To avoid climate disaster, governments must take these seven steps

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Bill Gates is the author of How to Avoid a Climate Disaster: The Solutions We Have and the Breakthroughs We Need, from which this essay is adapted.

In 1943, at the height of the Second World War, a thick cloud of smoke descended on Los Angeles. It was so noxious that it made residents’ eyes sting and their noses run. Drivers couldn’t see more than three blocks down the road. Some locals feared that the Japanese army had attacked the city with chemical weapons.

L.A. hadn’t been attacked, though – at least, not by a foreign army. The real culprit was smog, created by an unfortunate combination of air pollution and weather conditions.

Almost a decade later, for five days in December, 1952, London too was crippled by smog. Buses and ambulances stopped running. Visibility was so low, even within enclosed buildings, that movie theatres were shut down. Looting was rampant because the police couldn’t see more than a few feet in any direction. What’s now known as the Great Smog of London killed at least 4,000 people.

Thanks to incidents like these, the 1950s and 60s marked the arrival of air pollution as a major cause of public concern in the United States and Europe, and policy-makers responded quickly. Congress began to provide funding for research into the problem and possible remedies in 1955. The next year, the British government enacted the Clean Air Act, which created smoke-control zones throughout the country where only cleaner-burning fuels could be used. Seven years later, America’s Clean Air Act established the modern regulatory system for controlling air pollution in the U.S.; it remains the most comprehensive law – and one of the most influential – to regulate air pollution that can endanger public health. In 1970, president Richard Nixon established the Environmental Protection Agency to help implement it.

The U.S. Clean Air Act did what it was supposed to do – get poisonous gases out of the air – and since 1990 the level of nitrogen dioxide in American emissions has dropped by 56 per cent, carbon monoxide by 77 per cent and sulfur dioxide by 88 per cent.

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But you don’t have to look to history for examples of how smart policies help solve problems such as air pollution. It’s happening right now. Starting in 2014, China launched several programs in response to worsening smog in urban centres and skyrocketing levels of dangerous air pollutants. The government set new targets for reducing air pollution, banned the building of new coal-fired plants near the most polluted cities and put limits on driving non-electric cars in large cities. Within a few years, Beijing was reporting a 35-per-cent decline in certain types of pollution, and Baoding, a city of 11 million people, was reporting a decline of 38 per cent.

Although air pollution is still a major cause of illness and death – it likely kills more than seven million people every year – the policies we’ve put in place have undoubtedly kept the number from being even higher. (They’ve also helped reduce greenhouse gases a bit, even though that wasn’t their original purpose.) Today they illustrate as well as anything the leading role that government policies have to play in avoiding a climate disaster.

I admit that “policy” is a vague, dull-sounding word. A big breakthrough such as a new type of battery would be sexier than the policies that led some chemist to invent it. But the breakthrough wouldn’t even exist without a government spending tax dollars on research, policies designed to drive that research out of the lab and into the market, and regulations that created markets and made it easy to deploy at scale.

Innovation is not just a matter of developing new devices. It’s also a matter of developing new policies so we can demonstrate and deploy those inventions in the market as fast as possible.

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Now it’s time to turn our policy-making experience to the challenge at hand: zeroing out our greenhouse gas emissions.

National leaders around the world will need to articulate a vision for how the global economy will make the transition to zero carbon. That vision can, in turn, guide the actions of people and businesses around the world. Government officials can write rules regarding how much carbon power plants, cars and factories are allowed to emit. They can adopt regulations that shape financial markets and clarify the risks of climate change to the private and public sectors. They can be the main investors in scientific research, as they are now, and write the rules that determine how quickly new products can get to market. And they can help fix some problems that the market isn’t set up to deal with – including the hidden costs that carbon-emitting products impose on the environment and on humans.

Many of these decisions are made at the national level, but state and local governments have a big role, too. In many countries, sub-national governments regulate electricity markets and set standards for energy use in buildings. They plan massive construction projects – dams, transit systems, bridges and roads – and choose where these projects will be built and with what materials. They buy police cars and fire engines, school lunches and lightbulbs. At each step, someone will have to decide whether to go with the green alternatives.

It might seem ironic that I’m calling for more government intervention. When I was building Microsoft, I kept my distance from policy-makers in Washington, and around the world, thinking they would only keep us from doing our best work.

In part, the U.S. government’s antitrust suit against Microsoft in the late 1990s made me realize that we should’ve been engaging with policy-makers all along. I also know that when it comes to massive undertakings – whether it’s building a national highway system, vaccinating the world’s children, or decarbonizing the global economy – we need the government to play a huge role in creating the right incentives and making sure the overall system will work for everyone.

Of course, businesses and individuals will need to do their part, too. But because governments will play such a major role, first I want to suggest seven high-level goals they should be aiming for.

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1. Mind the investment gap

The first microwave oven hit the market in 1955. It cost, in today’s dollars, nearly $12,000. Today, you can get a perfectly good one for $50.

Why did microwaves get so cheap? Because it was immediately obvious to consumers why you’d want something that could heat up food in a fraction of the time it took your conventional oven. Microwave sales rose quickly, which drove competition in the marketplace, which led to the production of cheaper and cheaper appliances.

If only the energy market worked the same way. Electricity isn’t like a microwave oven, where the product with the best features wins out. A dirty electron will run your lights just as well as a clean one. As a result, without some policy intervention – such as a price on carbon, or standards that require a certain volume of zero-carbon electrons in the marketplace – there’s no guarantee that the company that invests in sending you clean electrons will actually make money. And there’s considerable risk, because energy is such a highly regulated and capital-intensive industry.

So you can see why the private sector systematically underinvests in R&D on energy. Companies in the energy business spend an average of just 0.3 per cent of their revenue on energy R&D. The electronics and pharmaceutical industries, by contrast, spend nearly 10 per cent and 13 per cent, respectively.

We’ll need government policies and financing to close the gap, focusing especially in areas where we need to invent new zero-carbon technologies. When an idea is in its earliest stages – when we’re not sure whether it’ll work, and success may take longer than banks or venture capitalists are willing to wait – the right policies and financing can make sure it gets fully explored. It might be a big breakthrough, but it might be a bust, so we’ll need to tolerate some outright failures.

In general, the government’s role is to invest in R&D when the private sector won’t. Once it becomes clear how a company can make money, the private sector takes over. This is in fact exactly how we got products you probably use every day, including the internet, lifesaving medicines and the Global Positioning System that your smartphone uses to help you navigate around town. The personal computer business – including Microsoft – would never have been the success it was if the U.S. government hadn’t put money into research on smaller, faster microprocessors.

Investing in research has another benefit: It can help create businesses in one country that export their products to others. Country 1, for example, could create a cheap electrofuel, selling it to its own people but also exporting it to Country 2. Even if Country 2 otherwise lacks the ambition to reduce its emissions, it will end up doing so, simply because someone else invented a better, cheaper fuel.

Finally, although R&D yields benefits on its own, it is most effective when you pair it with demand-side incentives. No business is going to turn that new idea published in a scientific journal into a product unless it’s confident that it’ll find willing buyers, particularly in the early stages, when the product will be expensive.

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2. Level the playing field

Today, when businesses make products or consumers buy things, they don’t bear any extra cost for the carbon involved, even though that carbon imposes a very real cost on society. This is what economists call an externality: an expense that’s borne by society rather than the person or business who’s responsible for it. There are various ways, including a carbon tax or cap-and-trade program, to ensure that at least some of these external costs are paid by whoever is responsible for them.

In short, we can reduce “Green Premiums” by making carbon-free things cheaper (which involves technical innovation), by making carbon-emitting things more expensive (which involves policy innovation), or by doing some of both. The idea isn’t to punish people for their greenhouse gases; it’s to create an incentive for inventors to create competitive carbon-free alternatives. By progressively increasing the price of carbon to reflect its true cost, governments can nudge producers and consumers toward more efficient decisions and encourage innovation that reduces Green Premiums. You’re a lot more likely to try to invent a new kind of electrofuel if you know it won’t be undercut by artificially cheap gasoline.

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3. Overcome non-market barriers

Why are homeowners reluctant to abandon fossil-fuel-powered furnaces in favour of lower-emissions electric options? Because they don’t know about the alternatives, there aren’t enough qualified dealers and installers to provide them, and in some places it’s actually illegal.

Why don’t landlords upgrade their buildings with more efficient appliances? Because they pass the energy bills on to their tenants, who often aren’t allowed to make the upgrades and who probably won’t live there long enough to reap the long-term benefits anyway.

Neither of these barriers, you’ll notice, has much to do with cost. They exist mainly because of a lack of information, or trained personnel, or incentives – all areas in which the right government policies can make a big difference.

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4. Stay up to date

Sometimes the big barrier isn’t consumer awareness or markets that are out of whack. Sometimes it’s government policies themselves that make it hard to decarbonize.

For example, if you want to use concrete in a building, the building code will spell out in excruciating detail how well that concrete has to perform – how strong it has to be, how much weight it can bear, and so on. It may also define the precise chemical composition of the concrete you can use. These composition standards often rule out a low-emissions cement you want to use, even if it meets all the performance standards.

No one wants to see buildings and bridges collapsing because of faulty concrete. But we can make sure the standards reflect the latest advances in technology and the urgency of getting to zero.

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5. Plan for a just transition

Such a massive shift to a carbon-neutral economy is bound to produce winners and losers. In the United States, states whose economies rely heavily on drilling for fossil fuels will need to add jobs that pay as well as the ones they lose, and they’ll need to replace tax revenue that currently pays for schools, roads and other essentials. So will beef-growing states, if artificial meats take the place of conventional ones. And low-income people, who already spend a significant portion of their income on energy, will feel the burden of Green Premiums more than most.

I wish there were easy answers to these problems. Certainly there are some communities where high-paying oil and gas jobs will naturally be replaced with jobs in, say, the solar industry. But many others will need to go through a difficult transition to relying on something other than extracting fossil fuels for their livelihood. Because the solutions will vary from place to place, they’ll need to be shaped by local leaders. But the federal government can help – as part of an overall plan for getting to zero – by providing funding and technical advice, and by connecting communities around the country that are experiencing similar problems so they can share what’s working.

Finally, in communities where extracting coal or natural gas is a big part of the local economy, it’s understandable that people worry about how the transition might make it harder for them to make ends meet. The fact that they voice those worries doesn’t make them climate change deniers. You don’t have to be a political scientist to think that national leaders who champion getting to zero will find more support for their ideas if they understand the concerns of families and communities whose livelihoods will be hit hard and if they take those concerns seriously.

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6. Do the hard stuff, too

A lot of climate change work focuses on the relatively easy ways to reduce emissions – things such as driving electric cars and getting more power from solar and wind. That makes sense, because showing progress and demonstrating early success helps get more people on board. And it’s important: We’re not doing the relatively easy stuff at nearly the scale we need, so there are huge opportunities to make major progress right now.

But we can’t just go after this low-hanging fruit. Now that the movement to address climate change is getting serious, we’ll need to focus on the hard parts, too: electricity storage, clean fuels, cement, steel, fertilizer and so on. And that will require a different approach to policy-making. In addition to deploying the tools we already have, we’ll need to invest more in R&D on the hard stuff and – because much of it is core to our physical infrastructure, such as roads and buildings – use policies specifically designed to get these breakthroughs created and into the marketplace.

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7. Work on technology, policy and markets at the same time

In addition to technology and policy, there’s a third aspect that we’ll need to factor in: the companies that will develop new inventions and make sure they reach a global scale, as well as the investors and financial markets that will back these companies. For lack of a better term, I’ll broadly call this group “markets.”

Markets, technology and policy are like three levers that we need to pull in order to wean ourselves from fossil fuels. We need to pull all three of them at the same time and in the same direction.

Simply adopting a policy – say, a zero-emissions standard for cars – won’t do much good if you don’t have the technology to eliminate emissions or if there aren’t any companies willing to manufacture and sell cars that meet the standard. On the other hand, having a low-emissions technology – say, a device that captures carbon from a coal plant’s exhaust – won’t do much good if you don’t create the financial incentive for power companies to install it. And few companies will make a bet on inventing zero-emissions technology if their competitors can undersell them with fossil-fuel products.

That’s why markets, policy and technology have to work in complementary ways. Policies, such as higher spending on R&D, can help spark new technologies and shape the market systems that will make sure they reach millions of people. But it works the other way, too: Policies should also be shaped by the technologies we develop. If, for example, we came up with a breakthrough liquid fuel, then our policies would focus on creating the investment and financing strategies to get it to global scale, and we wouldn’t need to worry as much about, say, finding new ways to store energy.

To see the effect of policies that don’t keep up with technology, look at the nuclear power industry. Nuclear is the only carbon-free energy source we can use almost anywhere, 24 hours a day, seven days a week. A handful of companies are working on advanced reactors that solve the problems of the 50-year-old design used by reactors you see today; their designs are safer and cheaper and produce much less waste. But without the right policies and the right approach to markets, the scientific and engineering work on these advanced reactors will go nowhere.

No advanced nuclear plant will ever be built unless the design can be validated, the supply chains can be established, and a pilot project can be built to demonstrate the new approach. Unfortunately, with a few exceptions such as China and Russia – which are directly investing in state-supported advanced nuclear companies – most countries don’t have workable ways to do these things. It would help if some governments were willing to co-invest in them to help get demonstration projects up and running – as the U.S. government has done recently. I realize this might sound self-serving, given that I own an advanced-nuclear company, but it’s the only way nuclear power will have a chance of helping with climate change.

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The example of biofuels shows a different challenge: making sure we know what problem we’re trying to solve and tuning our policies accordingly.

In 2005, with an eye on rising oil prices and a desire to import less oil, Congress passed the Renewable Fuel Standard, which set targets for how much biofuel the country would use in the coming years. Simply passing this legislation sent a strong signal to the transportation industry, which invested a lot in the biofuel technology that existed at the time – corn-based ethanol. Corn ethanol was already fairly competitive with gasoline, because gas prices were going up, and ethanol producers benefited from a decades-old tax credit.

The policy worked. Ethanol production quickly exceeded the targets that Congress had set; today a gallon of gas sold in the U.S. might contain up to 10 per cent ethanol.

Then, in 2007, Congress set out to use biofuels to solve a different problem. Now the concern wasn’t just rising oil prices; it was climate change, too. The government raised the biofuels targets and in addition required that about 60 per cent of all the biofuels sold in the U.S. be made not from corn but from other starches. (Biofuels made in this way reduce emissions three times more than conventional biofuels.) Refiners quickly met the target for conventional corn-based biofuels, but the advanced alternatives have lagged far behind their target.

Why? Partly because the science of advanced biofuels is just plain hard. And oil prices have stayed relatively low, making it difficult to justify major investments in an alternative that will be more expensive. But a big reason is that the companies that might produce these biofuels, and the investors who might back them, haven’t had any certainty about the market.

The executive branch has expected shortfalls in the supply of advanced biofuels, so it keeps lowering the targets. In 2017, the target was dropped from 5.5 billion gallons to 311 million gallons. And sometimes the new targets are announced so late in the year that producers don’t know how much they can count on selling. It’s a vicious cycle: The government lowers the quota because it expects a shortfall, and the shortfalls keep happening because the government keeps lowering the quota.

The lesson here is that policy-makers need to be clear about the goal they’re trying to achieve and aware of the technologies they’re trying to promote. Setting a biofuels target was a fine way to reduce the amount of oil the U.S. needed to import, because there was already an existing technology – corn ethanol – that could meet the target. The policy sparked innovation, developed the market and got it to scale up. But setting a biofuels target wasn’t a particularly effective way to lower emissions, because policy-makers haven’t accounted for the fact that the suitable technology – advanced biofuels – is still in the early stages, and they haven’t created the certainty the market needs to get it out of the early stages.

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Now let’s look at a success story where policy, technology and markets worked together much better. As early as the 1970s, Japan, the U.S. and the European Union began funding early research into various ways of generating electricity from sunlight. By the early 1990s, solar technology had improved enough that more companies started making panels, but solar still wasn’t being widely adopted.

Germany gave the market a boost by offering low-interest loans to install panels and paying a feed-in tariff – a fixed government payment per unit of electricity generated by renewables – to anyone who generated excess solar power. Then, in 2011, the U.S. used loan guarantees to finance the five biggest solar arrays in the country. China has been a major player in finding ingenious ways to make solar panels cheaper. Thanks to all this innovation, the price of solar-generated electricity has dropped by 90 per cent since 2009.

Wind power is another good example. Over the past decade, installed wind capacity has grown by an average of 20 per cent a year, and wind turbines now provide about 5 per cent of the world’s electricity. Wind is growing for one simple reason: It’s getting cheaper. China, which accounts for a large and growing share of the world’s wind-generated power, has said it will soon stop subsidizing onshore wind projects because the electricity they produce will be just as cheap as the power from conventional sources.

To understand how we got to this point, look at Denmark. Amid the oil shocks of the 1970s, the Danish government enacted a number of policies with an eye toward promoting wind energy and importing less oil. Among other things, the government put a lot of money into renewable-energy R&D. They weren’t the only ones who did this, but the Danes did something unusual. They paired their R&D support with a feed-in tariff and, later, a carbon tax.

As countries such as Spain followed suit, the wind industry started moving down the learning curve. Companies now had the incentive to develop larger rotors and higher-capacity machines so each turbine could produce more power, and they started selling more units. Over time, the cost of a wind turbine dropped dramatically. So did the cost of the electricity generated by wind: In Denmark, it fell by half between 1987 and 2001. Today, the country gets about half its electricity from onshore and offshore wind, and it’s the largest exporter of wind turbines in the world.

To be clear: The point of these stories is not that solar and wind are the answer to all our electricity needs. The point is that when we focus on all three things at once – technology, policies and markets – we can encourage innovation, spark new companies and get new products into the market fast.

Any plan for climate change needs to understand how all three work together.

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Excerpted from How to Avoid a Climate Disaster: The Solutions We Have and the Breakthroughs We Need by Bill Gates. Copyright © 2021 Bill Gates. Published by Knopf Canada, a division of Penguin Random House Canada Limited. Reproduced by arrangement with the Publisher. All rights reserved.