Decarbonisation efforts must accelerate to meet Paris objectives, says PwC; “the task gets tougher and the transition required is more radical”.
The world needs to decarbonise at a rate five times faster than achieved before the pandemic if climate change is to be kept with within 1.5°C of pre-industrial levels according to a new analysis by consultants PwC.
The firm’s tenth Net Zero Economy Index, which tracks carbon intensity in the G20 economies, says an annual decarbonisation rate of 11.7% is required, compared 2019’s level of 2.4%, for governments to meet the aims of the Paris Climate Agreement.
The report was released as the UK government’s HM Treasury issued for consultation the interim report of its Net Zero Review and Bloomberg published an analysis suggesting a mixed performance by US firms in meeting climate-change commitments made in 2015.
According to PwC, the UK has had the highest long-term level of decarbonisation, maintaining a decarbonisation rate of 3.7% since 2000, achieving a high rate of emissions reduction relative to economic growth in 2019.
Germany recorded the highest decarbonisation rate of the G20, for the second year in a row, but would need to double the level achieved in 2019 (6.6%) to be consistent with a 1.5°C trajectory.
China’s carbon intensity fell 2.8%, through the combination of 6.1% GDP growth in 2019 and energy-related CO2 emissions rising by 3.2%.
The PwC index models economic growth and energy-related CO2 emissions data against the rates required to achieve the aims of the Paris Agreement, tracking progress by countries in delinking the two.
“Every year we underachieve on cutting carbon, the task gets tougher and the transition required is more radical. We now need decarbonisation and ultimately transformation of companies, industries and geographies at an unprecedented scale and speed,” said Dr Celine Herweijer, Global Climate Change Leader, and Partner at PwC UK.
PwC said the UK would need to need to invest £400 billion in green infrastructure and renewable energy sources to deliver on its net zero emissions target, whilst simultaneously decarbonising sectors of the economy, including aviation and maritime.
Mapping the path to Glasgow
The UK government recently released a ten-point plan for a ‘green industrial revolution’ and committed to 68% reduction in emissions by 2030 from 1990 levels. Last week, the UK’s independent Climate Change Committee presented the world’s first detailed route map for a fully decarbonised nation in its Sixth Carbon Budget.
Yesterday’s interim report and the final report, due next spring, “will sit alongside a comprehensive Net Zero Strategy next year, as well as sectoral decarbonisation strategies” said HM Treasury. “They will form part of a government-wide effort to achieve net zero, address wider environmental issues and make the most of growth and employment opportunities.”
The interim report sets out HM Treasury’s current analysis, which asserts that the costs of transition to net zero are uncertain “and depend on policy choices”. The government will need to use a range of policy levers to address “multiple market failures” including carbon pricing, and acknowledges the need or a clear policy framework to reduce risks and costs for investors and to support innovation.
Implications for investment performance
Although the PwC report emphasises the need for urgent action, it notes that companies and financial institutions are increasingly taking the necessary steps to change their business models.
“Investors increasingly recognise the implications on investment performance and value creation and destruction: over US$45 trillion assets under management (AUM) – close to half of total AUM – is held by investors that have pledged to drive climate action,” said the report.
The Bloomberg Green report analyses progress on climate-related commitments made by companies in 2015 as part of the American Act on Climate Pledge. Of the 187 commitments with a 2020 deadline, 97 were achieved early, 37 are on track, and 32 are not on track, with information not available for the remaining 17.
Separately, HSBC released the UK results of a survey which suggest that more companies would integrate sustainability into their business models in 2021. Based on a sample of 1,000 responses, the survey found that three quarters (75%) of UK businesses now have metrics in place to measure environmental sustainability, up from 62% in 2019, while 73% plan to introduce net zero emissions goals to their own operations and across their supply chains.