This week Climate Action 100+ published its report, Net zero in the power sector: what it looks like and how investors can accelerate and track progress. It found only one of 68 publicly listed power companies has a decarbonisation plan consistent with the International Energy Agency (IEA) 1.5C pathway.
Decarbonising the electricity sector will play a leading role in reaching the goals set out by the Intergovernmental Panel on Climate Change (IPCC). In 2019, the burning of fossil fuels for electricity accounted for 41% of total global energy emissions; and the IEA expects demand for electricity to grow by 166% by 2050. But what makes the sector so important is its role in allowing other sectors to transition to net zero.
This week’s report will be used as a tool by investor signatories to the Climate Action 100+ for sector-wide dialogue with power companies and encourages both collaborative action and individual engagement. There are more than 615 investor signatories to the initiative, managing $55trn in assets and representing a significant collective force for engagement. It sets out seven key actions investors should encourage power companies to carry out:
- Set a company-wide emissions target for electricity generation reaching net zero by 2040 and by 2035 in advanced economies
- Achieve the majority (i.e. >50%) of the decarbonisation (from a 2019 level) by 2030 or sooner
- Set two additional company-wide emissions targets that cover all sold or distributed energy
- Set a clear decarbonisation strategy identifying the main measures that will be used to deliver targets – specify the contributions each measure should make towards the target
- Develop a capital investment plan aligned to a 1.5oC pathway
- Identify policy barriers to net zero
- Provide a just transition
It’s important that targets set upon by the power sector are ambitious, and we know what we are asking of power companies is just that. In 2018, IPCC research highlighted the need for electricity producers to reach net zero a decade ahead of the broader global economy, as other sectors require green electricity to facilitate their own transitions. Analysis from the IEA this year suggests that, to have even a 50% chance of limiting global temperature rises to 1.5 degrees, electricity generation globally should not only be decarbonised by 2040 (and by 2035 in advanced economies), but more than half of the emission reductions should come by 2030.
Decarbonising by the target dates we set will certainly be commercially challenging, but we know what we are asking for is not technically impossible.
But where there is risk of failing to reach net-zero targets, there is also opportunity, as those which transition fastest can claim a greater market share in the future green power sector. And we have been surprised by speedy development in green sectors before – the electric vehicle (EV) sector an obvious example. However, just as in the EV sector, we cannot expect the power sector to achieve its targets alone: governments, regulators, industry bodies and investors have a key role to play in facilitating change.
