Why is now the best time to invest in climate technology?

Conventional wisdom suggests that climate technology is entering the winter season, as levels of political and investor interest and investment decline — an ironic contrast to the climate itself, which continues to deliver years of record warmth.

A new report from the International Energy Agency suggests that there has never been a better time to go all-in on climate technology. Compared with the IEA’s position a decade ago, it is clear that the world’s expectations about the future have changed dramatically in less than one generation.

In 2014, the International Energy Agency assumed that in the absence of any international effort to rein in carbon pollution, emissions would continue to rise to the right. Even the most optimistic forecasts at the time predicted a linear increase, with only a smaller slope. These scenarios essentially took the trend line from the past few years and extended it out to 2050.

Fast forward to today, and the IEA’s current worst-case scenario is essentially the best-case scenario for 2014. A decade ago, without any major changes, the world was heading toward 46 gigatonnes of carbon dioxide₂ If countries reduce emissions as they pledged, the best we could hope for is 38 gigatonnes per year by 2040.

Today, if countries continue business as usual, the International Energy Agency expects emissions to stabilize at 38 gigatons per year. If countries follow through on their pledges, the International Energy Agency suggests we will reach about 33 gigatonnes per year by 2040. This is still far from what is needed to reach net zero by 2050, but it is a significant shift in a short period of time.

If the IEA’s previous forecasts turned out to be overly pessimistic compared to where we are today, what does that say about today’s forecasts?

How you answer this question depends on how you interpret trend lines.

When forecasting the future, do you analyze today’s data? Or do you look at that data along with how our expectations about the future change over time? (A more bizarre way to look at it is: Do you look at the world through the lens of algebra or calculus?)

In other words, will the world reach net zero in 2050? Today’s trend lines indicate that we will miss this target by a significant margin. But if you look at how expectations have changed over the past decade, you might come up with a different answer. Alternatively, you might think that the rate of change has increased, and that we may be in the middle of an inflection point that begins to shift global emissions downward.

There are some recent anecdotes that support the idea that we are at an inflection point.

And in Germany, electric car sales hit new records even after the government scrapped incentives in 2023. In developing countries, renewables are reshaping the economies of developing countries, long thought to be among the last to embrace clean energy. As for China, which previously refused to commit to reducing its carbon emissions, it has now said that its emissions will peak before 2030.

The way the world views the future of carbon emissions has changed dramatically over the past decade. A range of technologies have helped make this possible, including cheap solar and wind power combined with cheap batteries.

In the near future, geothermal energy and grid optimization software could drive the next leaps in optimism. For investors who agree, the upside could be dramatic.

For many climate technology investors, these days may seem very bleak. But amidst this darkness, there are still bright spots to be found.