The 12 Days of Carbon Tracker
Well…that was different. 2016 has been quite the year of change. A year of political events that will have profound impacts on the world for years to come. But before you reach for that much needed Christmas pud and nth glass of brandy to forget all that, lets remember the huge progress made in the low-carbon energy transition in 2016.
This merry run-down of the last year – with a few challenges thrown in for good measure – has returned to the format of ‘The 12 Days of Christmas’, and ‘Yes’, the puns haven’t improved.
Sing along… “On the 12 days of Christmas, 2016 gave to me:
One Carbon Tracker
Self-centred, we know, but there really is only one Carbon Tracker – no matter how many times people confuse us with Climate Action Tracker! 2016 has been another year of growth for CTI. The research team has been bolstered with Matt Gray joining from the IEA to focus on utilities, we have hired an Engagement Team to take our research around key financial stakeholder groups and we have just finalised opening a US office in New York. Together, this will enable us to make even more impact in 2017 and beyond.
2°C comes into force
On Oct. 5th 2016, the Paris Agreement on climate change was ratified, far more quickly than expected. This signal that Governments will act to mitigate climate change has led organisations, such as ratings agency Moody’s, to create scenarios consistent with the Paris Agreement to assess carbon transition risk. While 2°C and below is still a long way away, the IEA confirmed that 2015 CO2 emissions were flat on the previous year – “we now have seen two straight years of greenhouse gas emissions decoupling from economic growth”, said IEA Executive Director Fatih Birol.
2016 has been a year of record low prices for low-carbon technologies. In August, a solar PV project in Chile set a new low price of 2.9c/kWh. The following month, a record low was set for offshore wind in Danish waters of approximately 6.4c/kWh. The third record to fall is that of battery storage courtesy of Tesla’s Powerwall 2 that was announced in November. The Powerwall 2 is nearly half the installed cost per kWh of its predecessor with an inverter built in, making it “the cheapest lithium battery for the home ever made”, according to Bloomberg New Energy Finance (BNEF). To make matters all the more impressive, BNEF announced this year that 2015 saw record levels of investment into renewables and record installed capacity. Phew!
Four LCOE factors
On average, wind and solar PV were cheaper in 2016 than coal and gas globally. This was Carbon Tracker’s conclusion when applying real world assumptions for: i) the cost of capital for renewables; ii) fossil fuel plant capacity factors; iii) financing costs of fossil fuels; and iv) carbon pricing for fossil plants. This research reiterated the importance of applying up-to-date factors in levelised cost of energy (LCOE) calculations.
FIVE COAL THINGS!
- Peabody Energy, the largest coal company in the US, went bankrupt this year from having a market cap of approximately $25bn in the middle of 2015. A true example of market disruption resulting in a stranded asset.
- Canada, France, Germany, Netherlands, Austria and Finland all pledged to phase-out coal power.
- The IEA confirmed that coal consumption in China peaked.
- Norway’s $863bn wealth fund sold out of 52 coal dependent companies to fight climate change.
- Carbon Tracker research shows that $500bn could be spent on unneeded coal plant capacity in China. The Central Government must stop investing in new capacity and instead promote efficiency.
Six decades of knowing
2016 has seen the start of legal challenges against ExxonMobil by the New York Attorney General for misleading the public on climate change. ExxonMobil knew as early as the 1960s that rising CO2 levels could result in rising temperatures. Similarly, Carbon Tracker’s ‘Déjà vu’ paper found that Shell had in fact conducted the unburnable carbon comparison of carbon budgets to fossil fuel reserves way back in 1998. That could have saved us all some time!
Seven majors worth more
In a period of clear oil price volatility, Carbon Tracker believe it would be valuable for oil majors’ to screen future projects for a range of oil prices and discount rates. So we did it for them in Sense & Sensitivity. The analysis concluded that the 7 majors would create more shareholder value by developing upstream projects that are consistent with a 2°C scenario, rather than a business-as-usual, up to an oil price of $120/barrel. Given that the oil price started the year around $35/barrel, and has dramatically rebounded(!) to approx. $55/barrel currently, this conclusion is still something investors and companies alike need to consider.
Eight hundred and fifty million invested
Energy is fast becoming a technological solution. Apple invested $850m in a solar farm in California and, in 2016, was granted to sell that energy back to the grid. In essence, Apple is now competing with all conventional utilities. Apple are also investing heavily into EVs and autonomous vehicles, spending more on that R&D than it did on iPhones, iPads and Apple watches combined. Apple is the first mover, but other tech companies are just as sold on low-carbon techs. When these companies bring their innovative know-how and financial might to the energy sector, “patterns of production, distribution and trade across the energy sector are all vulnerable” said Nick Butler. This may have been the year when the big disruption began.
Nine years from ‘peak oil’ to ‘peak demand’
How quickly discourses can change, notes one Bloomberg journalist. Everyone is talking about peak oil demand. The IEA maintain it won’t happen before 2040, while Shell think it is “between 5 and 15 years away”! One thing is for sure – electric vehicles are here to stay. Tesla’s affordable Model 3 received an astronomical number of orders, car manufacturers are squabbling to gain market share and according to Goldman Sachs, lithium is “the new gasoline”. How right they are – the IEA believe that peak gasoline has been reached. The rate at which EVs displace oil demand is of course critical to every oil & gas company in the future.
Ten-uous link to company forecasts
It is clear the low-carbon transition continued apace in 2016 and the IEA upgraded their renewable energy projections in response, although this was largely missed by the media. However, fossil fuel company Energy Outlooks continue to fail to reflect the progress. BP and ExxonMobil made negligible changes to renewables in their base cases compared to previous years. These Outlooks continue to overlook the potential variability in demand assumptions outlined in our Lost in Transition report.
Eleven climate-related financial disclosures
This year saw the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures publish its 11 draft recommendations to go to the G20 in June 2017.
Carbon Tracker fed into this process with our Executive Director Mark Campanale presenting our views on climate disclosures as part of the inaugural plenary meeting in February. Carbon Tracker’s regulatory work has also been active in the US where we found carbon-intensive sectors are failing to disclose “decision useful” information on climate risk, and have submitted to the SEC as such.
Twelve states oppose Trump’s plans to quash climate laws
We couldn’t go through a 2016 review without mentioning him, could we? Lets face it, the victory for President-elect Donald Trump is not ideal. Trump vows to “end the war on coal, and rescind the coal mining lease moratorium”. He also plans to scrap the “Waters of the US” rule, the Climate Action Plan and the Clean Power Plan. All is not lost however. 10-12 States plan to oppose Trump and defend climate plans and renewable energy targets.
Further, our analysis has showed that even to meet business-as-usual coal demand, no new coal leases are required in production centres such as the Powder River Basin until 2031 anyway. Therefore, scrapping the moratorium is unlikely to change much in the way of supply. Meanwhile, the economics of low-carbon power sources are becoming increasingly favourable versus coal all the time. Renewables are already cost competitive in a number of states where Governors seem set to continue driving deployment of clean and cheap low-carbon technologies.
Merry Christmas and a happy new year from everyone at Carbon Tracker!