Industry

Utility Firms Show Lack of Ambition in Hitting 1.5°C Targets

Those excelling and falling behind in curbing their emissions revealed in new studies from WBA and TPI.

The energy sector is still failing to show how it will decarbonise its business models, with capex and transition plans out of step with net zero 2050 targets, according to two new reports.

The World Benchmarking Alliance’s (WBA) 2021 Electric Utilities Benchmark report, which measures 50 of the most influential companies in the sector globally on their progress to 1.5°C-aligned business models, showed greater but insufficient ambition.

The companies were scored out of 100 using the Assessing low-Carbon Transition Electric Utilities sector methodology, which includes principles, scope, boundaries and performance indicators.

WBA’s report found the overall state of decarbonisation in the electric utilities sector is still low, despite its strategic significance to net zero goals and policies.

“The electric utilities sector started decarbonising before all others, which means it has the most advanced and mature technologies for the low-carbon transition and acts as the enabler for other sectors to decarbonise,” it said.

However, it is a long way from keeping within the goal of 1.5°C and 70% of the assessed companies are expected to worsen in their low-carbon performance soon. “Persistent fossil fuel reliance for electricity generation indicates that 98% of companies are expected to exceed their carbon budgets by 2035,” the WBA report added.

Companies from all continents were measured, including industry giants such as Pacific Gas and Electric, based in San Francisco, which came under pressure following deadly California wildfires. It was ranked 32nd, with a total score of 24.3 out of 100.

Several large Chinese firms were measured as well as Japanese, German, Indonesian and Taiwanese companies. There were two firms from Latin America: Mexico’s Comison Federal de Electricidad and Brazil’s Eletrobras. Only one sub-Saharan African firm, South Africa’s Eskom Holdings (45th), was measured.

Many companies’ targeted emissions reductions have also fallen short of alignment with the 1.5°C goal. “While we see that nearly half the companies have improved target ambition since the 2020 benchmark, 47 of the 50 companies assessed have not aligned their targets with their 1.5°C pathway.” The WBA said the assessments evidenced most companies’ low-carbon plans remain inadequate to bring about a rapid transition to low-carbon electricity generation.

Lack of disclosure on power generation capital expenditure (capex) was a key reason why some companies slid down the rankings. “To be fully aligned with a 1.5°C pathway, companies must be spending over 78% of their capex on low-carbon power generation,” said the WBA.

“The 2021 benchmark forecasts that 40% of assessed companies that disclosed data on their power generation capex are likely to be spending over this level by 2023. This progress is compromised by the overall lack of capex disclosure by many companies.”

The report also highlighted progress among electric utilities working towards a just transition, but said the pace was still too slow.

The firm that scored the highest was Danish-state-owned Ørsted with a 96.4/100. The Egyptian Electricity Holding Company (EEHC) was the lowest with 2.6/100.

Laggards the majority

Significant lagging in the energy industry was also shown in a second report, which detailed major energy company transition plans, finding that only one in ten are “ambitious enough to keep global warming to 1.5°C”.

The Transition Pathway Initiative (TPI) assessed 140 of the largest energy companies, which included 76 electric utilities, 58 oil and gas, and six diversified miners involved in coal mining, on various aspects of their carbon performance.

The TPI said 66% of firms were not aligned with the Paris Agreement. “Of these, 53% were not aligned with any TPI climate benchmark, 9% were aligned with only national pledges – i.e. national commitments that still take global warming over 2°C, and 4% did not disclose climate data,” it said. However around 10% were aligned with a pathway to keeping global warming to 1.5°C, and a further 24% were aligned with a ‘Below 2°C’ pathway.

TPI’s analyses showed each company’s current levels of emissions and emission reduction plans to 2030 and 2050. A total of 14 firms were aligned with 1.5°C, of which six are based in the US.

Those US firms are Occidental Petroleum, Eversource Energy, Con Edison, AES, and CMS Energy. Others included France’s TotalEnergies, Eni from Italy, Ørsted from Denmark, EDP from Spain and New Zealand’s Meridian Energy.

Germany was the only country other than the US to have more than one company listed: EnbW Energie, E.ON and RWE.

“Three oil and gas firms – Occidental Petroleum, TotalEnergies and Eni – have set emissions reduction targets which are ambitious enough to reach net zero by 2050 and to align with TPI’s 1.5°C benchmark,” said TPI’s report. “However, 83% of assessed oil and gas companies are unaligned with any of TPI’s benchmarks.”

Nikolaus Hastreiter, researcher for Transition Pathway Initiative at LSE’s Grantham Research Institute for Climate Change and the Environment and co-author of the report, said the pace of improvement in the energy sector was still insufficient to prevent the worst consequences of climate change.

“One third of the assessed electricity utilities have published encouraging net zero targets, even though particular attention must be paid to their timelines. To keep global warming to 1.5°C, the sector must reach net zero already by 2040,” he said. The sector plays a crucial role as a first mover in the zero-carbon transition, given that the decarbonisation plans of other sectors anticipate the use of carbon neutral electricity in the future, he added.

“In the oil and gas sector, the ambitions of a minority of companies are keeping up with the challenge of 1.5°C. However, 93% of assessed companies, have still not published carbon emissions reduction targets which would keep global warming to at least below 2°C.”

To Top
Newsletter SignupReceive all the latest stories from the ESG Investor editorial team

Subscribe to our free weekly newsletter below and never miss a story.

Share via
Copy link
Powered by Social Snap