DEMANDING A 1.5°C SCENARIO
The Intergovernmental Panel on Climate Change (IPCC) is the reference institution on the state of the climate and on the efforts that different sectors must make in order to limit warming below the critical threshold of 1.5°C.
But although the IPCC establishes transition scenarios, most political and financial decisions in the energy field are taken on the basis of the scenarios of the International Energy Agency – the reference institution for projecting energy supply and demand by country and at the international level.
Not all IEA scenarios have the same influence on decision-making processes. Only those put forward by the World Energy Outlook (WEO), the energy bible that the IEA publishes every year, play a leading role in guiding investors. Today, however, the IEA’s World Energy Outlook mainly focuses on a business-as-usual scenario. This would lead to +3°C warming. By doing so, the IEA is guiding us on a path that we know we must avoid.
Reclaim Finance calls on political and financial institutions to demand that the IEA develop and integrate in the WEO a 1.5°C scenario that includes a cautious approach on negative emissions technologies. In the meantime, Reclaim Finance calls on financial institutions to select the most realistic and ambitious 1.5°C scenarios of the IPCC.
The IEA aims at a 3°C warming
The Paris Agreement aims to keep global warming “well below 2°C and as close as possible to 1.5°C.” The IPCC’s special report on 1.5°C warming stresses the importance of aiming for this stricter threshold in order to avoid the worst social and environmental consequences of climate change.
To achieve this, carbon neutrality must be achieved by 2050, and not in the 2nd half of the century, as originally advocated in the Paris Accord. Many financial institutions are committed to this today, notably through the Net-Zero Asset Owner Alliance: Allianz, AXA, CDC, Zurich, Swiss Re are among these. However, they are missing the right tool to get there.
Indeed, instead of aiming at a 1.5°C trajectory, the IEA’s World Energy Outlook focuses mainly on a scenario called STEPS – Stated Policies Scenario (formerly the New Policies Scenario NPS). This scenario would cause a +3°C warming. Another scenario is also mentioned, the SDS, or Sustainable Development Scenario. This scenario doesn’t aim at a 1.5°C target either.
The IEA bets on non-existent technologies
The IEA tends to systematically underestimate the development of renewables. On the contrary, it bets on the development of nuclear power and as yet non-existent technologies. These include negative emission technologies that would allow us to temporarily overshoot the global warming target before returning to it. A very risky bet.
First of all, it should be recalled that there are still major uncertainties about the possible application of carbon capture and storage (CCS) in the oil and gas end-use sectors, e.g. power generation, transport, residential heating and cooling.
Moreover, most of the technologies under consideration, such as bioenergy with carbon capture and storage (BECCS) do not exist at all. Finally, scientists from Scientific Advisory Board of European Academies warn that while they “may have a useful role to play,” current information shows that they would not be sufficient to “compensate for inadequate mitigation measures”.
The best course of action is therefore to avoid GHG emissions in advance.
Financial and political institutions
must engage the IEA
By using the SDS to assess companies and establish climate stress tests, investors and financial institutions underestimate the transition risks associated with these companies.
Financial institutions and governments that are shareholders in the IEA, including France, must join efforts to call on the international agency to develop a 1.5°C scenario, with a cautious approach to negative emissions technologies, and make it the central reference for the World Energy Outlook.
This is exactly what a large group of investors representing more than $33 trillion under management called on the IEA to do in April 2019. According to the signatories calling on the IEA, this scenario should also include a reasonable probability – 66% – of limiting warming to 1.5°C and a longer time horizon – beyond 2040.
Unfortunately, this initiative included no French financial institution, an irony considering the IEA is based in Paris.
The lack of action of French institutions is all the more unacceptable given that some of them, such as Société Générale, are quick to refer to IEA scenarios to justify their climate inaction and massive financial services to fossil fuels.