Two degrees of separation: ambition and reality; Low Carbon Economy Index 2014
September (PricewaterhouseCoopers)
Heading for four degrees?
The PwC Low Carbon Economy Index (LCEI) calculates the
rate of decarbonisation of the global economy that is
needed to limit warming to 2°C. We base our analysis on
the carbon budget estimated by the Intergovernmental
Panel on Climate Change (IPCC) for 2°C.
Emissions per unit of GDP fell in 2013 by 1.2%, marginally
better than the average decrease of 0.9% since 2000. But
with such limited progress in decoupling emissions growth
from GDP growth, the gap between what we are doing and
what we need to do has again grown, for the sixth year
running. The average annual rate of decarbonisation
required for the rest of this century for us to stay within the
two degree budget now stands at 6.2%. This is double the
decarbonisation rate achieved in the UK during the rapid
shift to gas-fired electricity generation in the nineties.
While negotiations focus on policies to limit warming to
2°C, based on the decarbonisation rates of the last six years,
we are headed for 4°C of warming in global average
temperature by the end of the century, with severe
consequences identified by the IPCC for ecosystems,
livelihoods and economies.
The mounting challenge of decarbonisation
PwC’s Low Carbon Economy Index (LCEI) has looked at the
progress of the G20 economies against a 2°C global carbon
budget since 2009. Currently, economic growth is closely
coupled with carbon emissions and increased greenhouse gas
(GHG) concentrations. The IPCC’s latest assessment report
(AR5) has reinforced the message that, without the rapid
decoupling of GDP and emissions, climate change will present
widespread threats to business and society.
AR5 sets out four carbon budgets that correspond to different
degrees of warming by the end of the 21st century. The
current consensus target by governments, convened under the
UN Framework Convention on Climate Change (UNFCCC), is
to limit global average temperature increase to 2°C. To meet
this warming scenario (known as RCP2.6 in AR5), cumulative
fossil fuel CO2 emissions between 2010 and 2100 need to be
no more than 270GtC (or around 990GtCO2).
But while all governments at the UNFCCC reiterate the goal of
limiting warming to 2°C, implementation has fallen short of
this goal. Current total annual energy-related emissions are
just over 30 GtCO2 and still rising, a carbon ‘burn rate’ that
would deplete the carbon budget for the entire century within
the next 20 years. The IPCC has warned that our current
trajectory will lead to warming estimated to range from 3.7 -- 4.8°C over the 21st century. It anticipates severe adverse
impacts on people and ecosystems through water stress, food
security threats, coastal inundation, extreme weather events,
ecosystem shifts and species extinction on land and sea. At the
higher levels of warming, the IPCC states that these impacts
are likely to be pervasive, systemic, and irreversible.
Against this backdrop of gloom, the decarbonisation results
reported in this years’s LCEI bring a glimmer of hope, with
growth in absolute emissions of only 1.8%, the slowest rate of
emissions growth since 2008-2009, when carbon emissions
fell as a result of the global recession. The reduction in carbon
intensity is also the highest since 2008, standing at 1.2%,
compared to 0.8% in 2012. Nevertheless it is still only one
fifth of the decarbonisation rate required. Currently, the LCEI
shows the global economy would need to cut its
carbon intensity by 6.2% a year, every year from
now to 2100, more than five times its current rate.
The stakes are high
The physical impacts of climate change will vary from country
to country, and some countries may find that the impacts
within its own borders are relatively limited or in some cases
benign. But in a highly globalised economy, no country is
likely to be spared as the impacts of climate change ripple
around the world, affecting interdependent supply chains and
flows of people and investment.
Indirect impacts of climate change
The UK, for example, will face adverse domestic impacts in
the form of extreme weather events such as flooding,
storms and heat waves, as well as some negative impacts on
agricultural production. It is also projected to see some
benefits, through increased agricultural yields for some
produce, and lower winter mortality. But the international
impacts of climate change to the UK could be an order of
magnitude larger than domestic threats and opportunities.
The UK for example, holds around £10 trillion of assets
abroad, with the flow of investment by the UK into other
countries exceeding £1 trillion in 2011 alone. Physical or
economic damages in the countries that the UK has invested
in will therefore flow back to the UK – and some of the
sectors that the UK has invested in have already identified
vulnerability to climate impacts, for example food and
beverages, mining and power generation. Many of the UK’s
largest retailers are now conducting risk assessments of
long-term climate trends and the implications for their
supply chains and business operations. Other sectors, such
as manufacturing and financial services, could be affected
by both the physical impacts of climate change and
regulatory pressures on carbon-intensive assets. Extreme
weather-related events beyond UK borders in the past year
alone have shown that these losses can be significant.
Progress in 2013
In last year’s LCEI we calculated that the global economy
needed to reduce carbon intensity (the amount of carbon
emissions per unit of GDP) by 6.0% a year to limit warming to
2°C. Overall, we have fallen far short of the global target for
the sixth successive year, achieving only a 1.2% reduction in
2013. Having failed to achieve the global decarbonisation rate
of 6.0%, the global challenge we face going forward is now
tougher still. The path to 2100 requires an annual global
decarbonisation rate averaging 6.2%. But the global result
masks striking variations in performance at the national level.
An unexpected champion surpassed the decarbonisation
target – Australia recorded a decarbonisation rate of 7.2%
over 2013, putting it top of the table for the second year in a
row. Three other countries – the UK, Italy and China
– achieved a decarbonisation rate of between 4% and 5%. Five
countries, however, increased their carbon intensity over
2013: France, the US, India, Germany and Brazil.
One glimmer of hope lies in the performance of emerging
markets, with this year seeing the reversal of an emissions
trend between the G7 and E7 economies. Since LCEI analysis
started, the G7 has consistently outpaced the E7 in reducing
carbon intensity, but in 2013, for the first time, the E7
averaged a 1.7% reduction in carbon intensity, while the G7
managed only 0.2%. This indicates the possibility of the E7
maintaining economic growth while slowing the rate of
growth in their emissions. As the main manufacturing hubs of
the world, the E7 economies currently have total carbon
emissions 1.5 times larger than that of the G7, a figure
expected to grow. This possibility of the E7 decoupling of
growth from carbon is vital for global progress towards
carbon targets.
Ups and downs: Analysing the results…Can renewables compete with coal by the 2020s?..
Promising three degrees…How the pledges currently
stack up…Commitments vs. progress by the largest emitters…Weak G7 progress towards 2020 targets…Continued rising carbon emissions from E7…Politically not scientifically driven…
Delivering two degrees
So what is needed?
The international negotiations leading up to Paris 2015 are a
critical chance to ensure collective agreement on targets to
keep temperature increases within 2°C. The foundation of a
successful deal will be a set of emissions pledges that are
adequate to maintain global temperature increases below 2°C.
The IPCC, and others such as UNEP, have estimated the
required carbon emissions levels under the different
concentration pathways. The IPCC’s latest report on
mitigation has also put forward, based on a range of models, a
possible breakdown of the carbon budget by regions14. The UN
initiative referred to as the Deep Decarbonisation Pathways
Project also considered plausible decarbonisation pathways
for 15 countries15.
What does this look like in more detail?
The LCEI takes these breakdowns as a basis to outline the
potential reductions required by these countries, and their
ongoing decarbonisation rates. The challenge is considerable.
Overall, to stay within the global carbon budget, annual
energy-related emissions by the G20 bloc need to fall by
one-third by 2030 and just over half by 2050. Much of the
debate in climate negotiations has centred on responsibility
and how to share the burden between developed and
developing countries, as defined in 1992 in the UNFCCC.
Regardless of how the carbon budget is split, it is clear that
both developed and emerging economies face the challenge of
growing their economies whilst radically curbing emissions.
The timeline is also unforgiving. The IPCC and others have
estimated that global emissions will need to peak around
2020 to meet a 2°C budget. This means that emissions from
the developed economies need to be consistently falling, and
emissions from major developing countries will also have to
start declining from 2020 onwards.
Specifically, to stay within a 2°C budget, the G7 needs to
further reduce its absolute carbon emissions by 44% by 2030
and 75% by 2050 compared to 2010 levels. Even if the 2020
pledges are met, this means its carbon intensity needs to fall
by 5.9% from 2020 to 2030, and by 6.0% from 2030 to 2050.
For the E7 economies, meeting the 2020 pledges is just the
first step. The required carbon emissions reduction from 2020
to 2030 will have to be sharp and immediate, equivalent to a
carbon intensity reduction of 8.5% per annum. If this is
achieved, then further carbon intensity reductions of about
5.3% a year to 2050 could take the E7 to emission levels
compatible with limiting climate change to a 2°C warming. In
this case, carbon intensity levels will be comparable to those
of the G7 by 2050…
G7 (incl EU) historical energy-related emissions and targets…G7 carbon intensity reality and ambition…E7 historical energy-related emissions and targets…
Betting on Paris 2015…Expectations and necessity…The critical role of national targets…
Smoke signals to look for before Paris
With timing of the essence, there are a number of
developments to watch out for ahead of the climate talks in
Paris 2015 that look to be preconditions of success:
• Big footprint leadership: The outcome of the New
York UN Climate Leaders’ Summit, hosted by Ban Ki-moon
on September 23 2014, will be highly influential. Strong
attendance by heads of state, and strong calls for increased
ambition and action – whether jointly or individually – will
provide legitimacy to the efforts of their negotiating teams
in Lima and beyond, while encouraging governments to
put forward more ambitious targets.
• INDC pledges: The emissions reduction pledges
submitted by countries by March 2015 are the building
blocks of a deal. How the renewed pledges add up will
shape the likely carbon emissions trajectory for the world
for the next decades. These pledges can be increased after
Paris, and a new UN process would likely be introduced to
enable this, but the INDCs will demonstrate the short-to-medium term willingness of governments to decarbonise.
• ‘Draft decisions’ papers: laying down the policy
foundations: Specific policies, what’s in and what’s out,
will be the battleground for negotiators in the next
months. The more that is locked down before Paris, for
example in the 2014 summit in Lima, Peru, the more likely
it is that there could be an international deal. Draft
decision papers that secure at least a high level policy
consensus will therefore be critical. Working groups of the
UNFCCC process are gearing up activities by making
public some possible options for the Paris 2015 deal.
• A change in the carbon rhetoric? Above all, as some
renewables appear to approach cost parity, and as the costs
of climate inaction – from flooding to food insecurity - appear to grow, the strongest determinant of success will
be the broadening of the emerging recognition by both
business and political leaders that taking decisive action to
mitigate climate change is not a cost, it is a pre-condition
for sustained economic growth.
The next two annual UN climate summits in Lima and Paris
will indicate the direction in which the world is headed on
climate change. Where we are now is clear: inadequate
pledges, inadequately implemented. If these four indicators
above of success are met, though, the picture could start to
look different. The stage is then set for one meeting to take us
off the path to 4°C, beyond the present promises of 3°C,
towards a policy framework for a future where warming is
limited to 2°C.
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