The Low Carbon Economy Index 2019

Emissions Relapse

After four years of moderate progress, in 2018 the pace of the low carbon transition slowed down to the long term average since 2000. Despite significant increases in renewable energy, the gap between the Paris Agreement goal and the current pathway continues to grow.

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“It’s worrying that progress on climate seems to have stalled. There’s a huge gap between the rhetoric of the ‘climate emergency’ and the reality of an inadequate global response. This is increasingly challenging for companies to manage, as they deal with both extreme weather impacts and growing climate policy risk. They are having to balance continued demand for business as usual and urgent calls for disruptive change.”

Jonathan Grant, Director, PwC

Last year, global GDP grew by 3.7%. This was driven by emerging economies, with growth over 5% in China, India and Indonesia. Although the global economy is getting more energy efficient, energy consumption rose by 2.9% in 2018. Renewable energy1 grew at the highest rate since 2010 at 7.2%, but is still less than 12% of the energy system. Most energy demand growth was met by fossil fuels, which increased global emissions by 2%. This is the fastest rise in emissions since 2011.

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The carbon intensity of the global economy fell by 1.6% in 2018. This is less than half of the decarbonisation rate witnessed in 2015 (of 3.3%) when over 190 governments committed to the Paris Agreement. At this rate countries won’t even achieve their own national targets (NDCs) let alone the much more ambitious global goal in that Agreement. We estimate that the average decarbonisation rate needed to meet the NDCs for the G20 economies is 3% per year to 2030.

A decarbonisation rate of 7.5% per year is required to give a two thirds probability of limiting warming to two degrees. For comparison, France decarbonised at 4% per year during the switch to nuclear power in the 1980’s, and the US decarbonised at 3% per year in the shale gas revolution.

In 2019 - the year of raising ambition - a number of countries have revised their carbon reduction targets. The UK has pledged in July to be net-zero emissions by 2050, and the EU is signalling similar intentions. But the sliver of opportunity to meet the Paris Agreement targets continues to close.

The deployment of natural climate solutions are urgently required. The recent IPCC Special Report on Climate Change and Land highlighted the importance of land use in reducing emissions and mitigating the impacts of climate change. It concludes that the total technical mitigation potential from agroforestry, and crop and livestock activities, can reach as much as nearly 10 GtCO2e per year by 20502, which is equal to 20% of anthropogenic emissions. However, there will be difficult trade-offs between land-based measures to tackle climate change, providing low-carbon energy (such as biofuel) and addressing global food security.

Businesses are now having to deal with increasing intensity of climate impacts and extreme weather events, alongside an incoherent policy response around the world.

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* Global carbon budgets refer to the global estimated budget of fossil fuel emissions taken from the IPCC Special Report on Global Warming of 1.5C. A series of assumptions underpin these carbon budgets, including the likelihood and uncertainties of staying within the temperature limits, and the use of carbon dioxide removal (CDR) technologies.

Sources - BP, Energy Information Agency, World Bank, IMF, UNFCCC, National Government Agencies, PwC data and analytics

Notes - GDP is measured on a purchasing power parity (PPP) basis. The NDC pathway is an estimate of the decarbonisation rate needed to achieve the targets released by G20 countries. NDC's only cover the period to 2030, we extrapolate the trend in decarbonisation needed to meet the targets to 2100 for comparison.

1 Renewable energy includes biofuels, biomass, geothermal, hydroelectricity, solar and wind.
2 The report suggests that the total technical mitigation potential from crop and livestock activities, and agroforestry is estimated as 2.3-9.6 GtCO2e.yr-1 by 2050 with medium confidence

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Energy demand grows

First, there has been a resurgence in the growth of energy intensive industries such as construction and steel across rapidly industrialising economies, such as China, India and Indonesia. According to data from the World Steel Association, global steel production grew 4.5% in 2018 - China and India accounted for over three-quarters of this growth. China’s has invested several hundred billion dollars in large-scale construction and infrastructure projects across Asia, the Middle East, North Africa and Europe through its “One Belt, One Road” strategy. Elsewhere investments in infrastructure and real estate construction in emerging economies continue to grow, as countries seek to keep up with increases in wealth and standards of living.

Second, extreme heat and cold weather patterns seen globally last year led to a growth in demand for electricity and gas for heating and cooling. This is a stark warning of the potential feedback loops associated with the impacts of climate change. Currently there are more than 1.6 billion air conditioning units in use, which consume over 2,000 terawatt hours (TWh) of electricity each year. As heating periods become more frequent, and global wealth increases the market for air conditioning units, particularly in China, India and Indonesia, it is anticipated that demand could reach 15,500TWh by 2050.

Fossil fuels dominate

Coal, natural gas and oil accounted for over two thirds of the increase in energy demand. While coal consumption remains lower than its 2013 peak, it has risen for the second year in a row. India recorded the most significant rise in coal consumption, increasing its use by 36.3 Mtoe (+8.7% increase) in 2018. This increase is equivalent to the coal consumption of the whole of Central and South America. Global consumption of natural gas also increased by 5.3% and makes up an increasing share of the global energy mix.

The lack of ambitious and more coordinated climate policies means that economics remains the dominant factor in determining energy mix and that low carbon alternatives are disadvantaged. In the US, shale gas is the cheapest source of energy, while coal is favoured in India and Indonesia. Although renewables grew by 7.2%, the largest percentage increase since 2010, this growth has been unable to offset the increase in fossil fuel consumption and represents less than 12% of total energy.

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G20 performance

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Our Low Carbon Economy Index tracks the rate of the low carbon transition in each of the G20 economies and compares this with their national targets.Top performers in 2018 are Germany, Mexico, France and Italy, as they exceeded their NDC targets. However, these countries are the exceptions rather than the rule - the rest of the G20 didn’t do so well.

Germany - 2019 Leader of the LCEI

In 2018, Germany led the Low Carbon Economy Index with a decarbonisation rate of 6.5%, reducing consumption of coal, oil and natural gas and growing solar and wind energy by 8.7%. However, these emission reductions were in part associated with warm weather patterns which curbed domestic energy demand for the year, and the country is still expected to miss its 2020 target to reduce emissions by 40% from 1990.

Top 5 performers

The other top performers in the LCEI this year - Mexico, France, Italy and Saudi Arabia - were all able to reduce emissions while growing their economies. Decarbonisation in the EU has been driven by coal-to-gas switching, particularly in Germany and France. The EU carbon price has risen dramatically, from less than €8 at the beginning of 2018 to around €25 today. This is forcing generators to manage their portfolios more carbon efficiently, and is encouraging the continued shift away from coal fired power generation

UK - long term decarbonisation leader

This year, the UK saw its progress falter with a decarbonisation rate of 3.5%, falling from 4.7% last year. Despite a 35% reduction in carbon intensity over the past ten years, slowed progress means the UK may miss its carbon targets from 2022 onwards. The majority of the UK’s emissions reductions in the 21st century have come from the decarbonisation of the power sector. However, if the UK is to achieve its net-zero target by 2050, greater action in the buildings, transport and land-use sectors will be required.

What next?

2019 and 2020 are expected to be the years of raising climate ambition (similar to 2008-2009 and 2014-2015).

However unlike previous attempts, 2019 has marked a significant shift in profile and engagement in the issues. A number of countries, including the UK, France, Canada and Ireland, and other sub-national jurisdictions have declared a ‘climate emergency’ in their respective jurisdictions. The UN also seeks to mobilise global leaders during a summit in New York.

We expect many major economies to publish plans to enhance their targets by 2020 and we will analyse these in the lead up to COPs 25 and 26.

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Contact us

Jonathan Grant

Director, Sustainability & Climate Change, PwC United Kingdom

Tel: +44 (0)7841 567014

Lit Ping Low

Assistant Director, Sustainability & Climate Change , PwC United Kingdom

Tel: +44 (0)20 7804 0345

Mary Davies

Senior Associate, Sustainability & Climate Change, PwC United Kingdom

Tel: +44 (0)7730 596274

Matt Gilbert

Associate, Sustainability & Climate Change, PwC United Kingdom

Tel: +44 (0)7483 407354

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