A Sustainable Future: Professor Thomas Hale, Oxford University, on How to Fix the Carbon Offset Market

Listen to Jason Mitchell discuss with Professor Thomas Hale, Oxford University, about what’s at stake in net zero commitments and how to fix the carbon offset market.

If the carbon offset market is falling short, how do we fix it? Listen to Jason Mitchell discuss with Professor Thomas Hale, Oxford University, about what’s at stake in net zero commitments, potential policy solutions and why it’s vital we work towards a more robust regulatory system to oversee carbon offsets markets.

Recording date: 25 July 2022

Thomas Hale

Thomas Hale is a professor at the University of Oxford’s Blavatnik School of Government. His research explores how we can manage transnational problems effectively and fairly, and to explain how political institutions evolve to face the challenges raised by globalisation and interdependence, with a particular emphasis on environmental, economic and health issues. He also leads the Oxford COVID-19 Government Response Tracker. His books include Beyond Gridlock; Between Interests and Law: The Politics of Transnational Commercial Disputes; Transnational Climate Change Governance; and Gridlock: Why Global Cooperation Is Failing when We Need It Most.

 

Episode Transcript

Note: This transcription was generated using a combination of speech recognition software and human transcribers and may contain errors. As a part of this process, this transcript has also been edited for clarity.

Jason Mitchell:

Hey, everyone. Welcome back to the podcast. And I hope everyone is staying well. It's almost impossible to talk about net zero with discussing the role of carbon offsets. But carbon offsets have a major credibility problem, and for good reason, too. Offsets have historically been vulnerable to abuse, even fraud. There's no international standard for carbon offsets accounting. Regulators have yet to plan oversight rule. The market is relatively small and illiquid and pricing is opaque. The majority of net zero targets out there don't specify what and how carbon offsets are being used in their net zero plans. Not to mention, there's a perception that offsets represent a license to keep on polluting. But the reality is that carbon offsets will be one of many tools in the climate transition, especially for residual emissions from hard to abate sectors.

Jason Mitchell:

The question is, how to govern their use and provide transparency and credibility. Which is where the University of Oxford's, The Oxford Principles for Net Zero-Aligned Carbon Offsetting comes in. It's four principles include, first, prioritize reducing your own emissions, before resorting to offsets. Second, shift offsetting towards carbon removal and away from carbon avoidance. Third, transition to long-lived storage, which permanently removes carbon from the atmosphere. And fourth, support the development of carbon markets for net zero-aligned offsets.

Jason Mitchell:

It's why it's great to have Professor Thomas Hale. Tom is co-author of the Oxford Principles for Net Zero-Aligned Carbon Offsetting. And he co-leads the Net Zero Tracker. We talk about what's at stake in net zero commitments, how to think about potential policy solutions, and why it's vital that we work towards a more robust regulatory system to oversee carbon offsets markets. Tom is professor at the University of Oxford's Blavatnik School of Government. His research explores how we can manage transnational problems effectively and fairly, and to explain how political institutions evolve to face the challenges raised by globalization and interdependence, with a particular emphasis on environmental, economic, and health issues. He also leads the Oxford COVID-19 Government Response Tracker. His books include Beyond Gridlock, Beyond Interests and Law: The Politics of Transnational Commercial Disputes, Transnational Climate Change Governance, and Gridlock: Why Global Cooperation is Failing When We Need It Most.

Jason Mitchell:

Welcome to the podcast, Professor Thomas Hale. It's great to have you here today. And thank you for taking the time.

Thomas Hale:

Thanks for having me, Jason.

Jason Mitchell:

How perfect. Really excited about this, Tom. So, there is definitely a lot to chew on here. But I'd like to start with some scene setting first. Your recent article in the Financial Times called The Carbon Offset Market is Falling Short, Here's How to Fix It, really kind of came to my attention and kind of animated this whole discussion for me. And it strikes me as a good way to enter into this subject of carbon offsets. What's the problem you're describing, and more importantly, what's at stake?

Thomas Hale:

Yeah, what's at stake when we talk about carbon offsetting, or indeed any aspect of what net zero means and how we get there, is really the chances of limiting climate change to a safe level. So, it's big. We know the world is now aligned to net zero as an ultimate goal. The Net Zero Tracker that you mentioned, records net zero from different kinds of entities. Even just the countries, for example, 90% of global GDP has some kind of net zero target attached to it. One-third of the biggest publicly companies in the world also have net zero targets. So, the world's really gotten mobilized in sort of a big, big victory in the process of aligning the economy to climate goals. But now, we're in the messy business of implementation, which is a lot harder. And it doesn't really matter how much GDP we get aligned to net zero. That alignment doesn't really mean very much. So, this robustness of net zero targets is the key question going forward, and offsetting is probably the piece of that that stirs up the most controversy.

Jason Mitchell:

It absolutely is. I want to take a step back for one second. It's worth defining some terminology before we jump in. So, first, what's the fundamental difference between carbon or climate neutral, and net zero? I've always interpreted carbon neutrality to mean achieving carbon reductions through, frankly, the indiscriminate use of offsets. While net zero means actually reducing carbon emissions with the use of offsets as a last resort for hard to abate sectors. Is that right? And then second, how do we distinguish between, you've called it this, rigorous offsets and junk offset credits?

Thomas Hale:

That's exactly right, that we have a lot of terms. Net zero, carbon neutral, climate negative, carbon positive, all these different things that don't always mean the same thing when people say them. So, it's important to get precise about what this language might mean. One effort to do that comes from the UN's Race To Zero Campaign, which has published a lexicon building off the Inter-Governmental Panel on Climate Change's lexicon of what these terms might mean, as an attempt to kind of reduce the friction that arises from people using the same words, in different ways. And in that sense, because with lexicon, net zero means exactly what you say. It means reducing emissions, sharply reducing them, to the level of residual emissions, and then permanently neutralizing those ongoing residual emissions. And that's different from the way carbon neutral is used, which just means there's no more going in than is coming up. But it doesn't necessarily imply there's been adequate reductions yet.

Thomas Hale:

And then, of course, there's many other kind of twists and flavors on these terms, but that's the fundamental difference. So, if you want to think about net zero and carbon neutral together, one way to think about it is to see carbon neutral as a really useful goal to achieve on the path to net zero. As you're reducing emissions, you can go beyond your own value chain and get those contributions to kind of global net zero by going above and beyond what your science-based pathway tells you net zero might look like. But the ultimate goal we want to achieve is, of course, net zero. Where you've reduced emissions to such a level that any residual emissions can be permanently neutralized.

Jason Mitchell:

I've got a technical question in this conversation. Practically speaking, what do you see as the appropriate mix of offsets, relative to emissions reductions, in that path to net zero? The Carbon Neutral Protocol and SBTI's Corporate Net Zero Standard both address offsets. But unfortunately, they lack in anything more prescriptive. I often hear a working, call it a finger in the air assumption, that residual carbon offsets in hard to abate sectors should represent roughly 10 to 20% of total emissions. But again, I frankly struggle to point to or cite any specific source around that. What are your thoughts there?

Thomas Hale:

I think, as you say, it's really hard to be entirely prescriptive at general level at what the right balance should, but probably the 80 to 90% level is a good rule of thumb for what we should do. And the reason why is if you look at any kind of global climate scenario for achieving 1.5 or 2 degrees, the good ones tend to have something close to that at a global scale. So, if the world needs to reduce emissions by 80 to 90% in the next few decades, then that probably means that your organization, your company, your country, your city, your region is going to need to do something similar. But, of course, it's going to vary in any given scenario and there's lots of uncertainty around these scenarios. So, assuming we're going to have to kind of iterate on the path down to net zero.

Thomas Hale:

But it's really surprising how when you put out a number like 90% or 80%, how many people see themselves in the 10% or 20%. This is why I think we probably talk about offsetting probably more than is merited in some ways, both in sort of solution and as some entities. It's going to be one piece of a big toolkit we're going to need. But probably not the biggest piece. And so, that's why organizations like Science-Based Target Initiative, or Race to Zero Campaign really make clear that emissions reductions near term are the most important thing to do, and offsetting can be a compliment to that down to net zero. And then can play some role perhaps, once we've achieved that residual emission level in permanently neutralizing those emissions that way.

Jason Mitchell:

Yeah. It's a really good point. I actually want to dig a little bit deeper into that. In your work with the Net Zero Tracker, you pointed out that the majority, like you said earlier, of net zero targets, don't specify what and how offsets are used in their net zero plans. What do you make of... is it bad behaviour? I mean, basically companies gaming it? Or is it indicative of a much larger structural problem about, frankly, how to plan and sequence net zero plans over the next 30 years?

Thomas Hale:

I think it's a good part driven by just companies not being entirely clear on how they're going to achieve these targets they've set. And that's far. No one's going to know exactly what steps will be required for the next 30 years of any trajectory. But we need to rapidly move beyond that and get to a place where people are putting out clarity on what their short-term plans will be. Also, sharing information about what offsets they're using or not using on the way toward net zero. So, of the companies that we find with net zero targets, half of them fail to specify if offsets will or won't be used, and even of that half that do say something, most don't provide any kind of conditions or what they might be doing with their offsets or not. So, that's not really enough information to give investors or customers or governments or other stakeholders clarity on what companies are actually doing, what their pathway actually looks like. And so, it's a big problem to solve. And it's pretty straightforward, I think, to provide some transparency on that. So, if you're a company using offsets, providing a bit more clarity on what you're buying, what role it's playing in your overall plan, is going to help a lot.

Jason Mitchell:

Are there some examples that you'd give of sovereigns, states, cities, corporates, that are doing it in a way that you see as credible?

Thomas Hale:

Yes, I think the first step, of course, is to recognize this mitigation hierarchy idea that you should do emissions reductions before thinking to much about using offsets to help out along the way, and certainly not using offsets to delay or substitute for emissions reductions. So, the good news is that a number of companies are doing that. And indeed, the Science-Based Targets Initiative, as you mentioned, indeed the UN Race to Zero Campaign, these were all requiring that as a minimum criteria for and important thing to do in the first step. But then beyond that, there are some examples of companies that are doing some interesting things around being very clear at what they're doing for offsets. So, one example is Netflix, which has put forward a very ambitious plan to use some really big-ticket nature-based solutions as part of its offset initiative.

Thomas Hale:

Other companies have joined some big kind of consortium efforts. One I like, I think is a good model, is the Global Coalition, which is partnership between companies, for example, Unilever, countries, for example, UK or Germany, and also countries like Brazil, or regions in Brazil, the Pantanal region, for example, that are doing some really interesting system wide interventions to reduce land-based emissions. So, those are, I think, a nice step beyond some of the less pretibial options, because they're taking some of these system levels approach. They're not saying this isolated forest by itself is going to be there forever and it's going to provide this kind of carbon. But rather doing some much more kind of widespread assessment of kind of a whole region of the world and making different interventions across that region, to really change its trajectory in a fairly fundamental way. So, that's a few best practices that I think we need to think more about.

Jason Mitchell:

Now, it's just such a fascinating kind of topic. I think from an investor perspective and from my own experience, I think engaging with companies, particularly around their net zero plans, we've done a number of engagements, in Japan, for instance, with carbon intensive companies. There is a recognition by them that they are going to use offsets. I don't know if it’s bad behaviour. I would say that it's also sort of contingent on the realities of other technologies that are not yet commercialized. To what degree do they transpire? Whether it's a new market for ammonia-based feed stocks, or blue hydrogen, green hydrogen. The use of offsets tends to kind of revolve around the development of some of these other areas.

Thomas Hale:

It certainly does. And that's why I think some of these bigger alignments to net zero practices, but also regulations, are going to be an important part of getting the offsets question right. Which is just one piece of this larger equation. So, for example, a number of entities are now setting conditions around what kinds of transition plans they expect companies to publish for their net zero alignment. And UK is moving to make this part of its regulatory infrastructure. And one piece of that will be providing information about what actions are being taken for interim and longer-term targets and what kinds of emissions reductions are tied to those actions. And then also, being very clear about where there's uncertainty. And in that mix, the offsetting can help provide, as I said, kind of beyond contribution to global mitigation on the way down to net zero, and neutralize emissions, once net zero has been achieved.

Thomas Hale:

But recognizing uncertainty is a big part of it, right? And so, having offsetting as kind of an option to think about, is a helpful tool for managing some of that uncertainty. But it can't, of course, substitute for, or delay the core purpose, being down emissions to.

Jason Mitchell:

The Oxford Offsetting Principles Paper which you led, points to a trajectory example where long-lived carbon storage with lower risk of reversal represents the entirety of the offsets market by 2050. And it's to the audience, if you haven't seen it, it's a fantastic subset of four principles that I would highly recommend. Tom, what's the risk that we're backend loading carbon removal through largely technocratic can prove in potentially economically unfeasible solutions? I'm not a pessimist, but clearly, there's a lot that has to work to get to direct air capture and bioenergy capture and storage. Economically. Past guests in this show have pushed for a greater role in low-cost, nature-based solutions, despite the obviously reversibility risk that you highlight in the paper.

Thomas Hale:

So, I think this is a question that we need everything, but obviously, the sequencing might give us different times of when we want to prioritize certain things. So, in the short run, we absolutely need to stop cutting down trees, we need to start preserving the nature that exists, because if we don't do that, we're probably going... I mean, basically impossible to meet our global climate goals. I mean, deforestation is one of the biggest drivers of emissions today. And if we don't stop that, then that's going to prevent anyone from getting to global net zero. So, making this goal of reducing emissions, including nature-based solutions in the short term is absolutely essential. At the same time, we can't then continue to save more and more nature once we've reached level of neutral emissions, because there's only so many tons of carbon that can be saved that way. And so, if we just think that's somehow going to allow us to forgo the deep, deep conversation we need to simultaneously drive, that's a mistake.

Thomas Hale:

But similarly, the third piece is that if we also don't develop the carbon capture solutions, the direct air capture, the technologies that are really experimental at this stage, but probably going to be necessary at vast scale once we've reached that residual emissions level, we need to be developing those at the same time. So, it's kind of like three things that need to happen all at the same time. Reducing current emissions is the biggest one. Investing in nature to have a global contribution to net zero along the path down to those residual emissions and building up through R&D and the commercialization of these new technologies that'll be useful. All that needs to happen simultaneously. Even though people might see them as trade-offs, they're really complements.

Jason Mitchell:

Yeah. I mean, what's your view of the potential for nature-based solutions? Look, I get the point that you say that we need everything. I find that is sort of the lowest cost per ton on the cost curve. At the same time, you would know this incredibly well, but there're just tremendous collective actions problems, kind of policy issues in terms of land reallocation for those purposes.

Thomas Hale:

Absolutely. So, if companies would like to make contributions to the conservation of nature, to forests, to other bio systems, to putting carbon into soils, that's all-excellent stuff. But we know that this is not the kind of problem that sort of money through voluntary carbon markets alone is going to solve. And nature-based solutions require a big investment, of course, but they also require governance reforms, they require building alternative livelihoods for people in rural Indonesia or in the Amazon or other parts of the world. And that requires a whole suite of solutions. So, want to be clear that positive investments of private sector offsetting into conservation can be a useful tool, but it's just one, I'd say fairly small, piece of what's actually required to protect nature, which is the ultimate goal we're trying to get to. So, I don't want to say it's not important. It's critical. But at the same time, it's not sufficient.

Jason Mitchell:

What are the lessons learned from being part of Net Zero Tracker? And how is your understanding evolved? It's interesting that the Science-Based Targets Initiative currently does not accept targets from the oil and gas or fossil fuel sectors. I guess in this respect, what is commitment theory in a political economy light reveal about net zero pledges? Should we take sovereigns, corporates, and investors at their word? Or should we discount those pledges?

Thomas Hale:

I think it's kind of really interesting to watch the kind of incredibly fast fusion of net zero as an organizing principle for climate mitigation, where it really went from a scientific idea in the early 2010s, it was sort of picked up in the IPCC's threat assessment report, was put into the 2015 Paris Agreement, but in kind of a slightly softer language around balancing sources and sinks. And then really became a kind of sort of global phenomenon after the 2018 IPCC report on global warming of 1.5 degrees. And so, in that short timeframe, it really went from kind of scientific idea, fringe demand of activists, to suddenly mainstream principle for corporate climate action. And so, it's not surprising that has this very complicated transition is now kind of gone from a good idea of when things should happen to this more messy implementation phase. But I think it's continuing to evolve very quickly from kind of a sort of voluntary practice of leaders, to really a kind of ground rule for the world economy overall. And we see this transition from voluntary action to orchestrated efforts like the UN's Race to Zero Campaign, or the Task Force on Climate Related Financial Disclosures, to international standards, and to the ISO, or the International Sustainability Standards Board, ISSB. And now, into regulation. And so, that's, I think, going to continue.

Thomas Hale:

And as we look to this kind of mainstreaming of net zero into the broader kind of regulatory landscape around corporate climate action, I think it's really important that we focus on the scientific integrity of that regulation. Because it's really good to see it moving from a leadership practice to a mainstream idea. But we really have to get it right. So, this is, I think, where the kind of action is on broader net zero transition at the moment.

Jason Mitchell:

I was going to say, given the number of different stakeholder groups and initiatives introducing governance frameworks around net zero, how do you think we've reconciled sometimes even conflicting perspective, for instance, around the appropriate use of offsets? It feels too easy to point to, like you said, a science-based approach, but is that the simple answer?

Thomas Hale:

Well, I think we're seeing actually a lot of convergence in some areas. So, the general contours of what makes a robust net zero pathway or not are, I think, much more agreed upon than they were in the past. So, at least in theory, one that involves immediate emissions reductions, no reliance on offsetting, it involves, of course, clear plans, clear transparency. But then there's, of course, a number of open questions. The one we're talking about today, offsetting, is one of the big ones. But there's others around, say, what the fair share or differences would be between, say a company based here in the UK where I'm sitting, or say in India. Should they have the same allocations under global net zero transition, or should they be a little bit different? And so those kinds of questions will be, I think, ongoing ones. Many of them are not kind of scientific questions, but rather much more political, moral, social questions to work through. And so, I think there's a lot more to figure out. But we're, again, moving really quickly from kind of where we were even a few years ago. And I don't think we have any choice but to keep moving faster still.

Jason Mitchell:

I want to move it to more of a markets track right now. European Commission is currently debating the merits of investors access to the EU Emissions Trading Scheme. What do you see as the role of outside investors in regulatory markets like the ETS? Should investors have access? There's an argument to say that the ETS is already an inherently inefficient, precisely because the EU is, in the most explicit way, managing for a higher price. There's effectively no invisible hand in this market.

Thomas Hale:

I think that's right. And I do think that compliance-based carbon markets and emissions trade schemes will follow the demands of political contingencies. And so, bringing private investors I'm not sure is really a powerful way to increase efficiency, for the reasons you say. But I think the most important thing governments can do is provide that kind of long-term policy stability that will then push investment in the right way, regardless of whether it's going directly through the ETS mechanism or through the normal channels of the economy. So, yeah. An ETS price, say an escalator, it's going up in a very predictable way up to a certain goal, I think would be one way to, even if you're not bringing investors into the market, to nonetheless mobilize investment in the right direction across the economy.

Thomas Hale:

So, I'm not sure we have any good examples of where bringing private investors into compliance markets has yielded a big step change, but experimentation is the name of this game, so maybe it's worth a try.

Jason Mitchell:

Carbon markets are still incredible fragmented, which prevents multi-managed small cooperation. What does a future look like in which multi-national regulatory markets are possible? How can we drive forms of cooperation if we don't have the regulatory capacity to link markets right now?

Thomas Hale:

So, I'm a little bit hesitant to advocate for linking carbon markets, because I think the conditions for them to succeed are quite narrow. So, the price of a carbon market force is sent through a local process and that means that if you want to link carbon markets together, effectively, governments are tying their hands to the price the least ambitious government is going to set. So, if I'm looking at it from a carbon perspective, that could be a good thing if you had, say, very ambitious market that was helping the slower market get to a higher price more quickly. But I'm not sure I could see many scenarios where that's likely to occur. Rather, I sort of see the value of linkage being pushed mainly by interest groups that are interested rather in finding cheaper credits through economies that have more low-hanging fruit. So, I'm not sure that means we're going to see linkage as really a tool of getting to higher prices, and therefore driving more decarbonization. This is a case where I think the economic theory and the political reality are maybe standing a little bit at odds with each other.

Jason Mitchell:

But wouldn't you say coming out of COP26 with... I wouldn't say Article 6 was completely sort of resolved, but I mean, it felt like there was a substantial step forward in terms of at least starting to link or solve these issues, as least at a supernational level.

Thomas Hale:

So, I think Article 6 does create a pathway for countries and other actors to make contributions to other entities decarbonization goals. And that can, of course, be a very good thing, if it's mobilizing new finance to help entities that don't have access to that finance take steps, they otherwise wouldn't be able to take. But one of the concerns, of course, is that process doesn't necessarily ensure that those contributions are going to be as additional as we'd like them to be. So, I think there's still a little bit of the implementation side to figure out. Again, this is a case where we've had this theory of maximizing the market for maximum efficiency for a long time. And actually, I think the kind of rate they've been used to is not so much finding those opportunities, but rather mobilizing interest in taking these actions in the first place. So, I do worry that we're putting the economic theory cart ahead of the political reality horse in this way.

Jason Mitchell:

I completely agree. And certainly governance horse, absolutely. What are your thoughts around efforts to develop a unified market for carbon offsets via, let's say Mark Carney's task force on scaling voluntary carbon markets? He's estimated that market could be as large as 100 billion by 2030, versus what? 300 million in 2018? What's the role of regulators here, in your mind? Regulators, and in fact, we've had chairman Rostin Behnam, chair of the US Commodities Futures Trading Commission on this podcast as well, and he certain expressed a heavy interest in bringing transparency and liquidity to the offsets market?

Thomas Hale:

I think it'd be wonderful if you're able to build a strong governance system that could deliver really good, high integrity carbon credits in a way that would allow the market to scale to a large degree. But I think we have to recognize that the starting point is not that. We're staring from a world where the current voluntary carbon markets space is quite, well, I think Wild West would be a fair description. There's all sorts of things, it's not regulated. There's lots of bad things floating amongst the good. So, one way to get around that, of course, is to create higher standards. And so, I think we've seen two very useful initiatives in that space. One in the Task Force on Scaling Voluntary Carbon Markets that you mentioned, mostly the Voluntary Carbon Markets Integrity Initiative, VCMI. And they're kind of complementary. The first is helping to think about what the high integrity supply of carbon credits would be, so are they really doing what they say they'll do in terms of and reductions.

Thomas Hale:

And the other is focusing on the demand side where, if you're using carbon credits, are you using it in a way that's consistent with a global decarbonization imperative? I.E, not using it to substitute for or delay decarbonization? So, those entities are still further and getting consultations and getting the standards agreed, but the broad contours are already coming into place. And so, I think it's very right for regulators like the CTFC or others to pick up and say, "Yes, we want to kind of embrace that." But again, I think this is the way forward, getting to regulation. If it's not going to be high quality regulation, that could be a little step backwards, because it would lock in a low level, low integrity market. But if it's a high integrity one, this could be a real big game changer. So, yeah, I think it's a very exciting field to push forward on.

Jason Mitchell:

I want to move to some of the ingredients of a successful market, namely quality and quantity that you've talked about before in the paper. Many people point to Microsoft and its sequencing from carbon avoidance to carbon removal offsets to get to carbon negative, in fact, by 2030, as sort of an exemplar company. At the same time, Microsoft seems to highlight the problems around availability and liquidity. For instance, Microsoft bought 1.3 million tons of high quality, in their definition, of carbon removal offsets in its first year, which was essentially almost all of the 1.5 million ton global capacity. Again, it speaks to your point about the lack of quality and quantity in offsets markets. How do we develop those two ingredients?

Thomas Hale:

Yeah, I think this is a great way that companies like Microsoft can help to create something that doesn't yet exist at the scale we need. Stryker is another company I think that's made some really good investments here. And the common thread is that these tend to be tech companies or other companies that don't have a big emissions footprint of the hard to abate kind themselves, and have a lot of cash and are very innovative and want to make a positive difference. So, if you're a Microsoft, or if you're a Stryker, or as I mentioned before, Netflix, you can make these kinds of moves. Much harder if you are, say, an airline or a steel company or a chemical company, or one where carbon is a bit more fundamentally woven into your business model.

Thomas Hale:

But this is really why we need those kinds of innovate companies to push forward on these kinds of undeveloped but really important technologies, get them to a point where they're going to be more and more part of the solution. As you were saying before though, that's not a magic bullet for the decarbonization challenge, but rather this kind of third pillar of developing the future technologies that will need to be there for residual emissions by the time net zero is achieved.

Jason Mitchell:

I want to change lanes again and move on to the state of global environmental governance, particularly going into COP27 in, what, a few short months, it feels like. To what degree do you see us backsliding? Either for circumstantial reasons? COVID, economic, the inflation, and sort of the debate around the merits of net zero in an inflationary environment? Or more problematically, around ideological differences. In the US, the Supreme Court reset the EPA's regulatory powers, and sadly, Biden hasn't been able to accomplish important climate goals from Build Back Better to the recent Climate Change Bill stalled by, frankly Joe Machin. What's your take on this?

Thomas Hale:

So, I think we have to be very clear-eyed about this. We're clearly off course to meet our global [inaudible 00:32:09] goals, and we need to speed up a lot faster if we're going to get anywhere close to hitting them. And there's, indeed, some very strong headwinds at the moment. The Russian invasion of Ukraine has, of course, led to a global energy shock that's having very strong effects. The politics in the US are really not working out as we would hope from a climate perspective with the Build Back Better bill being stalled by gridlock in the Senate, by the Supreme Court also cutting down the government's regulatory powers, although perhaps not quite as much as some people might have feared. And we see this, of course, in places like, say China, where the process of taking coal offline has really slowed done, because of the global energy shock.

Thomas Hale:

But at the same time, I think we need to also be very clear-eyed about those things that are working out quite well. So, this price shock and gas prices has really accelerated the decarbonization process in Europe and indeed in other non-fossil fuel producing countries that are consumers of these products. China, even though it’s not moving as fast away from coal as it hopefully would be, has actually really accelerated its renewable energy deployment. So, last year, China built more renewable energy than exists in the entire United States. So, this is a really important part of the longer trajectory here. And we see, of course, lots of really positive signs saying the transportation sector, where the US, we've now crossed this kind of critical threshold that 5% of new car sales being batteries. And that's going to, as more people [inaudible 00:33:35] indictor of a tipping point towards widespread adoption much faster than most models would have said a few years ago.

Thomas Hale:

So, we kind of need to hold these two ideas in our head at the same time. There are some major headwinds, but also some important wins. And the kind of medium-term trajectory, I think, has been clouded by those headwinds. But to my mind, I don’t really change the longer-term outcome. And so, for businesses in particular, who are trying to have a little bit of stability and a little bit of clarity on what the direction of travel is, I think the real implication, for me at least, is to double down on this transition, to make sure that we're moving away from things that give us price shock, and to look at things that are a bit more predictable and secure. And long-term, I think that's going to make a lot of sense for everyone.

Jason Mitchell:

That's great. That was a balanced to positive response. I wasn't quite sure how you would answer that. But yeah, I enjoyed that. Look, last question. I've really enjoyed this discussion. What can we look forward to, in your own research around this area?

Thomas Hale:

So, my major interest at the moment is how this transition goes from sort of recognition of net zero, the right way of travel, this big uptick of the idea that 90% of global GDP are now aligned to the same idea, to the actual implementation and integration of this idea into the fundamental rules of the world economy. So, we're seeing this happen already very fast with disclosure, where it went from kind of a voluntary practice to this orchestrated campaign by the G20 with the Task Force on Climate Related Financial Disclosures to the CFT to now a regulatory requirement in a number of jurisdictions around the world. That's now beginning to happen also with transition plans. It's going to happen, I think, a lot more quickly with trade rules, as we see from the EU's Carbon Border Adjustment Mechanism and related policies in other large economies.

Thomas Hale:

It's going to happen, or is happening, with procurement. So, across all these different aspects of economic rule-making, net zero's going to find its way in there. And so, the companies that I think are going to be furthest ahead in this transition are those that have already built that into how they're thinking about  business plans going forward. And I expect these kind of debates around offsetting, as we've talked about here, but also things on scope and fair share, other kinds of topics in the broader equation of what does net zero really mean, are going to be interesting. By my research is really, I'm fascinated by this question, how we move from kind of a voluntary ground sort of net zero activity, to net zero as a ground rule for the economy overall.

Jason Mitchell:

That sounds fascinating. Look, it's been great to discuss what's at stake in net zero commitments, how to think about potential policy solutions, and why it's vital we work towards a more robust regulatory system to oversee carbon offsets. So, I'd really like to thank you for your time and insights. I'm Jason Mitchell, Head of Responsible Investment Research at Man Group, here today with Professor Thomas Hale, Associate Professor at Blavatnik School of Government at the University of Oxford. Many thanks for joining us on A Sustainable Future. And I hope you'll join us on our next podcast episode. Thank you so much, Tom. This is a fantastic, illuminating discussion.

Thomas Hale:

Thanks, Jason. Great discussing. Look forward to next time.

Jason Mitchell:

I'm Jason Mitchell. Thanks for joining us. Special thanks to our guests, and of course, everyone that helped produce this show. To check out more episodes of this podcast, please visit us at man.com/ri-podcast.

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