The new Inconvenient Truth: climate policy needs realism, not rhetoric

Local primary school children opened the event by singing Joni Mitchell’s Big Yellow Taxi - a song warning about environmental destruction long before climate change entered the political mainstream. There was a genuine sense of optimism that governments and businesses could work together to tackle one of the defining challenges of our generation. I had bought thousands of copies of An Inconvenient Truth for our investors because I believed climate change would shape the future of society and business.

Optimism shaped my thinking for years. But optimism must be tested by due diligence. I commissioned an investigation into what it would take to decarbonise the British economy over the following fifty years. The work took seven years and drew on experts from multiple disciplines. We examined technologies, infrastructure, energy systems and the economics of decarbonisation.

The conclusion was not that climate change was less serious than we had thought. It was that deep decarbonisation would be more complex, more expensive and involve greater economic and social trade-offs than most public debate acknowledged. This did not mean the objective was wrong but that honesty about costs and benefits was crucial for public support.

As Britain endures another heatwave and political consensus on climate policy fractures, I ask whether our current approach remains the best way to respond. The climate scenarios that will underpin the next assessment by the UN’s Intergovernmental Panel on Climate Change have been revised.

The highest-emissions scenarios that framed public discussion are now considered considerably less likely than they were a decade ago. This isn’t because climate change has disappeared or the underlying science was wrong. It’s because the world has evolved differently from the highest-emissions pathways that once appeared plausible.

Global economic growth has generally been weaker, geopolitical conflicts have disrupted energy markets and investment patterns, renewable energy has expanded faster and population growth projections have been revised down. So the assumptions behind these scenarios have changed even though the science linking greenhouse gas emissions to global warming has not.

Hotter summers, frequent flooding and increasing pressure on infrastructure are a reality. We must prepare for this. The world is now unlikely to achieve the Paris Agreement’s ambition of limiting warming to below 2°C, although future policy choices could still alter that. Evidence suggests we are heading for neither the best-case nor the worst-case outcome, but something in between.

This should prompt a serious discussion about what climate policy looks like: how to minimise climate risks while achieving the greatest reduction in emissions at the lowest economic and social cost.

But the direction of travel remains deeply concerning. If there is one lesson I have learned from over forty years in business, it’s that when circumstances change, you revisit the plan. Climate policy should be no different.

The implication of the revised climate scenarios is not that climate action should be abandoned. Climate policy should become more economically disciplined, focusing on measures that reduce emissions while lowering costs, improving productivity and strengthening energy security.

That means prioritising investment where it delivers the greatest return: expanding clean electricity generation, modernising the electricity grid, improving energy efficiency, investing in electricity storage and next-generation nuclear where appropriate, accelerating the adoption of electric vehicles and supporting industrial decarbonisation where it strengthens Britain’s long-term competitiveness. Innovation remains essential, but we should also be honest about where technologies are commercially proven and where uncertainty remains.

Those who question Britain’s commitment to net zero point out, correctly, that our share of global emissions is relatively small. Even if Britain reached net zero tomorrow, the direct effect on global temperatures would be limited unless other major economies followed suit.

Yet climate change cannot be viewed solely through a British lens. Many of the countries most vulnerable to its impacts have contributed the least to historic emissions while possessing the fewest resources to respond. Helping them build resilience is not simply an act of solidarity. Climate instability contributes to migration, food insecurity and geopolitical tensions that affect us all.

Success should not be measured by whether Britain meets a particular emissions target in a particular year. It should be judged by whether we steadily reduce emissions while strengthening energy security, improving productivity, protecting households from unnecessary costs, increasing resilience to the climate change that is already unavoidable and preserving Britain’s international competitiveness.

A successful climate policy should leave the next generation with a healthier environment and a stronger economy. The challenge is not to choose between climate ambition and economic realism, but to reconcile the two. Climate policy will only succeed if it is economically credible and scientifically grounded.

The children who sang Big Yellow Taxi are now adults. The choices we make over the next twenty years will shape the world they and their own children inherit. We owe them neither false optimism nor political rhetoric. We owe them climate policies that genuinely reduce emissions, strengthen our economy and endure. That requires realism, compromise and determination - not rhetoric.

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Guy Hands is the Founder of private equity firm Terra Firma.

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