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The End of Business-As-Usual? Dr. Johannes Meier European Climate Foundation 1. Climate Science 2. Asset Valuation The end of BAU? 4 Perspectives 4. Transition Management 3. Political Will 1. Climate Science 2. Asset Valuation The end of BAU? 4 Perspectives 4. Transition Management 3. Political Will The Skeptics 4 Types of Skeptics 1. Climate change is not happening 2. Humanity’s contribution to climate change is not significant 3. We cannot mitigate climate change effectively 4. It is too costly to mitigate climate change Climate Science Firming Up Image credit: James Lawrence Powell, MIT Pattern Shift: Global Warming, Rising Risks Source: climateactiontracker.org Pattern Shift: Global Warming, Rising Risks HIGH-CARBON ECONOMY “On track to 6 degrees” (IEA) CHANGING RISK PATTERNS - Weather - Oceans - Food - Security - Health Mitigation Adaptation LOW-CARBON ECONOMY - Decarbonizing power - Resource efficiency - Smart cities - Forests/land use PAYING FOR CONSEQUENCES - High costs of delay of mitigation - Stranded assets - Tipping points Insured Losses from Climate-Related Disasters, 1970-2011 Source: Swiss Re Source: Swiss Re If “Frankenstorm” is happening at 0.8°C warming, what might 3°C, 4°C, or 6°C warming bring? 10 1. Climate Science 2. Asset Valuation The end of BAU? 4 Perspectives 4. Transition Management 3. Political Will Emissions Underlying Financial Flows Source: Carbon Tracker report: Unburnable Carbon 2013 Stress Testing with Carbon Budgets Fossil fuel carbon budget 2013 – 2050 (GTCO2) Scenario Maximum temperature rise 50% probability 80% probability Pessimistic 2°C 886 500 Optimistic 1.5°C 525 - 2°C 1075 900 2.5°C 1275 1125 3°C 1425 1275 13 Source: Carbon Tracker report: Unburnable Carbon 2013 Carbon Budget Deficits for Listed Companies Potential listed reserves Current listed reserves Listed reserves are a quarter of all known fossil fuel reserves Current listed reserves (762GtCO2) far exceed a quarter of the total carbon budgets but could double (1541GtCO2) If we break the 2°C budget, we very quickly hit 2.5°C and 3°C 14 Source: Carbon Tracker report: Unburnable Carbon 2013 Stranded Assets? 1. Climate Science 2. Asset Valuation The end of BAU? 4 Perspectives 4. Transition Management 3. Political Will Key Uncertainty: Political Will Think Tanks Progressive Industry Environmental Advocates National Interests BAU Lobbies Global Factors Political Will Economic Factors Election Cycles Governance Capabilities Ideologies Cultural Memes Media Dynamics Think Tanks Progressive Industry BAU Lobbies Environmental Advocates Policy Frameworks National Interests - 20/20/20 Targets - EU 2050 Energy Roadmap - EU Climate Roadmap Global Factors Election Cycles - EU ETS Directive - EU EE Directive - UK Green Deal - GER Energiewende Economic Factors Governance Capabilities etc. Ideologies Cultural Memes Media Dynamics ECF/Mercator Addressing Convergence and Coherence Challenge with Agora Energiewende 2 goals: • Prepare ground to ensure that policymakers take decisions needed to set the course toward full decarbonisation • Enhance understanding of the Energiewende and help stakeholders views to converge, thereby minimising space for vested interests The Council of Agora Ottmar Edenhofen PIK Stefan Kapferer State Secretary Ministry of Economics Vera Brenzel Vice President Electricity E.ON Matthias Machnig (SPD) Minister for Economy Thuringia 28 Members Martin Iffert CEO Trimet Aluminium Boris Schucht CEO 50Hertz 3 meetings so far 05-09-2012 21-11-2012 20-02-2013 Lucia Putrich (CDU) Minister for Environment Hesse Mechthild Wörsdörfer Head of Unit EC DG Energy Jochen Hohmann President Bundesnetzagentur 1. Climate Science 2. Asset Valuation The end of BAU? 4 Perspectives 4. Transition Management 3. Political Will Where do we want/need to be in 2050, in 2030? Key Challenges for Transition Management Feedstock price development • Shale gas, LNG • Unconventional oil Technology development • Cost curves • Centralized & decentralized architectures • Convergence energy & IT systems Economics • Market designs and subsidies • Internalisation of externalities (carbon taxes/carbon price) • Capital flow constraints Level and quality of market integration • National, EU, global • Gas, electricity markets • Flexibility/capacity markets Public acceptance • Technologies • Infrastructure • Markets • Retail energy prices A Framework for Transition Management Desirable future Backcasting Balancing • Resilience • Optionality • Intelligence Constraints • • • • Installed base Forecasting Contracts Business models Mindsets • Competitiveness • Sustainability • EU2050 international role New Metrics for Dynamic, Complex, Unpredictable, and Risky Environments 1. Resilience 2. Optionality 3. Intelligence Based on M. Liebreich: The new energy ROI • Energy systems to withstand shocks (including worst-case scenarios in calculus) • Future proofing design and location of assets • Bias towards diversity • • • • Adding assets in smaller increments Avoiding lock-in Hedging outcomes Reducing capital intensity • Staying on top of cost curves • Harnessing of big data (Industrial Internet) • Learning platforms ECF fundamental orientation 1. EU global leader in transition to low-carbon economy 2. Energy system led by RES 3. Industrial policies to address competitiveness challenge • Robust 2030 framework • Based on integrated EU • With effective carbon price, explicit carbon liabilities • High RES shares • Investments in energy efficiency, flexibility, transport system reform • Avoiding fossil-fuel lock-in • Sectoral differentiation • Innovation incentives • Easing transition costs 1. Climate Science 2. Asset Valuation The end of BAU! 4. Transition Management 3. Political Will Further Links Interpreting climate science and media reactions http://klimafakten.de/ http://www.carbonbrief.org/ Carbon bubble http://www.carbontracker.org/carbonbubble http://www.carbontracker.org/wp-content/uploads/downloads/2013/03/SnPCT-report-on-oilsector-carbon-constraints_Mar0420133.pdf Political will http://ec.europa.eu/energy/index_en.htm http://www.agora-energiewende.de/ Transition management http://about.bnef.com/blog/liebreich-the-new-energy-roi-resilience-optionality-intelligence/ http://roadmap2050.eu/