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.”

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, while a rate of 11.3% is needed to keep warming to 1.5 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

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.

Energy mix

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

LCEI Insight - UK: Getting to Net Zero

In June 2019, the UK became the first major economy to set a legally binding commitment to reach net zero emissions by 2050. The UK has achieved the highest average decarbonisation rate throughout the 21st Century of any G20 country, at 3.7%. However, the rate of progress has slowed and according to our analysis it will require an annual reduction in carbon intensity of 9.7% to achieve net zero emissions by 2050. 

Our LCEI report looks in more detail at UK performance and what is needed to meet net zero.

“Achieving net zero will require companies across all sectors to transform, drive innovation and grow whilst managing transition risks. This needs to happen at scale and speed over the coming two to three business cycles. It’s one thing for leading companies to set ambitious targets, but the ability to meet these will need strong government action to stimulate new market solutions.”

Celine Herweijer Partner, Innovation and Sustainability, PwC United Kingdom
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*The emissions reduction for the net zero target uses a combination of Core and Further Ambition scenarios outlined in the Net Zero Report: The UK's contribution to stopping global warming report (CCC, 2019). This assumes a 96% reduction in GHG emissions against a 1990 baseline, with a range of highly uncertain speculative options outlined to cut emissions further.
Sources – BEIS, World Bank, PwC data and analysis.
Notes – GDP is measured on a purchasing power parity (PPP) basis. The EU NDC only covers the period to 2030, we have extrapolated the trend in decarbonisation needed to meet targets to 2050 for comparison.

What next?

Focus and engagement on climate change issues intensified in 2019. Ten countries so far, including the UK, France, Canada and Ireland have declared a ‘climate emergency’. The UK became the first major economy to legislate a net zero emissions target, with several other countries coming forward with legislation or policy to this effect. Civil society action has been at an all-time high with the “Greta Effect” mobilising a new wave of climate activism across the world.

The world is in a race to limit climate change. In an effort to address this urgent need the UN Secretary General convened a Summit in New York in September to raise global ambition and action on climate change. Numerous pledges were made by countries, sub-national jurisdictions and businesses. The most ambitious commitments came from the least developed and climate vulnerable countries, those who contributed least to global emissions. The largest emitters, including many G20 countries, failed to commit to more ambitious targets.

With the UK ready to host COP26 and the Paris Agreement ambition “ratchet” mechanism set to come into play, there is anticipation that 2020 needs to be a “super year” for climate. Many major economies are expected to publish enhanced NDCs next year and we will be analysing these throughout the year in the build up to COP26.

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Contact us

Dr Celine Herweijer

Partner, PwC Global Climate Change Leader, PwC United Kingdom

Kiran Sura

Assistant Director Sustainability & Climate Change, PwC United Kingdom

Mary Davies

Senior Associate, Sustainability & Climate Change, PwC United Kingdom

Matt Gilbert

Associate, Sustainability & Climate Change, PwC United Kingdom

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