Climate Progress Dashboard update: Holds at 4.1 degrees

In July we introduced the Climate Progress Dashboard, tracking the temperature rises implied by key parts of the climate jigsaw.  This is the first update of that dashboard.

The overall picture is little changed¹. Taken together, those indicators continue to point global temperature rises of 4.1 degrees over pre-industrial levels².

Contrasts and tensions within the Dashboard are as telling as the aggregate summary. This quarter, the tension between oil and gas producers and the transport industry stands out to us.

Car crash ahead?

Strong growth in electric car sales has pushed that market onto a lower temperature trajectory. In July, we calculated that the pace of EV sales was pointing to a temperature rise of 4.1 degrees; updating that analysis now points to 3.9 degrees³.

EV Sales reports over half a million electric cars were sold in the first seven months of 2017, growing over 40% from 2016 levels. A similar trend in the rest of the year would put the market on track to reach around 1.1 million vehicles this year.

The industry’s growth looks likely to stay strong. We described the benefits of ambitious national targets and improving economics in a recent article on the topic, “Electric cars to charge ahead”. The major car makers are also planning for a revolution in their industry.  Electric cars may represent one percent of its sales today, but the world’s largest car maker VW anticipates generating a quarter of its sales from EVs by 2025. Other manufacturers are making similarly ambitious plans.

Sales in line with those targets would put the electric car industry on track for growth consistent with temperature rises close to the two degree commitment global leaders made in Paris.

The oil industry stands on the other side of that trend.  Two-thirds of the world’s oil production is used in transport, half of which is in passenger vehicles, making cars the world’s largest source of oil demand⁴.

Our analysis implies that despite investment cuts in recent years, the energy industry continues to invest at a pace consistent with temperature rises of 5.4 degrees, slightly up from a 5.3 degree trajectory in July⁵.

As the automotive market is gearing up for an electric future, oil producers have yet to respond with sufficient cuts.  They can’t both be right and momentum is with transport electrification.  The energy industry faces a crunch; it has yet to adjust to the prospect of peak demand and slower growth.  Unless it does so, the crash ahead may be painful for companies without contingency plans. 

At Schroders, we have been amongst the most vocal proponents for engagement by the industry’s major players to develop and communicate strategic plans for a carbon constrained world.  We have a clear record of following through on that pressure with the votes we cast.  Unless the industry begins to temper its investment and growth plans, the challenges will only grow tougher.

^{1. Since we last published the Climate Progress Dashboard, the temperature rise implied by the Electric Vehicle indicator has fallen from 4.1 to 3.9 degrees, the Oil & Gas investment marker has risen from 5.3 to 5.4 degrees and the Carbon Prices signal has dropped from 5.5 to 5.2 degrees↩}

^{2. For further details of the methodology we use visit http://www.schroders.com/en/about-us/corporate-responsibility/sustainability/climate-progress-dashboard/↩}

^{3. We use reported electric vehicle sales to estimate trends in the global EV stock, assuming an 8 year vehicle life. The IEA has estimated the rate of growth in the EV stock needed for a pace of decarbonisation consistent with a range of temperature increases. Comparing the observed trajectory to the IEA’s projections allows us to estimate the temperature rise implied by current trends↩}

^{4. Based on IEA data, reported in the 2016 World Energy Outlook↩}

^{5. We calculate industry capital investment relative to assets using data from Thomson Reuters, estimate the pace of growth implied by that investment intensity and deduct the natural pace of decline from existing assets to estimate the net growth implied by current investments. Comparing that growth to IEA projections for production in different temperature scenarios yields an estimate of the temperature rise implied.↩}