The End of Business-As-Usual?

The End ��of Business-As-Usual?

Dr. Johannes Meier European Climate Foundation

The end of BAU?��4 Perspectives

1. Climate Science 2. Asset Valuation

3. Political Will 4. Transition Management




The Skep(cs

4 Types of Skep(cs 1.  Climate change is not happening

2.  Humanity’s contribu(on to climate change is not significant

3.  We cannot mi(gate climate change effec(vely

4.  It is too costly to mi(gate climate change

Image credit: James Lawrence Powell, MIT

Climate Science Firming Up

Source: climateactiontracker.org

PaHern ShiI: Global Warming, Rising Risks

HIGH-CARBON ECONOMY “On track to 6 degrees” (IEA)

CHANGING RISK PATTERNS - Weather - Oceans - Food - Security - Health

Mitigation LOW-‐CARBON ECONOMY -‐ Decarbonizing power -‐ Resource efficiency -‐ Smart ci(es -‐ Forests/land use

Adaptation PAYING FOR CONSEQUENCES -‐ High costs of delay of mi(ga(on -‐ Stranded assets -‐ Tipping points

PaHern ShiI: Global Warming, Rising Risks

Source: Swiss Re

Source: Swiss Re

Insured Losses from Climate-‐Related Disasters, 1970-‐2011

If “Frankenstorm” is happening at 0.8°C warming, what might 3°C, 4°C, or 6°C warming bring?

10




Emissions Underlying Financial Flows

Source: Carbon Tracker report: Unburnable Carbon 2013

Fossil fuel carbon budget 2013 – 2050 (GTCO2)

Scenario Maximum temperature

rise

50% probability

80% probability

Pessimis(c 2°C 886 500

Op(mis(c 1.5°C 525 -‐

2°C 1075 900

2.5°C 1275 1125

3°C 1425 1275

13

Stress Tes(ng with Carbon Budgets


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

Poten(al listed reserves Current listed reserves

Carbon Budget Deficits for Listed Companies


Stranded Assets?




Key Uncertainty: Poli(cal Will

Poli(cal Will

Think Tanks Environmental Advocates

Na(onal Interests

Elec(on Cycles

Governance Capabili(es

Media Dynamics

Cultural Memes

Ideologies

Economic Factors

Global Factors

BAU Lobbies

Progressive Industry

Policy Frameworks -‐ 20/20/20 Targets

-‐ EU 2050 Energy Roadmap -‐ EU Climate Roadmap -‐ EU ETS Direc(ve -‐ EU EE Direc(ve -‐ UK Green Deal

-‐ GER Energiewende etc.

Think Tanks Environmental Advocates

Na(onal Interests

Elec(on Cycles

Governance Capabili(es

Media Dynamics

Cultural Memes

Ideologies

Economic Factors

Global Factors

BAU Lobbies

Progressive Industry

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 decarbonisa(on

•  Enhance understanding of the Energiewende and help stakeholders views to converge, thereby minimising space for vested interests

The Council of Agora

28 Members

Martin Iffert CEO Trimet Aluminium

Stefan Kapferer State Secretary Ministry of Economics

Mechthild Wörsdörfer Head of Unit EC DG Energy

Jochen Hohmann President Bundesnetzagentur

Vera Brenzel Vice President Electricity E.ON

Lucia Putrich (CDU) Minister for Environ- ment Hesse

Matthias Machnig (SPD) Minister for Economy Thuringia

Boris Schucht CEO 50Hertz

3 meetings so far 05-09-2012 21-11-2012 20-02-2013

Ottmar Edenhofen PIK




Key Challenges for Transi(on Management

Level and quality of market integraMon •  Na(onal, EU, global •  Gas, electricity markets •  Flexibility/capacity

markets

Feedstock price development •  Shale gas, LNG •  Unconven(onal oil

Technology development •  Cost curves •  Centralized &

decentralized architectures

•  Convergence energy & IT systems

Public acceptance •  Technologies •  Infrastructure •  Markets •  Retail energy prices

Economics •  Market designs and

subsidies •  Internalisa(on of

externali(es (carbon taxes/carbon price)

•  Capital flow constraints

A Framework for Transi(on Management

Backcasting

Desirable future •  Competitiveness •  Sustainability •  EU2050

international role

Constraints •  Installed base •  Contracts •  Business models •  Mindsets

Forecasting

Balancing •  Resilience •  Optionality •  Intelligence

Where do we want/need to be in 2050, in 2030?

New Metrics for Dynamic, Complex, Unpredictable, and Risky Environments

1.   Resilience

2.   OpMonality

3.   Intelligence

•  Energy systems to withstand shocks (including worst-‐case scenarios in calculus)

•  Future proofing design and loca(on 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 plaoorms

Based on M. Liebreich: The new energy ROI

Finding Orienta(on in a Principled Approach

1.   EU global leader in transiMon to low-‐carbon economy

2.   Energy system led by RES

3.   Industrial policies to address compeMMveness challenge

•  Ambi(ous and binding 2030 targets

•  Integrated EU market and financial union

•  Investments in flexibility and energy efficiency

•  Avoiding fossil-‐fuel lock-‐in

•  Sectoral differen(a(on •  Innova(on incen(ves •  Easing transi(on costs

The end of BAU!



Further Links Interpre(ng climate science and media reac(ons hHp://klimafakten.de/ hHp://www.carbonbrief.org/

Carbon bubble hHp://www.carbontracker.org/carbonbubble hHp://www.carbontracker.org/wp-‐content/uploads/downloads/2013/03/SnPCT-‐report-‐on-‐oil-‐sector-‐carbon-‐constraints_Mar0420133.pdf

Poli(cal will hHp://ec.europa.eu/energy/index_en.htm hHp://www.agora-‐energiewende.de/

Transi(on management hHp://about.bnef.com/blog/liebreich-‐the-‐new-‐energy-‐roi-‐resilience-‐op(onality-‐intelligence/ hHp://roadmap2050.eu/