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Now is the time to vigorously advance the transformation to renewable energies

As the unprovoked attack on Ukraine continues – despite the humanitarian catastrophe and the world asking for an end – the global economy’s dependency on fossil fuels has come into question even more.

The imperative to significantly reduce emissions of harmful climate gases in order to keep the world livable has now been given additional impetus by geopolitical developments: namely, to reduce or end dependence on dictatorships or authoritarian regimes as soon as possible. Allianz Board member Günther Thallinger and U.S. author Bill McKibben discuss what policymakers and the private sector must do now.

A “fateful moment”

McKibben, leader of the climate campaign group  350.organd author of The End of Nature (1989), said: “The world has been given a stark argument for the switch to renewables. Although fossil fuels were identified as the source of the climate crisis decades ago, humanity has been painstakingly slow in transitioning to a low-carbon society.”

In 2019, before consumption changes caused by the COVID-19 pandemic,  fossil fuels still accounted for 84% of the world’s primary energy consumption. But now that energy dependencies are adding pressure, the geopolitical situation could provide a sense of urgency to accelerate the adoption of clean energy and explore new, alternative sources for fossil fuels.

“Scientists and the engineers have done their job – they've dropped the price of renewable energy 90% in the last decade,” McKibben said. The challenge is now less technical than political. “The question is, how do we keep forcing this transition?” he added.

McKibben pondered how the different facts concerning climate change and the perils of dependency on petrostates could be fashioned into policy that grapples realistically with the need for fast action. There are two pressing timescales, he explained. “For Europe, it means ensuring that there is energy to heat people's homes next winter. According to the  IPCC  , this decade is crucial for the planet: We have to cut emissions by 50% until 2030, which is only seven years and ten months from now.” He added. “I don't think we've dealt with these questions as seriously as we should in the past.”

On February 25, 2022, a day after the Russian armed forces invaded Ukraine, an article titled "This is how we defeat Putin and other petrostate autocrats" (read articleappeared in the Opinion section of The Guardian. The article prompted Günther Thallinger to invite Bill McKibben, its author, to speak with him about the transformation to renewable energy. The two spoke on March 8, 2022.
- Bill  McKibben

Finance as a lever

McKibben stated that changing investment patterns was a critical lever to the net-zero carbon future. While acknowledging Allianz has made significant steps to move away from investments in fossil fuels, he challenged Thallinger as to why the insurance industry continues underwriting new projects for the fossil fuel industry given the existential challenge climate change poses for the planet.

“How to change away from fossil fuels is critical,” Thallinger responded. “Leading insurers have made 1.5 degree commitments for their investment portfolios, including short-term commitments to change their portfolios (editor’s note: UN-convened Net-Zero Asset Owner Alliance with targets for 2025). Today, most insurers have a position on fossil fuels and are screening every fossil fuel project against sustainability criteria. I expect that soon the leaders – for example, the members of the net-zero alliances – will require transformation pathways compliant with 1.5 degrees from companies – also companies from the Oil and Gas sector.”

Günther Thallinger is chair of the UN-convened Net-Zero Asset Owner Alliance (AOA), an organization of 71 asset owners with more than $10 trillion in assets under management. The members are committed to transitioning their portfolios to net-zero greenhouse gas (GHG) emissions by 2050. He acknowledged that financial institutions have a pivotal role in rapid decarbonization and emphasized the complexity of an orderly transition away from fossil fuels, especially when it comes to social matters.

A “just transition” to a low-carbon economy involves minimizing disruption for workers and communities, especially in developing regions where oil and gas will continue to be essential elements in the energy mix for some more time. Therefore, engagement with fossil fuels industries is essential to ensuring an orderly transition.

“If the energy supply is disrupted to those who need it and consume it,” Thallinger said, “people will react. What many fear is those individual contributors to the world’s complicated energy network start to depart.”

The AOA has signaled members are willing to face short-term effects on portfolios by investing long term. However, Thallinger argued that companies could not achieve a transition to a low-carbon future alone. What is also essential is for governments to set explicit policies to help steer the transformation.

Thallinger said financial institutions could provide the finance necessary to transition together with state-owned funds. “There is no hurdle to implement this. The vehicles are tested, everything is there. But what is really necessary is to understand how energy provision for an entire country will look in ten- or 20-years’ time for entire countries. For developed regions, such as the EU, this is pretty clear. Here, it’s about the ways to get there, the short- and mid-term legislation needed to achieve this 2030, 2040 vision."

Time to pivot subsidies

Economists have long argued that a well-designed carbon tax is the most economically efficient way to reduce carbon emissions. McKibben believes a carbon tax is unlikely to happen in the United States because of political hurdles. But, given the increasing urgency for action, it is more important to have strong governmental action behind a build-out of renewable energy.

The AOA has called on governments to end subsidies that support fossil fuels, distort energy markets and fuel the climate crisis. The organization supports programs to ensure a market-based carbon price, believing that the transition to a low carbon, renewable energy-driven economy is hindered – if not made impossible – by fossil fuel companies not having to face the cost of not changing.

- Günther Thallinger, Allianz SE board member

“I fully subscribe to the point that an economy based on renewable energy is more cost-efficient and, therefore, in competitive terms, superior,” stated Thallinger. “The question is, how to kickstart the acceleration needed for this transformation?”

The International Energy Agency (IEA) and the Organisation for Economic Co-operation and Development (OECD) have estimated that 52 advanced and emerging economies – representing about 90% of global fossil-fuel supplies – gave subsidies worth an average of US$555 billion each year from 2017 to 2019. The question is whether the current political reality meant these subsidies could be pivoted to the renewable energy  sector. 

McKibben said that politicians are happier “giving money to things than taking away money from things.” He explained that with Build Back Better, President Biden’s signature climate legislation, moribund in the US Congress, the fallback has been to allocate US$500 billion in tax credits for clean energy.

“In essence, that’s a subsidy for doing the right thing. It's within one vote in the US Senate. This would be an enormous, enormous change. And people are working extremely hard to make it happen. Figuring out what's politically possible at all times is the key. We're at a moment when the political reality is more up for grabs than usual.”

Rewriting our sense of what is possible

The most hopeful sign we have about our ability to mitigate climate change is the speed with which the price of renewables is falling, McKibben said, “because it’s become apparent that it is beginning to rewrite our sense of what is possible.” In a recent Oxford University study, analysts found that each doubling of sun and wind generation capacity drives down the price of generating the energy another 30%, which translates to about a 10% decline every year.

Thallinger welcomes such developments but argues what is also required is orchestration by governments. This should create a level playing field on the basis of which individual asset managers or insurance companies compete.

“You have a first-mover problem,” responded McKibben. “In a perfect world, fully coordinated action would be the best possible outcome, and we'd all move quickly and smoothly to where we're going to go. But my observation is that that's rarely how things happen. It takes a willingness to lead.”

- Bill  McKibben

While understanding that no politician or CEO wants to move so far ahead that they lose their position, he emphasized a desperate need for action. “The science is clear that we're out of luck unless we dramatically transform this decade.”

Günther Thallinger summarized that this was the role the AOA was undertaking. The members have committed to transition their portfolios to net-zero and delivered a clear framework to turn ambitious long-term commitments into interim 2025 and 2030 targets to at least halve their emissions compared to 2020. The AOA also aims to create a virtuous cycle between the private sector and governments. Engagement can and should include meaningful dialogue with legislators focused on the rapid implementation of climate policy. The same approach of the AOA is now being replicated in insurance and by other financial service providers.

A shared sense of urgency

Throughout the conversation, McKibben and Thallinger shared a sense of urgency regarding the speed of transformation. From the recent IPCC report, 2030 is the decisive marker for meaningful action to prevent the devastating tragedy of irreversible climate change.

If it takes us until 2050 to address climate change, “it will be a broken world,” said McKibben. “The speed with which one has to work is the most important factor, and here we see that things might be possible no-one thought they were possible so far.”

About Günther Thallinger
For Günther Thallinger's bio, please visit the Allianz SE Board of Management page.
About Bill McKibben

(from BillMcKibben.com)

Bill McKibben is founder of Third Act, which organizes people over the age of 60 for action on climate and justice.

His 1989 book The End of Nature is regarded as the first book for a general audience about climate change, and has appeared in 24 languages. He’s gone on to write 20 books, and his work appears regularly in periodicals from the New Yorker to Rolling Stone. He serves as the Schumann Distinguished Scholar in Environmental Studies at Middlebury College, as a fellow of the American Academy of Arts and Sciences, and he has won the Gandhi Peace Prize as well as honorary degrees from 20 colleges and universities. He was awarded the Right Livelihood Award, sometimes called the alternative Nobel, in the Swedish Parliament. Foreign Policy named him to its inaugural list of the world’s 100 most important global thinkers.

McKibben helped found 350.org, the first global grassroots climate campaign, which has organized protests on every continent, including Antarctica, for climate action. He played a leading role in launching the opposition to big oil pipeline projects like Keystone XL, and the fossil fuel divestment campaign, which has become the biggest anti-corporate campaign in history, with endowments worth more than $40 trillion stepping back from oil, gas and coal. He stepped down as board chair of 350 in 2015, and left the board and stepped down from his volunteer role as senior adviser in 2020, accepting emeritus status. He lives in the mountains above Lake Champlain with his wife, the writer Sue Halpern, where he spends as much time as possible outdoors. In 2014, biologists credited his career by naming a new species of woodland gnat—Megophthalmidia mckibbeni–in his honor.

The Allianz Group is one of the world's leading insurers and asset managers with 126 million* private and corporate customers in more than 70 countries. Allianz customers benefit from a broad range of personal and corporate insurance services, ranging from property, life and health insurance to assistance services to credit insurance and global business insurance. Allianz is one of the world’s largest investors, managing around 767 billion euros on behalf of its insurance customers. Furthermore, our asset managers PIMCO and Allianz Global Investors manage nearly 1.9 trillion euros of third-party assets. Thanks to our systematic integration of ecological and social criteria in our business processes and investment decisions, we are among the leaders in the insurance  industry in the Dow Jones Sustainability Index. In 2021, over 155,000 employees achieved total revenues of 148.5 billion euros and an operating profit of 13.4 billion euros for the group.

These assessments are, as always, subject to the disclaimer provided below.

*Including non-consolidated entities with Allianz customers.

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Christiane Hach
Allianz SE
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