Net Zero – Looking Over The Horizon

For sound adding up reasons, the ~27 years from now to 2050 is the time that’s been set to deliver net zero.? A familiar but increasingly challenging target!

The world is definitely not short of net zero roadmaps, pathways, blueprints, and OKRs (objectives/key results) to help get us there.?? It seems that they are coming at us nearly weekly and cover the major solution areas; energy, transport, industry, agriculture, amenities and CDR (carbon dioxide removal). ?The majority make good sense, are backed by decent science, and show varying levels of pragmatism.?

Given this – there’s a core question to ask - what’s getting in the way of delivery?

I’m not trying to be smart here – the answer is pretty clear – it’s Life!? Reality just gets in the way.? The last 27 years has been a very rocky ride, in terms of terrorism, economic crises, energy shocks, regional conflicts, and political upheavals, to name but five.? These have deflected attention and changed national and international priorities, meaning tough decisions have been kicked down the road.? All the time the net zero destination becomes more and more challenging to reach.

With this backdrop, I was asked recently by the CEO of a successful global mid-cap how he and his team could start to get their collective heads around the potential external influences that they will be grappling with in the early/mid-2030s and beyond, to help them navigate the transition.? They’ve got a fix on their net zero priorities for the next 5+ years but fear that they’ll need to be ready to significantly pivot their business within the next 10+ years and need some guiderails to steer their thinking.

I reference this example because you have to separate nations/governments from enterprises.? Whilst there is a massive focus on the behaviour of nations to make net zero commitments consistent with the 2050 target and follow through on the required actions, much of the stuff that needs to be delivered to achieve these targets will be driven by commercial ventures.

As we continue to operate in highly volatile, uncertain, complex and ambiguous times (I struggle with the VUCA business vernacular), I’m increasingly convinced that scenarios are more important than ever to help enterprises to navigate the future.

Early in my career, I was given a copy of Peter Schwartz’s The Art of The Long View, one of the seminal texts on scenarios, and since then I’ve followed their use as a commercial tool and seen the art/science of scenario development up close.

I know everyone know this, but it’s worth repeating - scenarios are not a forecast of the future, nor are they (usually) back-casted roadmaps to achieve an end objective (but that is now changing).? They are pen-portraits of plausible futures that bound the uncertainties that are seen to be inherent in the future.? Reality will likely draw elements from different scenarios, and or could initially follow the path of one scenario, then due to the impact of factors, trip to another.?

What scenario do is help you to think through the relationship between critical uncertainties, the important pre-determined trends, and the behaviour of actors who have a stake in the particular future.? They provide lenses that help us to make crucial choices in uncertain times, allowing us to test the ambition and resilience of a strategy.

The thing about scenarios is that you may not find them always attractive or inspiring, but if they are plausible and challenging, then they can play a valuable role in testing and steering decisions.

One very important point to make – to a great extent scenarios are different from roadmaps, pathways, blueprints etc.? The former should lay out the components of the potential terrain that the latter will need to be delivered against. ?

I recall a story of a senior executive in a large enterprise challenging what were a set of well-crafted scenarios.? His point went something like this - “there’s nothing in here that I haven’t read in The Economist”.? This kind of missed the point, or more specifically, proved the point.? The scenarios reflected the critical uncertainties and the behaviours of key actors that were referenced in The Economist, but what an Economist subscription could not do was pull these apart and craft them back into a set of very different pen portraits of the future.

In terms of the specific application for the net-zero journey, scenario studies come in different shapes and sizes.

There are scenarios that provide a detailed drill down into sector specifics.? A recent one is the Nordic West Office’s “Maritime Decarbonisation” scenario study[1].? Another one I also liked (but I don’t think was ever updated) was the DHL “Delivering Tomorrow/ Logistics2050” study[2].? Both are worth a read if shipping/logistics is your bag.

Taking a wider perspective there are broader energy scenario studies.? The daddy is the IEA “World Energy Outlook”[3] and its three current scenarios - Net Zero Emissions by 2050 (NZE), Announced Public Pledges (APS) and Stated Policies (STEPS). ?They are backed up by impressive energy modelling and are respected by a broad set of stakeholders - governments, NGOs, global bodies, corporates etc. [side comment – look out for the IEA’s updated World Energy Outlook to be published next month, and their updated Net Zero Roadmap due next week].?

In terms of other scenario shops, the one that’s probably been at this the longest is Shell.? Their “Energy Security Scenarios” (Archipelagos and Sky2050)[4], released March 2023, makes for sobering reading.? I like them because they do not shirk on the increasingly critical geo-political uncertainties that are shaping the present and will almost certainly frame what is/is not achievable in terms of delivering net zero.? I think there are very few sectors where these factors will not shape how to think about what’s potentially over the horizon.?

In Archipelagos national security concerns create ongoing headwinds in an otherwise rapid transition.? In Sky 2050 we see a very rapid transition where global climate security overcomes shorter-term national concerns.? In addition, to help explore how different countries might navigate the future, four nation architypes are defined (Green Dreams, Innovation Wins, Surfers and Great Wall of Change).? For businesses working across borders, these have the potential to bring real granularity to discussions on the implications of either/both scenarios. ??

Before I get a fire hose of impassioned and informed insights, I believe that you have to separate these scenarios from Shell’s current strategy.? Clearly there’s a raging debate right now about the current commitment of oil companies to the net zero journey (Al Gore was clear on his view in his recent Ted Talk[5]). ??These scenarios are not about the company’s strategy.? What I think they are about is laying out pictures of two very different worlds, explaining the dynamics that could drive each, and estimating the sobering CO2 impact.?

I also think that they help frame why we are seeing governments slipping in their net zero actions (I intentionally distinguish between actions and commitments).? I write this on the day that the UK government is trailing an up-and-coming speech by Rishi Sunak on delaying key UK net zero actions over the next decade. Who’d have thought!

If these scenarios do anything, they hold up a mirror, showing the potential implications of a more isolationist geo-political world and detail the challenges and headwinds that will face nations and commercial organisations trying to navigate towards a net zero 2050 world.?

All that said, we have to remember that the fact that they are two scenarios, and very different, means that they are not deterministic.? We have to hold on to that belief!

Whilst the father of 3 daughters in me craves for a rapid and smooth transition to net zero by 2050 at the latest, everything tells me that it will be at least as messy and horrible over the next 27 years as it has been over the last 31 years, since the Rio Earth Summit.?

Business needs a lot of practical and granular help to navigate an inevitably choppy future, and I think that testing your business against solid scenarios, whichever you choose, will help provide insight on the large bit over the horizon.

[1] https://www.nordicwestoffice.com/maritime

[2] https://www.dhl.com/global-en/home/insights-and-innovation/thought-leadership/case-studies/logistics-2050.html

[3] https://www.iea.org/reports/world-energy-outlook-2022

[4] https://www.shell.com/energy-and-innovation/the-energy-future/scenarios/the-energy-security-scenarios.html

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[5] Al Gore: What the fossil fuel industry doesn't want you to know | TED Talk