Despite increasing momentum around achieving net-zero emissions globally, current ambitions from both countries and companies still fall considerably short of what is required to meet the goals of the Paris Agreement.
The publication of the International Energy Agency’s (IEA) Net Zero by 2050 Roadmap last week is another watershed moment for global climate action. Marking a step change from prior IEA reports, this first ever full net zero scenario produced by the relatively conservative IEA serves to highlight the urgency of realising its projections.
The report maps out 400 concrete milestones that need to be met to enable a mid-century world with net zero emissions that limits global temperate rise to 1.5 °C. To highlight a few of the major required break through commitments, these include no new oil, gas or coal investment from today, a tripling of annual clean energy investment worldwide to around $4 trillion by 2030, net zero emissions electricity globally by 2040 and renewable sources generating ~90% of global electricity by 2050.
These milestones have significant implications for a number of sectors, investor engagement with companies on their transition plans, as well as policy makers and in a nutshell, anyone that has set net zero commitments.
“The IEA’s pathway shows a huge scale-up in clean energy investment and an end to investment in new fossil fuel projects underpinned by strong and credible policy action and much greater international cooperation.”
The new IEA report is a clear quantification of the private capital required to make the transition happen. Investing in innovation to support the development of both existing and emerging clean energy technologies will be critical, and the roadmap highlights that it is the private sector that will ultimately need to finance most of the investment required.
The call for an immediate end to new investment in fossil-fuel extraction has dominated most headlines. This and the projection that oil demand will decline by nearly 75% from 2020 to 2050, have huge implications for investors engaging with oil and gas majors and for all investors with holdings in the sector.
“It’s going to be an interesting reality check for companies, but also for investors, and will put engagement in very stark terms. The IEA just said that no new investment in oil and gas is needed in a Paris-aligned scenario, so it is going to get challenging for the companies that have previously said that they’re net-zero and Paris-aligned.”
The IEA roadmap increases pressure on companies to show how their business is consistent with the goals of the Paris Agreement. The five investor networks behind Climate Action 100+ will work closely with signatory investors in evaluating what this roadmap and its milestones mean for engagement with focus companies and the initiative’s Net-Zero Company Benchmark.
If one takeaway from the IEA analysis is clear, it’s that the pathway to net zero by 2050 is narrow and highly ambitious. The scale of the task is only comparable with the cost of failure, in the devastating impacts of climate change we will lock-in for years to come by falling short. This should help focus minds over coming years.