PwC analysis finds meeting 2 °C warming target would require “unprecedented and sustained” reductions over four decades
5 November 2012
|PwC analysis finds a need for global carbon intensity to drop an average of 5.1% per year through 2050. Click to enlarge.|
The low annual rate of global reduction of carbon emissions per unit of GDP needed to limit global warming to 2 °C—based on the probability assessments of the UN IPCC—is insufficient to achieve that goal, according to the latest Low Carbon Economy Index published by business consultancy PwC. The analysis is based on a carbon budget that would stabilize atmospheric carbon dioxide concentrations at 450 ppm and give a 50% probability of limiting warming to 2 °C.
Since 2000, the global rate of decarbonization has averaged 0.8%; from 2010 to 2011, global carbon intensity fell by just 0.7%. Because of this slow start, global carbon intensity now needs to be cut by an average of 5.1% a year from now to 2050. This required rate of decarbonization has not been seen even in a single year since the mid-20th century when these records began. Keeping to the 2 °C carbon budget will require “unprecedented and sustained” reductions over four decades, according to the PwC analysis. Even to have a reasonable prospect of getting to a 4°C scenario would imply nearly quadrupling the current rate of decarbonization.
This new reality means that we must contemplate a much more challenging future. Whilst the negotiators continue to focus on 2 °C, a growing number of scientists and other expert organisations are now projecting much more pessimistic scenarios for global temperatures. The International Energy Agency, for example, now considers 4°C and 6°C scenarios as well as 2°C in their latest analysis.—PwC report
This year we estimated that the required improvement in global carbon intensity to meet a 2 °C warming target has risen to 5.1% a year, from now to 2050. We have passed a critical threshold—not once since World War 2 has the world achieved that rate of decarbonization, but the task now confronting us is to achieve it for 39 consecutive years.
This isn’t about shock tactics, it’s simple maths. We’re heading into uncharted territory for the scale of transformation and technical innovations required. Whatever the scenario, or the response, business as usual is not an option.—Leo Johnson, Partner, Sustainability and Climate Change, PwC
The analysis in the PwC Low Carbon Economy Index measures the progress of developed and emerging economies towards reducing emissions linked to economic output. The report warns that “governments and businesses can no longer assume that a 2 °C warming world is the default scenario.” It adds that any investments in long term assets or infrastructure—particularly in coastal or low-lying regions—need to address far more pessimistic scenarios.
|“Governments’ ambitions to limit warming to 2°C appear highly unrealistic.”|
The issue is further complicated by a slow market recovery in developed nations, but sustained growth in E7 economies which could lock economic growth into high carbon assets.
Emerging markets’ previous trends on carbon emissions reductions linked to growth and productivity have stalled, and their total emissions grew by 7.4%. By contrast, the UK, France and Germany achieved record levels of annual carbon emissions intensity reductions, but were helped on by milder winters.
The risk to business is that it faces more unpredictable and extreme weather, and disruptions to market and supply chains. Resilience will become a watch word in the boardroom—to policy responses as well as to the climate. More radical and disruptive policy reactions in the medium term could lead to high carbon assets being stranded.
The new reality is a much more challenging future in terms of planning, financing and predictability. Even doubling our current annual rates of decarbonisation globally every year to 2050, would still lead to 6 °C, making governments’ ambitions to limit warming to 2 °C appear highly unrealistic.
The challenge now is to implement gigatonne scale reductions across the economy, in power generation, energy efficiency, transport and industry, as well as REDD+ in forested nations.—Jonathan Grant, director, sustainability and climate change, PwC
The pace of reducing global carbon intensity has been slow despite growing international focus on climate change. The financial crisis has dampened progress further, with carbon intensity falling less than 1% in the four years since it began.
Examining the role of shale gas, PwC’s report suggests that at current rates of consumption, replacing 10% of global oil and coal consumption with gas could deliver emissions savings of around 3% a year (1gt CO2e per annum). However, the report warns that while it may “buy some time”, it reduces the incentive for investment in lower carbon technologies such as nuclear and renewables, and could lock in emerging economies with high energy demand to a dependence on fossil fuels.
Regardless of the outcomes at the UN climate change summit in Doha this year, one thing is clear. Governments and businesses can no longer assume that a 2 °C warming world is the default scenario. Any investment in long-term assets or infrastructure, particularly in coastal or low-lying regions, needs to address more pessimistic scenarios. Sectors dependent on food, water, energy or ecosystem services need to scrutinise the resilience and viability of their supply chains. More carbon intensive sectors need to anticipate more invasive regulation and the possibility of stranded assets. And governments’ support for vulnerable communities needs to consider more drastic actions.
The only way to avoid the pessimistic scenarios will be radical transformations in the ways the global economy currently functions: rapid uptake of renewable energy, sharp falls in fossil fuel use or massive deployment of CCS, removal of industrial emissions and halting deforestation. This suggests a need for much more ambition and urgency on climate policy, at both the national and international level.—PwC report
PwC model. PwC divides the G20 into three blocks:
- G7 economies (US, Japan, Germany, UK, France, Italy, Canada).
- E7 economies—the BRICs (Brazil, Russia, India and China), and Indonesia, Mexico and Turkey.
- Other G20 (Australia, Korea, EU, South Africa, Saudi Arabia, Argentina).
The study draws on long-term GDP projections from an updated version of PwC’s World in 2050 model, which is based on a long-term GDP growth model structure. Each country is modelled individually but connected with linkages via US productivity growth (known as the global technological frontier). Each country is driven by a Cobb-Douglas production function with growth driven by:
Investment in physical capital.
Working age population growth (UN projections).
Investment in human capital (rising average education levels).
Catch-up with US productivity levels (at varying rates).
Real exchange rates will also vary with relative productivity growth. The results are not forecasts, but rather indicate growth potential assuming broadly growth-friendly policies are followed and no major disasters (e.g. nuclear war, radical climate change before 2050).
The study considers energy-related carbon emissions, driven by a series of assumptions including the primary energy intensity and fuel mix share. In 2012, PwC made two key changes to the assumptions in previous model versions:
Delaying the start of commercial CCS at scale from 2016 to 2021.
Updating country-specific rates of decline in energy intensity of GDP in 2001 – 2025 to better reflect relative historical progress between countries, and explicit policy targets in this area.
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