings. Many plants don’t grow due to draughts and floods — less livestock as a result. Many people suffer from malnutrition. 5 billion people will have a problem accessing clean water at least once a month. Mosquitos that carry viruses move to the areas where they didn’t reside before, endangering the lives of the people who don’t have immunity. The people in the developing countries, who have been least responsible for CO2 emissions, will suffer the most.
“To sum up: Rich and middle-income people are causing the vast majority of climate change. The poorest people are doing less than anyone else to cause the problem, but they stand to suffer the most from it. They deserve the world’s help, and they need more of it than they’re getting. (P169)”
Although many books and papers describe the problems well, the solution has been vague. A book by Bill Gates, “How to Avoid a Climate Disaster”, is the best one to think about what each of us can do to face the challenge. No one doubts that Bill Gates is the best-in-class business person in the world. He knows cutting-edge technology as well as the reality of developing nations. The book brilliantly shows how we can tackle the problem. In a sense, it is a textbook of how he solves an issue.
First, he states a clear goal. Every year, we human beings produce 51 billion tons of CO2 equivalent (e.g., Nitrous Oxide has a 265x impact on climate change compared with CO2, so multiplied by 265). The emission should be zero. Otherwise, human-made climate change slows down but does not stop.
Then Gates breaks down the target into categories. Among these 51 billion ton emissions, 31% is from manufacturing (steel, cement, plastics, among others), 27% from electricity (coal & oil powerplant), 27% from raising plants and animals (methane by cows, nitrous oxide for fertilizers, etc.), 16% from transportation (cars, airplanes, ships, etc.), and 7% for healing and cooling. The below is where we are:
- Manufacturing: to produce 1t steel, we emit 1.8t CO2. To make 1t cement, we produce 1t CO2. Plastics are made of oil and natural gases.
- Electricity: To produce all the electricity by solar energy only, it needs 1000km x 1000km land (if it’s oil/nuclear, it’s 100km x 100km only). Unlike oil, renewable energy power plants are built in remote places, so transmission costs money too. Also, they are intermittent (e.g., Sun doesn’t light during the night), so we need to charge electricity to batteries, which cost much.
- Agriculture: Total cow burps equal 2 bn ton CO2. Fertilizer 1.8bn ton. When we cut down trees, the soil emits big CO2.
Then Gates analyzes the causes of the carbon-based economy. Main reason is that oil is so cheap because of its (1) energy efficiency, (2) abundance, and (3) externality (the CO2 impact is not transferred to the price). Thus, we have relied on a carbon-based economy for so long. We built huge infrastructures to make things, produce energy, grow plants & livestock, and move around. Replacing the entire system takes time. 2050 is the best-case scenario, even if we work hard.
Then he comes up with the solution. The key is economics, for which innovation and government intervention are crucial.
Gates argues that we have to make “green premium” zero. Green premium is the gap between a carbon-free way and a non-carbon-free one. For example, if coal-based electricity of a certain quantity costs $1 and solar-based one $1.5, then 50% is the green premium.
There are two ways, and we have to work on them simultaneously. The first is government intervention. Subsidization and taxation is the main tool. The second is, as we can expect from the technophile author, R&D and innovation. Throughout the book, he introduces a number of technologies to tackle the challenge: devices to take out CO2 at the time of production (point capture), safe nuclear energy (nuclear fusion, not fission), EV, artificial or plant-based meat, new seeds which can endure harsh natural conditions, among others. He claims that investing in these technologies is not just for saving the world but also for seizing the new opportunities.
(by the way, planting trees is not that meaningful. To cover 1 typical American’s CO2 emission, we have to plant 50 acres of trees in hot areas. Trees in cold areas prevent the snow from reflecting solar light, and thus their impact on global cooling is rather negative. Also, plastics cause damage to the environment, but when it comes to global warming, the impact is less.)
While hoping for the best case scenario, he says that we have to be ready for the worst case scenario and proposes an adaptation/mitigation strategy. A low-hanging fruit is mangrove forest, which now help the world avoid $80 billion a year in losses from floods. We can plant them. We also need to come up with a better way to get clean water which might be scarce.
So what can Gojo do?
Many microfinance clients emit much less CO2 than people from rich countries do. Thus the effort of the sector has been mostly for adaptation, such as microcredit to enable customers to buy disaster-resistant crops or build more robust houses. Needless to say, saving does help for clients to cope with any disasters.
One key is that any investments should make sense to low-income households. A bad example is the low-quality solar panel — I have seen many failed projects. Investing in something that does not generate immediate benefit is not easy for those who live with little every day. We have to seriously think about what we can do, given that at least for the next few decades, things will get just worse.