Mark Lewis for Kepler Cheuvreux (no url): “….The (IPCC) Synthesis Report states that if the world is to stand a better than even chance of limiting warming to no more than 2°C, only about one trillion tonnes of CO2 more can be emitted from 2011 onwards (the precise amount will depend on emissions trends for other GHGs).”
“Overall, the Synthesis Report’s findings are consistent with the IEA’s 450-Scenario as set out in its 2013 study Re-Drawing the Energy-Climate Map. As such, the Synthesis Report reinforces the IEA’s analysis that an extra $5 trillion of energy investments will be needed over 2013-35 relative to its base-case scenario in order to put the world on a trajectory that would be likely to limit warming to no more than 2°C. The IEA emphasizes that in order to incentivize this investment carbon pricing globally will be key. All of which underlines once again the importance of the current debate over EU-ETS reform and the need for an early start of the Market Stability Reserve and the removal of the 900m back-loaded EUAs.
IPCC says humans largely responsible for average global temperature increase: In the Summary for Policymakers accompanying the full Synthesis Report, the IPCC states (paragraph 1.2) that “Anthropogenic greenhouse gas emissions have increased since the pre-industrial era”, and that “their effects, together with those of other anthropogenic drivers, have been detected throughout the climate system and are extremely likely to have been the dominant cause of the observed warming since the mid-20th century” (our emphasis).
IPCC gives a carbon budget of about 1 trillion tonnes for a 2°C world: As explained in paragraph 2.1 of the Summary for Policymakers, given the amount of CO2 already emitted from anthropogenic sources by 2011, humans can only emit about 1 trillion tonnes more if the world is to stand a better than even chance of limiting warming to 2°C: “Multi-model results show that limiting total human-induced warming to less than 2°C relative to the period 1861-1880 with a probability of >66% would require cumulative CO2 emissions from all anthropogenic sources since 1870 to remain below about 2900 GtCO2 (with a range of 2550-3150 GtCO2 depending on non-CO2 drivers). About 1900 GtCO2 had already been emitted by 2011.”
Drastic emissions reductions are therefore required: As explained in paragraph 3.4 of the Summary for Policymakers, in order to stand a better than even chance of limiting warming to no more than 2°C versus pre-industrial levels, the atmospheric concentration of GHGs needs to be restricted to 450ppm: “Emissions scenarios leading to GHG concentrations in 2100 of about 450ppm CO2-eq or lower are likely to maintain warming below 2°C over the 21st century relative to pre-industrial levels.” To achieve this, anthropogenic GHG emissions will need to fall by 40-70% by 2050, and reach “near zero or below in 2100.”
The main burden for reducing emissions falls on the energy sector, especially the power industry: As explained in paragraph 4.3 of the Summary for Policymakers, limiting the atmospheric concentration of GHGs to 450ppm means that “global CO2 emissions from the energy supply sector are (…) characterized by reductions of 90% or more below 2010 levels between 2040 and 2070”. In particular, this means that the power sector has to move away from its current fossil-fuel dominated model and dramatically ramp up production from low-carbon sources. Again, this is emphasized in paragraph 4.3 of the Summary for Policymakers: “In the majority of low‐concentration stabilization scenarios (about 450 to about 500ppm CO2-eq, at least as likely as not to limit warming to 2°C above pre-industrial levels), the share of low‐carbon electricity supply (comprising renewable energy, nuclear and CCS, including BECCS [Bio-energy with CCS]) increases from the current share of approximately 30% to more than 80% by 2050, and fossil-fuel power generation without CCS is phased out almost entirely by 2100.”
IPCC finding and recommendations consistent with IEA’s 450-Scenario: As set out in its 2013 publication Redrawing the Energy-Climate Map and reiterated in the 2013 World Energy Outlook, the IEA’s 450-Scenario projects a significant fall in emissions from energy in general, and from power generation in particular, between now and 2035. As shown in Figure 1, CO2 emissions from energy fall by 9Gt under the 450S (from 31Gt in 2011 to 22Gt per year by 2035), and are 15Gt lower than they would be under the IEA’s bases-case scenario (the New Policies Scenario, or NPS) by 2035.
Figure 1: World Energy Related CO2 emissions, 450S versus NPS (Gt)
Source: IEA, World Energy Investment Outlook 2014 (© OECD/IEA)
As can be seen, the main driver of this reduction is the power sector, which sees (i) lower demand than under the NPS owing to greater efficiency, (ii) a dramatic reduction in the use of fossil fuels in general and coal in particular, and (iii) a sharp increase in the use of renewables, nuclear, and, from 2020 onwards, CCS. The trajectory foreseen in the 450S would put the energy sector on track to deliver the further emissions reductions needed beyond 2035 as set out by the IPCC, with an extrapolation of the trends shown in Figure 1 leading to an 80% drop in energy-related emissions by 2055 versus 2011.
Reducing energy emissions consistent with IPCC recommendations will need extra $5trn of investment: As explained in paragraph 4.4 of the Summary for Policymakers, the reductions in energy emissions consistent with a better than even chance of limiting warming to 2°C will require major changes in investment patterns: “For mitigation scenarios that stabilize concentrations (without overshoot) in the range of 430-530 ppm CO2-eq by 2100, annual investments in low carbon electricity supply and energy efficiency in key sectors (transport, industry and buildings) are projected in the scenarios to rise by several hundred billion dollars per year before 2030.”
Again, this is consistent with the IEA’s 450S as set out in its recent World Energy Investment Outlook (WEIO) report. The WEIO estimates that an extra $4.8 trillion of investment in real terms (2012 $) in energy investments would be needed over 2013-35 above the level foreseen in the NPS in order to put the world on a trajectory consistent with a better than even chance of staying within 2°C (Figure 2). As can be seen, this breaks down as (i) $4.2trn less invested in fossil-fuel energy supplies, (ii) $3.5trn more invested in the power sector and bio-fuels (with more going into renewables, nuclear, and CCS, and less into fossil-fuel fired generation), and (iii) $5.5trn more invested in energy efficiency.
Figure 2: Global cumulative energy investment, 450S versus NPS ($ trillion, in 2012 $)
Source: IEA, Re-drawing the Energy-Climate Map, 2013 (© OECD/IEA)
The detailed policy measures required to ramp up investments in clean energy and energy efficiency are set out in the WEIO, but one of the most important drivers is carbon pricing.
Conclusion: transformation of the global energy system is imperative, carbon pricing is key: The IPCC Synthesis Report is a call to action so that the world can avoid the worst consequences of climate change, and to achieve this dramatic reductions in anthropogenic emissions will be required, especially in energy. The IPCC gives a remaining budget for anthropogenic CO2 emissions of about 1 trillion tonnes, and to put the world on track to remain within this budget the IEA estimates that extra investments of $5 trillion will be required by 2035 above and beyond the level of investment projected in its base-case scenario. The IEA also emphasizes that in order to achieve the emissions trajectory set out in its 450S, the adoption of widespread carbon pricing will be necessary, with prices in the EU projected at $35/tonne by 2020 (€28/t) in real terms by 2020, and other industrialized countries also adopting carbon-pricing mechanisms by 2020 and ramping up prices aggressively to 2035.
Achieving the level of carbon pricing set out in the IEA’s 450S will be extremely challenging, but the EU has signalled its intent to move to a low-carbon future with its 2030 Climate & Energy Package and its 2050 Roadmap. As we have recently explained (see our ESG Alerts Good News as Commission Clarifies MSR Modalities of 28 October, and EU Council Raises Carbon Conundrum of 27 October) reform of the EU-ETS is now crucial to restoring a meaningful CO2 price across the EU. In particular, the accelerated deployment of the Commission’s proposed Market Stability Reform in 2017 (rather than 2021), and the removal of the 900m back-loaded EUAs directly into the MSR before they are re-introduced into the market over 2019-20 will be key to achieving this, and hence to restoring the EU’s reputation as a global leader in the fight against climate change ahead of the crucial COP-21 meeting in Paris in December 2015.
We will continue to monitor relevant developments in the climate and energy space ahead of COP-21 next year, not least in the run-up to COP-20 in Lima next month.
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