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The End
of Business-As-Usual?
Dr. Johannes Meier
European Climate Foundation
1. Climate Science
2. Asset Valuation
The end of BAU?
4 Perspectives
4. Transition Management
3. Political Will
1. Climate Science
2. Asset Valuation
The end of BAU?
4 Perspectives
4. Transition Management
3. Political Will
The Skeptics
4 Types of Skeptics
1. Climate change is not happening
2. Humanity’s contribution to climate change
is not significant
3. We cannot mitigate climate change effectively
4. It is too costly to mitigate climate change
Climate Science Firming Up
Image credit: James Lawrence Powell, MIT
Pattern Shift: Global Warming, Rising Risks
Source: climateactiontracker.org
Pattern Shift: Global Warming, Rising Risks
HIGH-CARBON ECONOMY
“On track to 6 degrees” (IEA)
CHANGING RISK PATTERNS
- Weather
- Oceans
- Food
- Security
- Health
Mitigation
Adaptation
LOW-CARBON ECONOMY
- Decarbonizing power
- Resource efficiency
- Smart cities
- Forests/land use
PAYING FOR CONSEQUENCES
- High costs of delay of
mitigation
- Stranded assets
- Tipping points
Insured Losses from Climate-Related
Disasters, 1970-2011
Source: Swiss Re
Source: Swiss Re
If “Frankenstorm”
is happening at
0.8°C warming,
what might 3°C,
4°C, or 6°C
warming bring?
10
1. Climate Science
2. Asset Valuation
The end of BAU?
4 Perspectives
4. Transition Management
3. Political Will
Emissions Underlying Financial Flows
Source: Carbon Tracker report: Unburnable Carbon 2013
Stress Testing with Carbon Budgets
Fossil fuel carbon budget
2013 – 2050 (GTCO2)
Scenario
Maximum
temperature
rise
50%
probability
80%
probability
Pessimistic
2°C
886
500
Optimistic
1.5°C
525
-
2°C
1075
900
2.5°C
1275
1125
3°C
1425
1275
13
Source: Carbon Tracker report: Unburnable Carbon 2013
Carbon Budget Deficits for Listed Companies
Potential
listed
reserves
Current
listed
reserves
Listed reserves are a
quarter of all known
fossil fuel reserves
Current listed reserves
(762GtCO2) far exceed a
quarter of the total
carbon budgets but
could double
(1541GtCO2)
If we break the 2°C
budget, we very quickly
hit 2.5°C and 3°C
14
Source: Carbon Tracker report: Unburnable Carbon 2013
Stranded Assets?
1. Climate Science
2. Asset Valuation
The end of BAU?
4 Perspectives
4. Transition Management
3. Political Will
Key Uncertainty: Political Will
Think Tanks
Progressive
Industry
Environmental
Advocates
National
Interests
BAU Lobbies
Global Factors
Political
Will
Economic
Factors
Election Cycles
Governance
Capabilities
Ideologies
Cultural
Memes
Media
Dynamics
Think Tanks
Progressive
Industry
BAU Lobbies
Environmental
Advocates
Policy Frameworks
National
Interests
- 20/20/20 Targets
- EU 2050 Energy Roadmap
- EU Climate Roadmap
Global Factors
Election Cycles
- EU ETS Directive
- EU EE Directive
- UK Green Deal
- GER Energiewende
Economic
Factors
Governance
Capabilities
etc.
Ideologies
Cultural
Memes
Media
Dynamics
ECF/Mercator Addressing Convergence and
Coherence Challenge with Agora Energiewende
2 goals:
• Prepare ground to ensure that
policymakers take decisions needed
to set the course toward full
decarbonisation
• Enhance understanding of the
Energiewende and help
stakeholders views to converge,
thereby minimising space for
vested interests
The Council of Agora
Ottmar Edenhofen
PIK
Stefan Kapferer
State Secretary
Ministry of Economics
Vera Brenzel
Vice President Electricity
E.ON
Matthias Machnig (SPD)
Minister for Economy
Thuringia
28 Members
Martin Iffert
CEO
Trimet Aluminium
Boris Schucht
CEO
50Hertz
3 meetings so far
05-09-2012
21-11-2012
20-02-2013
Lucia Putrich (CDU)
Minister for Environment Hesse
Mechthild Wörsdörfer
Head of Unit
EC DG Energy
Jochen Hohmann
President
Bundesnetzagentur
1. Climate Science
2. Asset Valuation
The end of BAU?
4 Perspectives
4. Transition Management
3. Political Will
Where do we want/need to be in 2050, in 2030?
Key Challenges for Transition Management
Feedstock price
development
• Shale gas, LNG
• Unconventional oil
Technology development
• Cost curves
• Centralized &
decentralized
architectures
• Convergence energy
& IT systems
Economics
• Market designs and
subsidies
• Internalisation of
externalities (carbon
taxes/carbon price)
• Capital flow constraints
Level and quality
of market integration
• National, EU, global
• Gas, electricity markets
• Flexibility/capacity
markets
Public acceptance
• Technologies
• Infrastructure
• Markets
• Retail energy prices
A Framework for Transition Management
Desirable future
Backcasting
Balancing
• Resilience
• Optionality
• Intelligence
Constraints
•
•
•
•
Installed base
Forecasting
Contracts
Business models
Mindsets
• Competitiveness
• Sustainability
• EU2050
international role
New Metrics for Dynamic, Complex,
Unpredictable, and Risky Environments
1. Resilience
2. Optionality
3. Intelligence
Based on M. Liebreich: The new energy ROI
• Energy systems to withstand shocks (including
worst-case scenarios in calculus)
• Future proofing design and location of assets
• Bias towards diversity
•
•
•
•
Adding assets in smaller increments
Avoiding lock-in
Hedging outcomes
Reducing capital intensity
• Staying on top of cost curves
• Harnessing of big data (Industrial Internet)
• Learning platforms
ECF fundamental orientation
1. EU global leader in
transition to low-carbon
economy
2. Energy system led by RES
3. Industrial policies to
address competitiveness
challenge
• Robust 2030 framework
• Based on integrated EU
• With effective carbon price,
explicit carbon liabilities
• High RES shares
• Investments in energy efficiency,
flexibility, transport system
reform
• Avoiding fossil-fuel lock-in
• Sectoral differentiation
• Innovation incentives
• Easing transition costs
1. Climate Science
2. Asset Valuation
The end of BAU!
4. Transition Management
3. Political Will
Further Links
Interpreting climate science and media reactions
http://klimafakten.de/
http://www.carbonbrief.org/
Carbon bubble
http://www.carbontracker.org/carbonbubble
http://www.carbontracker.org/wp-content/uploads/downloads/2013/03/SnPCT-report-on-oilsector-carbon-constraints_Mar0420133.pdf
Political will
http://ec.europa.eu/energy/index_en.htm
http://www.agora-energiewende.de/
Transition management
http://about.bnef.com/blog/liebreich-the-new-energy-roi-resilience-optionality-intelligence/
http://roadmap2050.eu/