GOIN GREEN // Carbon Budget to 2100 will be used by 2034
Carbon Budget to 2100 will be used by 2034
Results show carbon budget limits are now within the planning cycle of major infrastructure and business investment decisions increasing the risk of stranded assets.
The world is on track to blow the 2°C carbon budget estimated by the Intergovernmental Panel on Climate change (IPPC) for the next 89 years, within a period of 21 years, according to an analysis carried out by PwC. This puts the world on a path consistent with potential global warming of around 4°C by 2100, the most extreme scenario presented in the recent IPCC 5th Assessment Report on climate science. The results from the 5th annual PwC Low Carbon Economy Index, examine the amount of energy-related carbon emitted per unit of GDP needed to limit global warming to 2°C. The report warns that the level of warming “will give serious and far-reaching implications”.
Current investment planning cycles for major business and infrastructure investments now need to factor this into their decision making. Jayne Mammatt, a Partner in PwC’s Sustainability and Integrated Reporting Department, says: “G20 countries are still consuming fossil fuels like there’s no tomorrow. Despite rapid growth in renewables, they still remain a small part of the energy mix and are overwhelmed by the increase in the use of coal. The results raise questions about the viability of our vast fossil fuel reserves, and the way we power our economy. The 2 degrees carbon budget is simply not big enough to cope with the unmitigated exploitation of these reserves. Serious risks are being posed to the long term viability of businesses and our economy.”
The Low Carbon Index has been tracking the changes in the world’s and the G20’s carbon intensity since 2008, shortly after the publication of the last IPCC report. Despite warnings by scientists that will bring about unprecedented adverse impacts around the world, the growth of greenhouse gas emissions remains largely unabated. In 2012 the Low Carbon Index calculated that the global economy needed to reduce carbon intensity (the amount of carbon emissions per unit of GDP) by 5.1% a year to limit warming to 2°. Only three countries achieved this last year: the US, Australia and Indonesia. Not a single G20 country has come close to sustaining this rate of decarbonisation over the last five years since 2007. If the world continues at current rates of decarbonisation, the carbon budget outlined by the IPCC for the period 2012 to 2100 would be spent in less than a quarter of that time, and be used up by 2034. Emissions over and above that budget would be increasing the chances of dangerous climate change, with average warming of surface temperature projected to be beyond 2°C.
Energy efficiency progress was one bright spot in the analysis. The study found that 92% of the small reduction in carbon intensity achieved last year is down to improvements in energy efficiency with the remaining 8% through a shift towards a cleaner energy mix. Italy, the UK and Turkey rank as the most energy efficient economies in the G20, consuming less energy for every $m of GDP generated than their counterparts. While several larger emerging economies were able to increase efficiency – South Africa averaged 1.9% a year, and Indonesia managed 1.6% a year – there is still scope for improvements in most emerging economies.
Five years ago, our global decarbonisation target was 3.5% per annum, now the challenge nearly doubles to 6%. This is over eight times our current rate of decarbonisation, a level never achieved before, let alone sustained over decades. To achieve what the IPCC deems the ‘safe’ amounts of carbon in the atmosphere to limit the extreme impacts of climate change, would require halving carbon intensity within the next ten years, and reducing it to one-tenth of today’s levels by 2050. By 2100, the global energy system would need to be virtually zero-carbon. The study also finds that policies and low carbon technologies have failed to break the link between growth and carbon emissions in the global economy. The world’s energy mix remains dominated by fossil fuels:
Reductions in carbon intensity globally have averaged 0.7% per year over the past five years – a fraction of the 6% reductions now required every year to 2100.
The G7 averaged a 2.3% reduction while the E7 – which includes much of the manufacturing base of the global economy – only managed 0.4%
While the fracking revolution has helped lower emissions in the US, cheaper coal contributed to higher coal usage elsewhere, for example in the European Union, raising concerns that decarbonisation in one country can just shift emissions elsewhere.
Mammatt says: “Our analysis assumes long-term moderate economic growth in emerging economies, and slow steady growth in developed economies. But, failing to tackle climate change is unlikely to result in such a benign scenario of growth. Something’s got to give, and potentially soon. This has implications for a raft of investments in carbon intensive technologies that are currently being planned and executed today.”
Energy and carbon-related risks must be effectively considered in every company’s risk management process, as it has a potentially significant strategic and operational impact for the long-term viability of businesses. This does not only apply to direct risks such as the planned South African carbon tax, but also to indirect risks from a company’s supply chain. The results of the 5th annual LCEI show that risks including security of supply – either from the inability to remain competitive and reduce carbon intensity of products, or from physical disruption of material sources – are very real challenges for companies to prepare for.