Investments in new fossil fuel projects will need to stop immediately if the world is to limit global warming to 1.5 °C, the International Energy Agency (IEA) has said in what commentators have described as a “stunning challenge” by the historically pro-fossil fuel body.
It is one of more than 400 milestones the global energy watchdog has identified in a new report billed as “the world’s first comprehensive roadmap” for decarbonisation aligned to the Paris agreement’s aspirational target of limiting global temperature rise to 1.5 °C.
Others include stopping sales of new internal combustion engine passenger cars by 2035, ensuring the global electricity sector achieves carbon neutrality by 2040 and “the immediate and massive deployment of all available clean and efficient energy technologies”.
However, the IEA has cautioned that meeting this goal will require an unprecedented transformation of the energy sector and policy actions which are far more ambitious than the climate pledges made to-date by governments globally. Even if fully realised, existing pledges “fall short of what is required”, the IEA said.
Governments may do well to heed the warning as the new roadmap will be used as an “empirical basis” for international climate negotiation at this year’s COP26, IEA chief Fatih Birol revealed earlier today. According to Birol, the road map was officially commissioned by the COP Presidency to “underpin a strong outcome” at the upcoming summit.
The IEA’s conclusions are particularly notable as they fly in the face of fossil fuel producers who have argued for years that continued investments in oil and gas is needed to ensure a reliable supply of energy and is consistent with global climate goals.
The roadmap’s publication comes after a number of repeated calls for the IEA to issue a comprehensive 1.5 °C climate scenario – most recently from members of the UN-convened Net-Zero Asset Owner Alliance (NZAOA) – as a common reference for investors who want to assess the alignment of their portfolios against Paris’s most ambitious goal.
Last year, the IEA was hailed for publishing its first 1.5 °C climate scenario – named NZE2050 – although investors noted that the modelling only extended over the next decade, ending in 2030, and was less developed than the IEA’s other scenarios. Today's roadmap builds out NZE2050 into a fully-fledged climate scenario, together with key information on sector-level transition pathways.
While seemingly slight, scientists say that there is a world of difference between the physical impacts of climate change at under 1.5 and 2 °C of warming, the two stated targets of the Paris agreement. It is estimated that 2 °C of warming could expose tens of millions more people worldwide to life-threatening heat waves, water shortages and coastal flooding, compared to 1.5 °C.
Commenting on the IEA’s move, Tim Buckley, Director at the Sydney-based Institute for Energy Economics and Financial Analysis think tank, told RI: “Global policy focus on 1.5 °C has really stepped up a huge level, and major financial institutions are aligning with these pledges, so this scenario has gone from being a peripheral risk to now being the likely central case. That changes everything from a financial risk perspective.”
Jakob Thomä, Director of influential EU think tank 2 Degrees Investing Initiative (2DII), agreed: “From a pure portfolio alignment perspective, every investment in companies expanding coal mining, oil and gas production and coal-powered energy is non-compliant under the IEA’s new net-zero scenario. This is a stunning challenge to deliver on the target-setting dynamic around net zero initiatives such as the Glasgow Financial Alliance for Net Zero and the NZAOA.”
Since 2017 , the IEA has issued an annual Sustainable Development Scenario (SDS) setting out its most ambitious decarbonisation pathway. However, the IEA’s most recent SDS would have achieved net zero emissions only by 2070 and limited global warming to 1.65 °C.
Climate scenarios issued by the IEA models the policies, investments and business strategies associated with a particular energy pathway and are considered the ‘gold standard’ for long-term energy analysis. As such, many of the climate scenario analysis tools popular among investors – such as 2DII’s PACTA or those from Carbon Delta and Trucost – are based on the IEA’s SDS.
However, IEA scenarios have come under scrutiny in the past for repeatedly underestimating the growth of renewables and the magnitude of carbon emission reductions needed, which critics say has bolstered the case for continued investments into fossil fuels. Serious concerns have also been raised by NGOs and campaign groups over the influence wielded by fossil fuel lobbyists within the IEA.
Think tank 2DII has indicated to RI that it will review any new Net Zero scenarios issued by the IEA, in addition to net-zero sector pathways issued earlier this year by the NZAOA, for future inclusion into the PACTA tool.
Separately, the IEA is due to issue a report on achieving a just energy transition for emerging economies, in collaboration with the World Economic Forum, in August.