By Thomas Cox
As governments prepare to start the COP26 negotiations at the end of the month, they have been warned that an immediate ramp-up in energy & land use policy is needed to keep the goal of restricting warming to 1.5°C in sight.
According to an analysis by the Principles for Responsible Investment (PRI), this accelerated action – under its Required Policy Scenario (RPS) – would mean:
- An end to deforestation across the entire globe, ideally by 2025. If not, the energy system has to absorb greater reductions, potentially through bioenergy and carbon capture and storage (BECCs).
- The elimination of unabated coal in most advanced economies including China by 2035.
- The phase out of new fossil cars in almost all markets by 2040
- The transition to 100% clean power globally by 2045.
However, the report finds that far more likely than the Required Policy Scenario is a set of actions it refers to as the Forecast Policy Scenario, which forecasts a “dramatic acceleration of climate policy is likely by the 2025 Paris Ratchet, which could result in warming being held to below 2°C”.
Under this scenario, rapid transformation of the energy industry will see usage of fossil fuels plummet by 60% by 2050, with demand for coal falling by 75% and oil demand dropping after the mid-2020s the PRI said.
The report serves as a stark reminder to policymakers ahead of the crunch COP26 talks in Glasgow.
Alex Bernhardt, global head of sustainability research at BNP Paribas AM, said: “Forward-looking scenarios are critical in a changing world. The discrepancy between the Forecast and Required Policy Scenarios reiterates the fact that we’re not going to get to 1.5°C without serious action: companies, investors and governments committed to achieving net zero by 2050 must accelerate their efforts now more than ever. That is the key message heading into COP26.”
The PRI’s Inevitable Policy Response (IPR) project conducted its ‘forecast policy scenario’ through reviewing 21 “major economies” and surveying more than 200 experts in national climate policy.
Despite carbon dioxide emission falling 80% by 2050 under the Forecast Policy Scenario, the planet has a one in two chance of restricting warming to 1.8°C, the PRI said.
Wind and solar power will make up over 30% of electricity generation by 2030, increasing to over 60% by 2050, the PRI said. “Seismic shifts” in transport will see production of vehicles powered by fossil fuels peak in 2025. The truck sector will transition more slowly but will still be almost fully decarbonised by 2050, the PRI said.
However, in industry the fall in emissions will be slower than in power and transport due to the higher costs involved – with emissions dropping by around 45% by 2050.
Land will become a net sink for carbon dioxide overall by 2050, absorbing one gigatonne of carbon dioxide annually, through the growth of nature-based solutions for environmental challenges and avoiding deforestation, the PRI said.
Some 400 million hectares of pasture and rangelands – an area about twice the size of Mexico – will be replaced with forests, cropland and nature-based solutions globally by 2050. Projects targeting “negative emissions” and avoiding deforestation will be worth $167 billion annually by 2050 with China having the highest deployment of nature-based solutions, the PRI suggested.
Between 2023 and 2025 the world will be at a “policy tipping point” following the ‘global stocktake’ in 2023, when the UN takes stock of the implementation of the Paris Agreement so far, and as countries prepare to submit their third round of climate pledges in 2025, the PRI said. Simultaneously, pressure on governments from investors and businesses will increase.
124 countries representing 70% of global GDP have made net-zero commitments so far, with 48% showing higher ambition than in 2019, the PRI said.
To have a chance of achieving a 1.5°C increase, “governments around the globe would need to pursue immediate policy action which directly intervenes in markets to set performance standards, including strict bans, to drive a step change in the energy system”, the PRI said.
“Failure to pursue such significant policy changes within the next two years would leave a significant ramping up of negative emissions technologies in the 2030s as a potential alternative to keep warming to 1.5°C.
“But given food and land use constraints, and the fact that many technologies are unproven at scale, pushing beyond the already forecasted acceleration in nature-based solutions would also require significant and urgent policy support.
“Policy acceleration in developing nations will be especially critical, reinforcing the importance of significantly increasing climate finance to developing countries and investing in the energy and land use transitions in these countries from both the public and private sector in the coming years,” the PRI said.
IPR is working with partners including BlackRock and BNP Paribas Asset Management to define which data elements are key for asset owners and managers for application in company and sector valuation models.
Fiona Reynolds, CEO of the PRI, said: “IPR scenarios for investors encompass both the large-scale market shifts to come in carbon, energy and land use as well as invaluable granular analysis to help guide investment directions.
“The 2021 IPR forecasts signal to investors that they must focus on the transition, 2030 and net zero pathways and the investment opportunities emerging as policy makers respond to growing climate challenges.”
Ashley Schulten, head of ESG Investment, global fixed income at BlackRock said: “The detailed policy forecasts in this work help the market conceptualise the key changes that could occur in energy and land systems across the world if the forecasted climate policy acceleration occurs.”
The IPR forecast coincides with analysis of the climate policies of G20 countries from three investor groups. The G20 is failing to attract the necessary investment in climate solutions for a climate-resilient transition to a low-carbon economy, the Asia Investor Group on Climate Change, the Investor Group on Climate Change and Ceres said.
Argentina, Australia, China, India, Indonesia, Mexico, Russia and Saudi Arabia are among the least attractive countries for green investment in the G20, the investor groups said. “G20 countries have significant work to do to ensure climate risk is effectively managed.”
Courtesy: Environmental Finance