The Wisdom of Sallah

As the world readies for yet another COP of disappointment, every news outlet covering climate is rushing to tell the story about failing “net-zero” commitments. Every one I read reminds me of that Indiana Jones moment.

The conversation is always about how firms and countries are not on pace to meet their “net-zero” pledges because of various factors including geopolitical turmoil, economic headwinds, a lack of commitment in the C-Suite, or continued uncertainty because of COVID recoveries. While we are quick with lamentation, we fail to ask ourselves if we’re digging in the right place. I don’t think we are.

Right now, a firm’s commitment to climate is judged by its ability to eliminate its individual carbon emissions (based on an overly complicated framework of Scope 1, 2, and 3 emissions). The problem with the framework is not the activity that it incentivizes—it’s nice if company’s eliminate their own emissions—but rather the activity it undervalues and in fact disincentivizes: high risk, but critical, investments in scaling technologies that will change the infrastructure of the global economy.

But by focusing on a firm’s individual footprint we are directing our resources toward things that will never get the job done. Carbon offsets, for example, will never decarbonize industry, installing rooftop solar on a factory will never decarbonize the grid.

What we really should be rewarding are contributions to solutions that will help entire sectors eliminate global emissions—solutions like taking financial and investment risk later in the cycle of commercialization and helping to develop long term markets for clean products. But companies don’t get credit for investments under the current system.

So that means, for example, when Amazon invests in a partnership with startup Rivian to build 100,000 electric in-town delivery vans it only gets “credit” for the internal combustion vans those will take off the street. Like a 1:1 match. But that undervalues Amazon’s investment by a lot. Because it unlocked similar investments by Stellantis, Daimler, and Workhorse. The Rivian investment, as measured by Amazon’s footprint, will “succeed” when it has taken the last Amazon last mile delivery truck off the road. But when measured against its ability to create a global market for electrified last mile delivery vehicles, it will “succeed” when every internal combustion engine used for that purpose is retired.

The latter definition of success is obviously more important. The same can be said for investments in how we make steel or cement, how we transmit electrons or create liquid fuels. But until we start digging in the right place, we’ll underinvest in those things because we’re so focused on just one side of the medallion.