IEA and IPCC Reports: Are Governments & Business in Denial? Pt 1
Part 1: Two Reports that Change the Ground Rules for Fossil Fuel Investment
In this first of a three-part series, we look at the ways in which the recent publication of two reports, from the IEA and the IPCC, has fundamentally changed the ground rules for fossil fuel investment.
In the second article in this series, we will look at the initial response to these reports from governments, and in the third article, we will investigate some of the wider implications for financial institutions.
IEA Report ‘Net Zero by 2050’, May 2021
The International Energy Agency (IEA) was created in 1974, after the first oil shock, to ensure the security of oil supplies. The IEA grew out of the oil and gas industries. It is a respected international body, with a seat at the table at gatherings like the G7 and G20 summits of world leaders, and its data is relied upon by many governments for the purposes of setting policy.
On 18 May 2021, the IEA published a key report, ‘Net Zero by 2050’.
This was the result of months of detailed study and analysis to set out a pathway to achieving net zero emissions by 2050 for the IEA’s participating country members. This report, with “400 sectoral and technology milestones to guide the global journey to net zero by 2050”, was probably more radical than the oil and gas industry could ever have expected.
The report stated:
“There is no need for investment in new fossil fuel supply in our net zero pathway…
Beyond projects already committed as of 2021, there are no new oil and gas fields approved for development in our pathway, and no new coal mines or mine extensions are required.
The unwavering policy focus on climate change in the net zero pathway results in a sharp decline in fossil fuel demand, meaning that the focus for oil and gas producers switches entirely to output – and emissions reductions – from the operation of existing assets. Unabated coal demand declines by 98% to just less than 1% of total energy use in 2050. Gas demand declines by 55% to 1,750 billion cubic metres and oil declines by 75% to 24 million barrels per day (mb/d), from around 90 mb/d in 2020. “
The challenge that the IEA report and analysis poses to governments, to the fossil fuel industry, and to all of those funding it, is therefore fundamental.
The IEA establishes that there is a credible pathway to achieving net zero emissions, but it is a difficult, demanding and narrow pathway. It involves a really radical shift away from fossil fuels, and vastly increased investment in renewable technologies, principally wind and solar:
“Achieving net-zero emissions by 2050 will require nothing short of the complete transformation of the global energy system.”
The IEA is in no doubt about the scale of the challenge implied by this energy transition:
“Those countries whose economies are relying on oil and gas will face huge challenges … there is no need for new oil, gas and coal development, which includes no need for oil and gas exploration investments.”
The IEA is also clear about the need for a ‘just transition’:
“Energy transitions have to take account of the social and economic impacts on individuals and communities, and treat people as active participants.”
The report analyses some of the ways in which new jobs will be created but jobs in older industries and different regions lost, and calls for specific government support. As the IEA Executive Director Dr Fatih Birol put it:
“The transition to net zero is for and about people. It is paramount to remain aware that not every worker in the fossil fuel industry can ease into a clean energy job, so governments need to promote training and devote resources to facilitating new opportunities. Citizens must be active participants in the entire process, making them feel part of the transition and not simply subject to it. “
If the IEA report is completely clear about the scale of the changes which need to be put in place, immediately, in order for the world to remain within reach of the 1.5oC limit to global warming that the IPCC has said is so essential, it is equally completely clear that many countries are heavily invested in the fossil fuel economy, and may be either unable or unwilling to give up their reliance on fossil fuels any time soon.
IPCC Report: Climate Change 2021: The Physical Science Basis.
On 9 August 2021 the Intergovernmental Panel on Climate Change (IPCC) released the report of Working Group I to the Sixth Assessment Report (AR6). Working Group I assesses the physical science basis of climate change. The report provides the latest assessment of scientific knowledge about the warming of the planet and projections for future warming, and assesses its impacts on the climate system.
The report assimilated 77,849 comments on successive drafts from 750 expert reviewers, 1,279 experts and 47 governments, reviewing 14,000 scientific publications. Very importantly, 195 governments, nearly all of those in the world, were consulted before its publication, so this report not only represents an absolutely overwhelming scientific consensus, but an almost complete political consensus on the science of climate change. This is a critical milestone on the road to the COP26 climate negotiations in Glasgow in November.
This IPCC Report is in some ways the most important yet. It states that:
“It is unequivocal that human influence has warmed the atmosphere, oceans and land.”
Since 1970, global surface temperatures have risen faster than in any other 50 year period over the last 2,000 years. The warming is:
“…already affecting many weather and climate extremes in every region of the globe.”
The attribution of weather events to global warming has strengthened greatly over the last decade.
The warming to date has already made changes which are irreversible on timescales of centuries to millennia. Oceans will go on warming and becoming more acidic, and mountain and polar glaciers to continue melting for decades or centuries.
It will take drastic worldwide action to reduce emissions, by half by 2030, to zero by 2050, and if the world achieves this huge transformation, we may yet avoid the very worst of weather and climate extremes that will follow if we do not.
Temperatures will increase by 1.5°C by 2040 in all scenarios, maybe sooner if we do not take major action to reduce emissions, both of CO2 and also of methane. If we as the world’s societies do not take these actions, we will bequeath very grim climate change and extreme weather conditions to all successive generations.
There is more to come from the IPCC in 2022, in the form of further parts of the AR6 report, but for the 195 governments that signed it off, the question now could not be clearer, and it is what actions they will now agree, at COP26, to take.
United Nations Secretary-General Antonio Guterres declared:
“Today’s IPCC Working Group 1 Report is a code red for humanity. The alarm bells are deafening, and the evidence is irrefutable: greenhouse gas emissions from fossil fuel burning and deforestation are choking our planet and putting billions of people at immediate risk. Global heating is affecting every region on Earth, with many of the changes becoming irreversible….
…We need immediate action on energy. Without deep carbon pollution cuts now, the 1.5-degree goal will fall quickly out of reach. This report must sound a death knell for coal and fossil fuels, before they destroy our planet. There must be no new coal plants built after 2021. OECD countries must phase out existing coal by 2030, with all others following suit by 2040. Countries should also end all new fossil fuel exploration and production, and shift fossil fuel subsidies into renewable energy... ".
In our next article, we will look at how governments are (or are not) beginning to change course on fossil fuel investment, and the wider pressures that these reports now place upon financial institutions.