The pernicious effects of greenhouse gas (GHG) emissions have been known for a long time. The efforts to combat GHG emissions at the global level started with the Earth Summit at Rio de Janeiro in 1992 and progressed further with the Kyoto Protocol in 1997. The real push towards decarbonisation came in 2015 at the Paris Summit. Since then, the move to decarbonise the planet has gained ground.

Everyone agrees that decarbonisation is not just essential but urgent. The International Monetary Fund (IMF) estimates that global decarbonisation would have a net value of $85 trillion (IMF 2023). The IPCC reports have consistently pointed to the pernicious effects of GHGs and that we have probably missed the bus in achieving the goals set in Paris. Despite the criticality and urgency of decarbonisation, the results are not particularly encouraging. So, why is decarbonising so tough? There are several reasons (Ovchinnikov 2024):

Companies bear the cost of decarbonisation, which includes improving energy efficiency, new equipment, and payment of carbon price/tax. The benefits accrue to the local communities and often to whole regions and may be cross-country. So, why should businesses pay when they do not reap the benefit? Companies do it for several reasons – the belief that they can earn higher profits due to distinctiveness, moral reasons, peer pressure, or simply because they want to “look good.” Except for the first reason (higher profitability), there is a conflict between private and social profit, with private profit winning in most situations. The high cost involved acts as a barrier. A recent Morgan Stanley report suggests that the biggest barrier to establishing a sustainability strategy is the high level of investment required (Moran Stanley, 2024). This is the same reason, developing countries find implementing net-zero strategies difficult. Similarly, MSME companies also face difficulties in acquiring carbon-reducing technologies and funding for them.

Renewables are the best substitutes for fossil fuels, which currently have a well-developed infrastructure and network. A vast network of powerlines connects power stations. There is also a network of petrol/diesel stations where one can refill fuel. In the case of renewables, this network has to be established. Establishing such a network requires time and effort. It is also costly. Apart from the network not being established, the demand for renewables outweighs its supply (Tan 2021). This makes the shift to renewables difficult.

Another issue is that no one knows which technology will survive in the long run. For example, it is impossible to predict whether electric vehicles will survive or hydrogen cars will rule the roost. This makes capital investment difficult. Unlike in the past, technologies are changing dramatically and rapidly. An investment today may become a burden tomorrow. Capital investments may go to waste in no time. In such an environment, the risk-averse will avoid or delay investment.

There are several other reasons as well. Some of these are the following:

Regulatory complexity: Regulations around carbon emission and its reduction are constantly changing. Not only do they change, but they vary significantly across states within a country. This is compounded by the fact that multinational companies have to comply with different regulations in each country where they operate, making compliance costly.

Geographical limitations: Renewable energy, infrastructure, and carbon storage availability may vary across geographical locations. While importing technology may be an option, sometimes the costs outweigh the benefits.

Safety issues: Meeting precise quality criteria is critical to meeting safety regulations in certain industrial products. Lowering carbon content in cement and steel manufacturing may sometimes impact output quality (Esparza 2020; Gross 2021). Here, the safety standards bodies will need to work with the industry to establish the safety of products with lower carbon. The heat potential of an input fuel may change if one moves from coal to, say, hydrogen. These technicalities hinder the speed of decarbonisation.

Sectoral issues: Several sectors, such as aviation, steel, cement, and other heavy industries, have high GHG emissions. For instance, steel and cement account for 7% and 6% of global emissions, respectively, and are difficult to abate (Sharma, 2023). These industries are likely to benefit from green hydrogen and carbon capture technologies. These require significant funding, which is a challenge.

These challenges are difficult and will not go away easily. The fossil fuel industry has developed since the 1800s, and the renewable energy industry is nascent. While we do not have too much time, we still need to wait for the renewable energy industry to develop. At the same time, global leaders will need to find a way to ensure that the developing and developed nations agree on the way forward. Similarly, large and small businesses must negotiate how decarbonisation efforts can progress. A constant, sustained effort is the key to success.