Foresight - Markets
Climate Progress Dashboard: new emissions pledges fail to change outlook
A pick-up in renewable energy capacity moves the dial in the right direction, but this is cancelled out by increased fossil fuel production and continued growth in reserves.
Entering the third quarter of 2019, Schroders’ Climate Progress Dashboard points to a long run temperature rise of around 3.8°C, unchanged from the previous quarter. To much fanfare (and some scepticism), several major economies have passed zero emissions targets into law over the last few months, but meeting the commitments made in Paris in 2015 will require every country to follow their lead.
While the global energy system is decarbonising, rising demand for energy has more than offset the benefits; carbon emissions continue to rise. Looking forward, far more disruption across global economies and industries seems inevitable.
The Climate Progress Dashboard provides an overview of the speed and scale of climate action across the spectrum of areas that will drive decarbonisation. Schroders created the dashboard to provide our analysts, fund managers and clients with an objective measure of the pace of climate action, helping them to navigate a challenge that will have a dramatic impact on financial markets, but which is too often dominated by sound bites, emotion and rhetoric.
- The Climate Progress Dashboard can be found here
As has been consistently the case since we launched the Dashboard, the last quarter saw both positive and negative moves. Those positive and negative effects cancelled each other out, leaving the trajectory of climate action pointing to a long run temperature rise of around 3.8°C.
Headlines point one way…
Climate change has featured more heavily in the news over the last few years, buoyed by the warnings of intergovernmental organisations, increasingly assertive civil action and the tentative responses we are starting to see in governments’ policies.
We have plotted the strength of news coverage of environmental issues over time in the chart below. We developed the “Strength of media coverage” measure to combine the volume of news stories with the level of sentiment expressed in those stories.
A greater volume or a more urgent tone to environmental news both increase that strength score. That coverage has an increasingly urgent tone, reflecting the growing recognition of the scale of the problem and the closing window to limit the long-term impact of rising temperatures. The climate “challenge” has now become an “emergency”.
The strength of that coverage peaked in late 2015 (around the time of the Paris Accord) and subsequently plummeted as attention moved elsewhere. With less fanfare, climate change has steadily moved back up the media agenda over the last few years.
Governments have begun to yield to the social pressures those headlines reflect. In June, the UK passed a law requiring the country to reach net zero emissions by 2050. France voted its net zero target into law on the same day as the UK. Both lag California, which made its commitment last September. In total, the Energy and Climate Intelligence Unit estimates that 16% of global GDP is now covered by net zero emissions targets.
More action is needed…
Although these moves are impressive, we will need to see many more countries follow suit to meet the commitments made in Paris in 2015. Limiting long run temperature rises to “well below 2°C” will require global CO2 emissions to fall to zero around the middle of this century.
Climate Action Tracker monitors the climate policies and ambitions of major global economies, which are included in the analysis underpinning the Climate Progress Dashboard.
Using that analysis, we have examined the share of global GDP, population and CO2 emissions generated by countries in different bands of climate action. Countries whose policies imply long run temperature rises of 2°C or less represent close to 25% of the world’s population but less than 10% of emissions and below 5% of economic output.
Put another way, the poorest countries have gone furthest in aligning their policies with safe climate limits while the wealthiest countries have done the least. Moving the global dial will require much more action in the large and typically mature economies, which drive the fortunes of the financial markets. Global investors face much more disruption.
Focusing on the last quarter, a pick up in renewable energy capacity implies a safer climate outcome but on the other hand, increased fossil fuel production and continued growth in reserves pushed the needle towards higher temperatures.
The annual BP Statistical Review, which we consider the most comprehensive and consistent analysis of the global energy complex, was updated in June and was the main reason for those changes. That report shows a 15% rise in energy produced from renewable sources last year, but also a 2.5% rise in energy from fossil fuels. Despite its faster growth, the increase in energy from fossil fuels was more than twice as large as the growth from all other sources of energy combined.
Changing energy mix, but rising demand
The net result of those two trends – along with small changes in other areas detailed in the chart below – leaves the overall long run temperature rise implied by the Dashboard unchanged at 3.8°C.
The combination of faster than previously expected growth in both renewable and clean energy use underlines the complexity of the climate challenge. Global renewable energy capacity has almost doubled since 2010; that increase equates to roughly one-third of new power capacity over the same period. Although the carbon intensity of global energy demand has fallen as a result, that gain has been overwhelmed by slowing improvements in the energy intensity of the global economy.
Meeting long-term climate goals will require more structural changes than we have seen to date. The current pace of change in the energy mix will not put the global economy on a two degree pathway without concerted efforts to break the link between global growth and energy demand. Scrutiny of political action is rising and governments are under growing pressure to act. Doing so will mean an unavoidable step change in the global energy system, and every other industry as a result.
Although headlines heralding toughening national policies and rising clean energy use may paint a positive picture, our analysis underlines the importance of an evidence-based view of the trajectory of climate action.
The Climate Progress Dashboard provides that objective and comprehensive assessment, as well as clear evidence of the scale of the potential disruption that lies ahead. This work is part of the toolkit we have developed to help our analysts, fund managers and clients prepare for the challenges and opportunities ahead.
Summary of changes
The chart below plots the changes in each indicator relative to the last update:
The chart below plots changes in each indicator since we launched the Climate Progress Dashboard in mid-2017.
- Please see Climate Progress Dashboard: Marking progress one year on for further detail.
 We measure temperature rises relative to preindustrial levels (typically taken to mean the second half of the 19th century), since when global temperatures have already risen by around 1°C.
 Precise estimates vary between 2035 and 2070 according to most studies depending on the emissions trajectory assumed, temperature rise target and the degree of certainty required.