The world’s major economies are far off track on meeting their climate change targets, setting them up for a disorderly transition when they finally spring into action, according to a new report.
Having waited too long to cut emissions, countries will “need to yank the handbrake on emissions to meet agreed climate goals,” creating tons of risk for financial markets and broader society, the report warned.
G20 not on track
China has led the world in renewable energy investment and deployment, high-speed rail, new transmission, and the world’s largest carbon market. But China also depends heavily on coal, and “continues to cling to high-carbon power sources,” according to a new report from Verisk Maplecroft, a political risk firm.
The U.S. is also badly off track, with no real national climate policy or strategy to speak of. The sum total of U.S. climate policy consists of an array of narrowly targeted federal environmental regulations, and some modest subsidies for clean energy. The Biden administration has laid out a goal of cutting emissions in half by 2030, but there are no legal teeth behind that goal yet. The political pendulum swings with each election, and gridlock in Washington has prevented action.
Even the UK, the one G20 country furthest along in its decarbonization goals, lags behind on its commitments. The UK has already cut its emissions in half relative to a 1990 baseline, and recently announced a goal of cutting emissions by 78 percent by 2035, but the UK’s currently policies “will not build the zero-carbon electricity, transport and heating infrastructure needed to achieve this goal, much less deliver carbon neutrality by 2050,” Verisk Maplecroft said in its report.
If the UK leads the G20 pack and is still behind, that does not bode well for the climate progress from G20 countries on the whole, who together make up 80 percent of total global greenhouse gas emissions.
Because the G20 is way behind, that raises the prospect of more dramatic and disruptive policy action in the relatively near future. “[K]eeping the 2°C Paris Agreement target in sight will require widespread government intervention over the coming decade,” the report says.
“Major economies like the US, China, the UK, Germany and Japan will need to yank the handbrake on emissions to meet agreed climate goals – at the same time as dangerous rises in extreme weather events play an increasingly disruptive role in the global economy,” Verisk Maplecroft’s Head of Environments and Climate Change, Will Nichols, said in a statement. “These conditions will leave businesses in carbon-intense sectors facing the most disorderly of transitions to a low-carbon economy, with measures – such as restrictive emissions limits for factories, mandates for buying clean energy, and high levies on carbon – imposed with little warning.”
There are other insights regarding the gaps in G20 countries’ plans. For example, Canada and Australia have decentralized governance and “confused national strategies,” along with huge volumes of fossil fuel exports that result in poor scores in Verisk Maplecroft’s estimation. Russia and Saudi Arabia have climate targets “so unambitious that achieving them is a near certainty.” But, of course, weak climate targets do not mean they will avoid transition risk or upheaval in global energy markets. As the world moves to increasingly limit hydrocarbon consumption, major oil exporters could be left in a lurch.
Risk of abrupt change
With the past two decades mostly squandered, the world is running out of time to meet climate targets, such as limiting warming to 1.5-degrees Celsius as laid out in the Paris Climate agreement. “Our data underscores that it is clear there is no longer any realistic chance of an orderly transition,” said Rory Clisby, one of the co-authors of the report.
“Companies and investors across all asset classes must prepare for at best a disorderly transition and at worst a whiplash from a succession of rapid shifts in policy across a host of vulnerable sectors,” Clisby said.
The oil industry just received a small tase of what a sudden whiplash in policy might look like. The court decision in the Netherlands ordering Royal Dutch Shell to cut emissions by 45 percent by 2030 is one such example. In April, a German court said that the country’s climate targets were insufficient, forcing the government to abruptly tighten them.
Global finance is also shifting rapidly, ratcheting up the pressure on oil titans to restrain their production and focus on cash flow instead of growth. The dumping of ExxonMobil board members by activist investors is another sign of the changing times.
These are just small examples of how markets, investors, and governments could potentially get blindsided. Given the wide gap between climate ambition and actual policy, much larger forces of disruption are almost inevitably coming.
“[W]hat is clear, is that the low-carbon transition is happening whether we like it or not. Governments, investors and corporates have just a few years to determine how smooth that passage is,” Nichols stated.