Citi today published a report titled 'Energy Darwinism III The Electrifying Path to Net Zero Carbon' outlining how much more carbon we can put up in the atmosphere and understanding where those emissions come from, as a premise to tackling climate change. To access the full report please go to: https://www.citivelocity.com/citigps/.
The scientific community is beyond reasonable doubt that man-made emissions are changing our ecosystem and climate, and unless we change our behaviour, much more severe temperature increases are likely to result and cause more extreme weather conditions and rising sea levels. Unfortunately, this isn't tomorrow's problem at current rates of carbon emissions we could hit the 'carbon budget' in 10 to 15 years. In this scenario, many of our cities and much of our infrastructure would be inundated raising the spectre of mass human migration and climate refugees.
If the scientists are right, we need to start reducing emissions, and we need to start doing so now. By doing this, our upwards trajectory towards the carbon budget begins to flatten, buying us more time to eliminate emissions from our activities and discover new technologies. We need to be targeting net zero emissions by 2050, and then actually looking to go net negative in the second half of this century, which will require entirely new (and exciting) forms of carbon removal technology.
"Our Global Integrated Energy and Emissions Framework highlights the key areas by fuel, by activity, and by country we should focus on to make the biggest impact on emissions", says Jason Channell, Head of Sustainable Finance, CIti Global Insights. "The one overriding theme is that even with dramatic changes, reducing emissions in a meaningful sense is fiendishly difficult, and there are significant headwinds against us." In Citi's reference scenario, CO2 emissions from power generation increase by 24% and account for 36% of total emissions by 2050.
"If there is one key message however, it is that we need to see a massive electrification of transport and industry," Mr Channell adds. Transportation energy usage and emissions rises under every scenario, the drivers of this increase include freight, passenger cars, and airlines. While electrification would clearly increase demand for electricity dramatically, the technologies needed to produce that power cleanly already exist in many locations, renewables now represent the lowest-cost form of power generation. This shift would also require vast amounts of energy storage, and could function well with gas as a transition fuel, in a symbiotic relationship.
Citi sees the rise of storage as one of the most exciting opportunities presented by the next shift in our energy mix. Electric vehicles for example have the potential to make energy storage nearly ubiquitous, effectively providing large-scale storage capacity on the grid from parking lots or homes via exciting new business models such as vehicle-to-grid. The potential of this model not just to minimize overall costs, but to smooth demand, to facilitate greater adoption of renewables, and to significantly limit and potentially eliminate stranded assets by boosting load factors on those conventional plants which do remain necessary, is enormously exciting.
These transitions will not be cheap. The financial community is showing remarkable signs of starting to look at the economics of climate change in exactly this way in terms of the cost of not acting, rather than just the cost of action. While economics will clearly remain an important factor in this transition, climate change itself, and in particular climate change risk is becoming an increasingly important driver. It will, Citi believes, become an unavoidable issue for countries, the corporate world, supranationals, the financial industry, and society as a whole.
Change will be driven not just by societal pressures being transmitted via politics into legislation and regulation, but also via financial markets through investor preference and the desire of ultimate asset owners for societal returns rather than purely financial returns, as evidenced by the extraordinary rise of sustainable investing and ESG investing.
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About Citi Global Perspectives Solutions (Citi GPS)
As our premier thought-leadership product, Citi Global Perspectives Solutions (Citi GPS) is designed to help our clients navigate the global economy's most demanding challenges, identify future themes and trends, and help our clients profit in a fast-changing and interconnected world. Citi GPS accesses the best elements of our global conversation and harvests the thought leadership of our research analysts and a wide range of senior professionals across our firm.
Francesco Meucci, EMEA Public Affairs, Citigroup
Phone: +44 207 508 0717