Not Cool Ep 14: Filippo Berardi on carbon finance and the economics of climate change
As the world nears the warming limit set forth by international agreement, carbon emissions have become a costly commodity. Not Cool episode 14 examines the rapidly expanding domain of carbon finance, along with the wider economic implications of the changing climate. Ariel is joined by Filippo Berardi, an environmental management and international development specialist at the Global Environment Facility (GEF). Filippo explains the international carbon market, the economic risks of not addressing climate change, and the benefits of a low carbon economy. He also discusses where international funds can best be invested, what it would cost to fully operationalize the Paris Climate Agreement, and how the fall of the Soviet Union impacted carbon finance at the international level.
Topics discussed include:
- UNFCCC: funding, allocation of resources
- Cap and trade system vs. carbon tax
- Emission trading
- Carbon offsets
- Planetary carbon budget
- Economic risks of not addressing climate change
- Roles for public sector vs. private sector
- What a low carbon economy would look like
References discussed include:
- System for Transparent Upfront Allocation of Resources
- 1997 Kyoto Protocol
- Clean Development Mechanism
- European Union Emission Trading Scheme
- Regional Greenhouse Gas Initiative
- The Economics of Climate Change, Nicholas Stern (2008)
We are significantly underestimating the benefits of moving to a cleaner, more climate-smart economy. There are estimates out there that say that with bold climate action we could deliver up to 25 to 30 trillions in economic benefits through to 2030.
~ Filippo Berardi
Ariel Conn: Welcome to episode 14 of Not Cool, a climate podcast. I’m your host, Ariel Conn. Today, we’re going to be looking more at the economics of climate change. Filippo Berardi will be joining us to talk about some of the efforts by the United Nations to help developing countries tackle the problem. He’ll also go into more depth about the economics of addressing climate change, including a cap and trade on carbon, carbon offsets, the overall cost of climate change, and much more.
Filippo is an environmental management and international development specialist at the Global Environment Facility. He has over 12 years of experience managing programs relating to climate change, clean energy, carbon finance and sustainable use of natural capital for private sector and government clients. Prior to joining the GEF, he worked for the Inter-American Development Bank, where he focused on designing programs to support small and medium enterprises to reduce their emissions and their exposure to climate change.
Filippo also worked in the United Kingdom, first as Project Manager with EcoSecurities — one of the world's largest developers of carbon offsets under the UN's Clean Developing Mechanism — and later at J.P. Morgan Investment Bank, where he focused on analysis and management of social and environmental risk.
Filippo, thank you so much for joining us.
Filippo Berardi: Thank you for having me.
Ariel Conn: Before I get into a bunch of the questions that we have, I was hoping you could just really quickly explain what it is that you do.
Filippo Berardi: Sure, so I work for an organization called the Global Environment Facility. It's a government-to-government institution that acts as the financial mechanism for a number of UN Conventions on environmental matters. Generally we refer to these as multilateral environmental agreements. One of them, and perhaps the most famous one, is the Climate Change Convention — that technically is called the United Nations Framework Convention on Climate Change or UNFCCC. GEF, the facility I work for, is also the financial mechanism for other conventions, including the biodiversity one, the Convention to Combat Desertification, and a bunch of other international agreements that relates to the environment — like the Minamata Convention that covers mercury, et cetera. So I coordinate here at the GEF the work as it relates to the UNFCCC, meaning that I have a team of people that manage some resources that are used by developing countries to meet their [climate mitigation] commitments under the UNFCCC.
So how do we get these resources? Well, when the Convention was created — this was 1992 — there was obviously this tension between developed countries and developing countries in terms of where the money would come from for a developing country to do the sort of actions that would allow them to meet their commitments under the Convention. And so developed countries then decided to put together what is the financial mechanism of the convention, where they put money in funding cycles of four years. So every four years the GEF gets, let's say, replenished with donations from the developed countries and these resources are available for developing countries to do a bunch of things.
Ariel Conn: How much money do you usually get invested every four years?
Filippo Berardi: This has evolved a little bit, but generally it started around 3 billion; In the last funding cycle, which runs between 2018 and 2022 — which is the seventh replenishment period of the GEF — we had about 4.1 billion. It's a sizeable amount, but it has to be sort of divided across the different, we call them, “focal areas,” and the different conventions that we act as financial mechanism for.
So at the end of the day, you say like for climate change it would be about 800 million to a billion. So when you compare that to, for example, the Paris Agreement level of ambition, which is about a hundred billion per year — this is like the minimum that would be required for the Paris Agreement to be fully operationalized. Then you see that there's a huge mismatch between what's needed and what's on the table. So even though the number might be looking big, in fact it's only a little fraction of what will be needed if we were to respect what science is telling us.
Ariel Conn: And so what kind of things are done with this money?
Filippo Berardi: Basically it is a pot of money that is replenished by donor countries, to be used by developing countries for them to meet obligations under the respective conventions.
When it comes to climate change, these obligations are both related to preparing reports and communications on where they stand in terms of adopting measures to mitigate or adapt to climate change, but also — and perhaps even more importantly — to implement projects that can produce these positive global environmental benefits, which in the area of climate change are generally measured in terms of emission reductions that are generated through these projects, or to the level of increased resilience and reduced vulnerability vis-a-vis those impacts that climate change is already producing in many of the developing countries that are clients for us. [The GEF Trust Fund does not support climate adaptation, and it only supports climate mitigation. Climate change adaptation is supported by the Special Climate Change Fund (SCCF) and the Least Developed Countries Fund (LDCF), both managed by the GEF.]
And perhaps in terms of how we do that, we invest in a number of areas like electric mobility, renewable energy systems. We support countries in stepping up their effort to increase the level of efficiency of the use of resources and energy. And generally we do this through supporting countries at a regulatory level — transforming, for example, policy and regulatory environment in a way that helps government put policies and regulations and institutions in place that will allow them to redirect investment flows and their regulatory attention to spending practices that deliver greater benefits for the global environment. And then on top of that, we also sort of provide that support for their own institutional capacity and decision-making processes to be adequate for the environmental challenges that we see.
So this is on the government side. We also obviously act a bit more downstream where the different stakeholders, including the private sector, including civil societies are. And in this case we fund innovative approaches and business models, and we support piloting and testing specific projects that include perhaps innovative technologies in a way that we can sort of create that demonstrational impact that can bring more actors in a specific sector that has potential to generate those environmental benefits that we all look to generate.
A big chunk of our work goes towards supporting governments, both on the regulatory set up, or how they establish their policies and their laws, but also on the other hand, in terms of their own internal institution, how they work and how they understand the problem to be and what sort of solutions can be given to ministries, to public agencies, to deal with these sort of environmental challenges related to climate change.
On the other side, we also fund a lot of projects, which are more concrete pieces that we do in developing countries, because we fundamentally exist to support developing countries with resources from developed countries. And some developing countries are also, more recently, stepping in and are also contributing to the trust fund; But generally the bulk of the resources comes from developed countries. And so projects in a developing country may include supporting the government or the different ministries in strengthening their capacity to understand climate risk, to deal with climate risk, to sort of implement policies and regulations that are conducive to transitioning to lower carbon economies and productive systems.
But we also use them to see the financial mechanisms to do pilot activities in a number of areas like renewable energy, land management, forestry, and transport. We basically put at the disposal of developing countries some amount of money that they can use, generally in conjunction with local organizations or international agencies like the UN bodies or the multilateral development banks, to test and pilot innovative approaches that can then be scaled at national level, and hopefully reach that impact in terms of emission reduction that the science is telling us that we really need to reach in the short term that we have available.
Ariel Conn: $4 billion does sound like a lot of money right up until you start listing all of these projects that you're trying to help support. I'm curious: How are countries chosen to receive this assistance?
Filippo Berardi: Yeah, that's a good question. Originally there was no way to allocate money in an upfront way. Originally the allocation was done on a first-come-first-serve basis. This created all sorts of problems in terms of participation to the GEF system. So more recently — I believe it is about eight years ago — we introduced a system that is called System for Transparent Upfront Allocation of Resources, which means that each country received upfront allocation at the beginning of the funding cycle of X amount of millions. [The effort to support country ownership started already under GEF-4 (2006-2010), with the adoption of the RAF — Resource Allocation Framework.]
This amount is determined using an algorithm that takes into consideration aspects like the size of the country, the population, the GDP, the development path, the amount of natural resources that are available, and the potential for that country to generate what we call “global environmental benefits.” And this is, I think, an important point because as a global environment facility under the UN Conventions, our mandate is that of generating not local environmental benefits, but benefits that are felt at global level.
And this is particularly the case in terms of emission reductions. It doesn't really matter where you emit a ton of carbon; The impact for the climate system will be the same. What we really focus on is emission reductions — at least in my shop, which is related to climate change. When it comes to biodiversity or land degradation, we also try and focus our strategies where we can maximize benefits that are then for the entire biosphere and not just for a specific country.
Ariel Conn: So how many countries do actually get assistance, then?
Filippo Berardi: All of the countries that are parties to the Convention that are developing parties, so I believe it's around 160 nations. The bigger countries will get allocations that are significant for climate change. For example, we have about 80 million that we can spend in China — because of the size of the country of course, and the impact that they have in terms of emission.
But then if you look at smaller countries, then the allocation tends to be on the smaller side. So we really have to be quite careful in terms of how we use this money, and make sure that we can maximize the impact that we can generate. For example, in my opinion, it's very important to pay attention to the policy and regulatory side. So, give the government those tools that they need to implement policies that then have a downstream and multiplier effect, in terms of all of the projects that will be done at a national level will have to comply with that specific policy. So even if you only have 1 million that you invested upstream in the regulatory cycle, then hopefully you can generate emissions that go way beyond what you could generate if you were to fund 1 million in a renewable energy technology project.
Ariel Conn: Can you explain what carbon finance is?
Filippo Berardi: Sure. This is a question that I have close to my heart because this is where I did my undergraduate thesis, and then basically that's where it all started for me in terms of my career path.
Carbon finance is at the heart of the solution of the climate change problem. It basically refers to all of those investments in emission reduction projects that can generate emission reduction that can be standardized into some type of certificate or allowances that can be tradable on the carbon market. So it is a form of finance that, let's say, is different from just climate finance, which is in general any investment that has a potential to reduce carbon emissions. Because in the carbon finance, what you're trying to do is to have the potential to standardize a specific tradable unit that can be traded on one of the platforms that are generally referred to as carbon markets.
The first and perhaps most important carbon certification offsetting scheme was precisely that introduced by the Kyoto Protocol in 1997. The Kyoto Protocol is one of the implementing instruments of the UN Convention on Climate Change, and it was adopted in 1997 with a clear goal of assigning specific emission reduction binding targets for developed countries. Now developed countries had the choice of whether to reduce emission domestically or whether to help developing countries — reducing emissions in developing countries — and then claim some of the results of that action for their own national targets.
Ariel Conn: That's actually really interesting. I didn't realize that that was an option.
Filippo Berardi: From the diplomatic standpoint at the Convention, the idea was like, “We developed nations are going to accept some level of binding targets, but we also want to have some element of flexibility. We also need to have a flexible arrangement that allows us to be as economic and as efficient as possible in realizing those emission reductions.”
And the premise was always that emission reductions are costly. That is not always the case. There are many options for emission reduction that actually have a negative cost. Think about energy efficiency improvement: You are able to repay that investment typically in two to three years because you save on your electricity or on your energy bill.
But anyway, back then there was this idea that, “Yes, okay, I can commit to reduce X amount” — and, I mean, these amounts, frankly, they were quite modest. The overall level of ambition of the Kyoto Protocol was reducing emission by 5% compared to levels of 1990 by 2012. It was a very modest step, but a very important one: It was the first time that countries agreed on binding targets that have, or can have, significant consequences on their domestic economic policies.
Developed countries said, “Okay, I can do that, but I need to have some flexibility there.” What is this flexibility? This flexibility is what is called flexibility mechanism. And the most important of that is what then was called the Clean Development Mechanism, or the CDM. And the CDM was basically a system where a developed country can go in a developing country, help the developing country implement specific projects that reduce emissions while also fostering technology transfer, sustainable development, et cetera. And then these credits that are certified and issued by a UN body, the UN Convention Secretariat, are available for the developed country to use in meeting their own commitments.
And this is the start of carbon finance, because these credits then are assigned a price and then they are traded on a secondary market that is similar to the stock market. So they have a value. This value, however, is very dependent on demand — as any commodity, as any stock in the stock market, you only have the price because somebody wants to buy it.
And so what happened later on is that since the carbon market is a completely policy-made market, it only exists because countries decide that it is desirable to reduce emissions, and therefore the possibility to emit should be limited. And so if we think of the atmosphere as a limited capacity of absorption of greenhouse gases, then each little unit of this capacity of absorption is assigned a price.
This leads me to the concept of emission trading, because once you have established a modality to standardize practices and methodologies to reduce emissions in a way that you can count the environmental outcome and represent these environmental outcomes in the form of emission credits, tradable units, then the next step is creating a trading platform. And this was something quite revolutionary, and something that the European Union championed quite strongly.
Cap and trade is one of the modalities of emission trading. And the way it works is basically you have a geography — like for example, let's think of the European Union — and you have an authority, the European Commission, that decide that as a continent we can only emit a hundred tons of carbon, right? This one hundred level is very important because it basically represents the level of ambition of the cap and trade system. You know, the way you set that maximum amount of tons that can be emitted has to have some level of relation with what science tells you. Somebody came up with the term “carbon budget,” or “planetary carbon budget,” which is very, very helpful because it sort of equates the family budget that we are all very used to with the earth carbon budget. So how much do we have left, and how much have we spent already? That is a very important element of any cap and trade system. So you have to decide how stringent you want to be, and then it's a societal decision, and includes the dynamics of politics, of the economic systems, etc.
But basically, a cap and trade system sets a baseline. Let's say our baseline is X emission corresponding to, I don't know, the emissions that we have in 1990, for example, no? And then it distributes a number of permits, or allowances, to all of the different economic sectors that are covered by this cap and trade. So you could have just power generation; or you could have power generation and cement industry; or power generation, cement industry and transport. So there's a level of ambition that is like how many productive emitting sectors are we going to put under this regulated cap and trade system? That's the first decision that needs to be taken.
Then the second decision that needs to be taken is, what is this baseline here? For example, in the Kyoto Protocol, the reason why we were able to meet the level of ambition of the Kyoto Protocol — which I said it was quite low to start with, but anyway — it wasn't because everybody made a lot of effort, but it was because we had a collapse of the economic system in eastern Europe and the ex-USSR. And so since the baseline year was 1990, a year where emissions were very high still because the, I think, Berlin wall is 1989 — so by then, in 1990, you still had all the industry in the Soviet Bloc going full steam. Then in the years thereafter, there was an economic slow down in the whole region, which resulted in a lot less emissions. Which resulted in a lot of the credits that they had weren't really a result of a conscious policy effort, but was just the result of the collapse of the Soviet Union. And so what happened is they ended up having a lot of surplus credits, which were dubbed in the climate community as “hot air.” So this was just a little story to say the baseline year is very, very important.
And then you have the distribution methods. Once you've set the geography of the system, the baseline year, then you have the distribution system, which is like how are we going to give these credits? Are we going to auction them, which will be the most ambitious way of doing it, or are we just “grandfathering” them — we're just going to give them for free to a bunch of industries that we know are already emitting. And this system, of course, is the most business friendly, and is based generally on how much you've emitted in the past. We're going to give you 98% of what you emitted in the past worth of carbon credits; So basically you will reduce 2%. It's a fascinating system and it's the preferred system in many jurisdictions, now.
I believe World Bank studies have mapped about 45 or 50 different cap and trade systems across the globe. Some Chinese provinces have their own; China wasn't able yet to come up with a federal system. The US, of course, we know only has fragmented markets. The EU remains the most important one. But it's not the only way that you can implement to curb emissions.
Ariel Conn: So I want to sort of clarify where we are globally today with the cap and trade, then. You said that the EU does have more systems in place, is that right?
Filippo Berardi: Yeah, the EU was the first and the biggest one. It covered the largest amount of sectors. The policy has to decide which sectors are going to go in, and in some countries they only want to do power. In some countries they want to do fuel imports. In some other country they can do transport. You really have to decide how big is the scope of your system. But also you have to decide at what point you are going to require people to comply with the cap and trade regulations. Is it the power producers, the operator of the industrial facility, or the distributors of the fuel, or is it the general public? So you always have to strike a balance between what's feasible to implement and what is most, let's say, environmentally sound from a coverage system of the different economic sectors.
Ariel Conn: Okay.
Filippo Berardi: The EU is quite advanced in that they have a number of iterations of the cap and trade system. The US has the northeastern state RGGI Initiative; And California, obviously, is a very important market. There is South Korea. And China actually might be overall the biggest market, but it's very fragmented. They have it implemented in a number of different provinces and I think they're trying to come up with a system to link them up.
Ariel Conn: And so are we actually seeing reduction in emissions as a result of this?
Filippo Berardi: Yes. If you implement a system of that kind and you are rigorous about the way you allocate emission allowances, then you will see reductions. That's happened in the EU. It's happening in California. Whether that's in line with what science tells us is needed — that's a completely different question.
So there are reasons to be mildly optimistic. And you know, as I said before, it's not the only system. One could just have a carbon tax, but then the word tax implies all level of emotions, immediately makes people turn their back to you when you mention it. But taxes are very efficient in terms of achieving a set environmental goal. What they're not extremely efficient at, perhaps, is to do it in the most efficient way because then you have to come up with a price for that tax. So it could be a little bit too high; Then you will be taxing too much. It could be a little bit too low; Then it wouldn't be an incentive good enough for people to change behaviors. There's always been this debate between whether to go for a tax or whether to go for more like a cap and trade system. I don't have a strong preference as long as something is done.
Ariel Conn: And how do carbon offsets fit into this?
Filippo Berardi: So carbon offsets is one of the elements that can, or may or may not fit in a cap and trade system. The most basic example — and perhaps this is helpful for everybody to understand what a carbon offset is — when you go and buy your flight somewhere at the end of that very long and annoying process, they will ask you if you want to buy offsets, right? Basically that means you pay a certain amount of dollars to, for example, plant trees in, I don't know, Mexico. And you know that by planting trees you are absorbing a number of tons of carbon. And so basically you're using those tons against the tons you know you are going to generate with your air miles. So that's the basic concept of offset. You are reducing something somewhere else to make up for something that you cannot reduce here and now, which is your air flight.
The carbon offset is actually quite important because it links back to the description I gave earlier of the Clean Development Mechanism under the Kyoto Protocol. And this was something that the EU cap and trade system decided to allow for EU operators that found it more economical to go in a developing country to implement, let's say, a renewable energy project there. This renewable energy project only happens because there are funding coming in the context of the Clean Development Mechanism. So you could argue that without the funding and without the support of the CDM, that project would not have taken place.
So it stems from that that you can claim those emissions within the EUETS — the cap and trade of the European Union — provided that this is an avenue that the policy of the EUETS allows. And this was in the first iteration of the EU cap and trade system: C redits from the Clean Development Mechanism were allowed, so you basically were using offsets from projects overseas to meet your power generation commitments under the EU cap and trade.
It works. It is a concept that helps in terms of identifying the lowest hanging fruit. And it sort of also relates to the fact that it doesn't really matter where you are emitting the ton. What matters is that at the global scale, we only have a finite carbon budget and we have to be within it. So if you can implement a project in Argentina, rather than Botswana, that helps Argentina move towards a lower carbon transport — and this would not have happened without the support of the Clean Development Mechanism — then, fine, then you can claim some of those reductions and use them for your domestic commitments.
Ariel Conn: We've been talking a lot about the costs of trying to address climate change. Your background is a bit in social environmental risk management. I was curious if you could talk a little bit about what some of the economic risks are to not addressing climate change.
Filippo Berardi: Sure. I mean there are risks everywhere. This is something that has been, again, debated for a very long time. There was a ground-breaking report from Lord Nicholas Stern, the head of the London School of Economics now, but actually he runs the London School of Economics Center for Climate Change. And he in 2007 — so we're talking about more than 10 years ago — came up with this groundbreaking report that was called The Economics of Climate Change, where he showed that the cost of inaction outweighed several times the cost of action now. So this is a concept that is quite difficult to absorb when we have the political cycle that is so quick. So, you know, we have four years and then we have new elections. So that doesn't really align very well with what the climate change solutions need to be, because they need to be in the long-term.
But basically, economic consequences are going to be felt in pretty much any area of human life. Unpredictable weather patterns are going to generate billions in damages in terms of property, floods, storms, loss of jobs. Many parts of the planet are already experiencing increases in temperature that are not compatible anymore with the general agriculture activities. So you're going to have problems in food security. You're going to have problems in terms of water availability. And all of these problems are only going to exacerbate the larger scale global phenomenon of migrations that we are seeing from South America to North America, we are seeing from Sub-Saharan and Northern Africa. So it is undoubtable right now that the consequences of inaction are going to be very, very deep.
The Stern report was pointing at something like 1% of the global GDP would be the cost of doing something about climate change now — that would put us on track to meet the Convention’s objective — versus a cost 10%, which will be that of not doing anything. The problem is that these costs will come, and the bill will come, only decades from now. Although even this narrative is changing, and we've seen that the pace of climate change that we are observing, from a scientific standpoint, is much faster than what we thought it was going to be. So, July 2019 is the hottest month ever on record since when the record started. The eight most hot years are in the last 10 years. We really are seeing an acceleration and a chronic under estimation of the consequences, both physical consequences and economic consequences, on the economic world systems.
Ariel Conn: So, we've been talking a lot about what governments can and possibly should be doing. Especially in light of the fact that not all governments want to be taking action just yet, what would you like to see private organizations and companies doing?
Filippo Berardi: I'm a firm believer that there's a responsibility that lies on the public side to create those broad guidelines for the private sector to operate within. And so, although there are plenty of very good examples of environmental champions in the private sector, I think we shouldn't just rely on the good will of a number of good corporates, because we don't have time, and this is just going to be a drop in the ocean.
So the most advanced private sector companies in terms of thinking about climate change and climate risk are starting to take action, not just because of philanthropic or corporate social responsibility reasons, but also because they see this as a necessity in terms of protecting their business model and in terms of protecting their assets. And this happened for those companies that rely heavily on the use of water resources, for example, that are seeing a decrease in these resources and are moving towards a more efficient use of these resources.
But also, slowly, we are seeing the financial sector taking more seriously into consideration climate risks when it comes to deciding where to allocate their financial assets. So asset managers, insurance companies, pension funds: These are the players that, I believe, should be at the forefront of climate action. Some of them are already doing it. There is a lot of push and a lot of movement in the climate community to make sure that these actors always sit at the table where decisions are taken. I'm convinced that this will be a key element to keep the balance in terms of the efficacy of climate action. And I am mildly optimistic that this scale is starting to tip, and financial markets are starting to realize that doing nothing and continuing to have a lot of assets invested, for example, in the fossil fuel industry is definitely not something that is going to be good for their portfolios going forward.
Ariel Conn: And so if we can get an ideal situation, what does a low carbon economy look like?
Filippo Berardi: Let me start by saying that we are significantly underestimating the benefits of moving to a cleaner, more climate-smart economy. And there are estimates out there that say that with bold climate action we could deliver up to 25 to 30 trillions in economic benefits through to 2030. So these are real benefits in terms of new jobs, in terms of economic savings, in terms of reduction of risks on financial markets, portfolio competitiveness, market opportunities — and of course, not to mention the well-being, health, and food security for millions, or billions, of people.
So how does a low carbon economy might look like? Well, first of all, it's an economy that is a hundred percent run by renewable energy; Smart grids are able to fully integrate renewable energy with batteries to give some relief to the issue of intermittencies that, of course, is related to the fact that the sun and the wind are not always shining or blowing. Effective policies in this case are needed to incentivize private markets and private investments in low carbon innovation, among those we talked about carbon pricing, but also most importantly the removal of fossil fuel subsidies, which continue to be a large item of spending in the budget of many countries, which is completely counter intuitive. Like, why are we subsidizing something that is no longer desirable?
It goes with that, that on the other hand we should be incentivizing something that is desirable — like, for example, renewable energy. And you can do that in a number of ways, like filling tires, for example. Preferential dispatch to the grid of 100% clean electricity. In the urban environment, obviously cities are expected to have something like 80% of all the people living on the planet by 2050, so urban planning is going to be key. We need to increase the densification of cities. We need to develop mass transport infrastructure. So we need to redesign neighborhoods and entire parts of the cities so as to create cities and neighborhoods that are, on the one hand, more livable, and on the other hand, more sustainable from an environmental standpoint, and obviously much lower in carbon intensity.
It goes with that, there is an entire revolution in terms of transportation in the sense of electrification and electric mobility. Part of it is also due to the fact that more and more people are kind of shifting away from ownership models of cars. And we've seen that with Uber, with Lyft — especially young people don't necessarily feel like they need to own a car. And so this, in the context of the general reduction in price of batteries, in my view is going to have a deep impact on transport sector, which is right now responsible for about a quarter of the emissions on the planet.
And then the other really big chunk of emission reduction has to come from the way we produce food. So, deep systemic changes and transformational changes have to happen in the food system. And this includes the way we use land: moving to climate smart agriculture; moving quickly to reverse the dramatic pace of deforestation. Deforestation accounts for another 20% of the global emissions. And countries like Brazil and Indonesia really need to step up their game. And there's a lot to be done there. Moving away from extensive and unsustainable production of commodities such as palm oil, rice, soybeans. So everything that relates to food — the way we produce food, the way we transport, and we process food — accounts for something estimated at around 50% of global carbon emissions. So it is an area that we absolutely need to tackle.
And then finally, the last piece is the industry: the way we produce things that we use. Obviously in this case there's a lot of need for increased efficiency in both the inputs — water, electricity, thermal energy — but also in terms of the materials. So, more technologically advanced materials are going to help moving towards what we all want to see, which is a circular economy where waste is minimized and the interaction between the different production chains are maximized — so that we can reuse, hopefully, the waste coming out of a certain product’s production and use it as an input for the next one.
All of this should happen in the next 10 years. Good luck with that. And on top of that, some sprinkle of a global functioning cap and trade and carbon pricing system.
Ariel Conn: All right, so it looks like we're about out of time. Is there anything else that you wanted to add?
Filippo Berardi: I think we covered a lot of ground.
Ariel Conn: Let's end with the question that I ask most people. And that is: what gives you hope?
Filippo Berardi: There's a lot of reasons to be hopeful about the future. First of all, the human ingenuity is limitless. There's an army of entrepreneurs and thinkers that are coming up with new business models to produce goods that are equivalents to what we have, but only use a tiny fraction of the earth's capacity to absorb the results of the human action. So I think human ingenuity and entrepreneurship in its very essence is something that is definitely making me a bit more hopeful.
And then the second element that is on the newspapers and we've all heard about is the youth. I mean, the youth movement that Greta Thunberg is leading — you know, she's been able to stir up a movement of schoolkids. Frankly, those are the people that tomorrow will be occupying a seat in parliament. And I hope that some of the narrative and some of the hopes that they have will then percolate in their adult lives. And even before that, I also hope that they will be able to influence their fathers and their mothers that are right now occupying the seats in the different parliaments in the capitals of the world, to make sure that, if the science is not enough to move their agendas, then perhaps their kids’ future will be. So that's another element that I've seen growing recently, and it makes me quite hopeful. Maybe we can end on that note.
Ariel Conn: That sounds great. Thank you so much.
Filippo Berardi: Thank you. Thank you so much for having me.
Ariel Conn: On our next episode of Not Cool, a climate podcast, we’ll be joined by Astrid Caldas, who will talk more about her work on adaptation to climate change at the Union of Concerned Scientists.
Astrid Caldas: People can adapt to using external devices and technologies; They can adapt by changing the technologies that they use. But plants and animals do not have that ability. They live as nature around them allows them to.
Ariel Conn: As always, if you’ve been enjoying these episodes, please take a moment to like them, share them, and maybe even leave a good review.