COP26 Champions welcome study as enabling rapid net-zero transition

Geneva, 10 December 2020 – Based on the 2019 One Earth Climate Model (OECM) by the Institute for Sustainable Futures at University of Technology Sydney (UTS), Sectoral Pathways to Net Zero maps out possible 1.5 °C pathways for five key high-emitting sectors: energy, utilities, materials in specific steel and cement, and transport.

The publication of the Net-Zero Asset Owner-commissioned study comes ahead of the UN Climate Ambition Summit (12/12/2020), held on the fifth anniversary of the landmark Paris Agreement.

COP26 High Level Climate Action Champions Nigel Topping and Gonzalo Muñoz said that to enable the rapid transition to net zero by 2050, all actors need “clear-eyed intelligence” on how this might be achieved.

Writing in the foreword of the study, they said: “Technologies need to be research and developed, policies need to be adjusted, business operations need to evolve, and exponential rates of change must be realised. How an entire global economy transforms will need to be understood from a variety of vantage points and may take myriad trajectories, but all must end in one destination – net-zero by 2050. “

“These ‘roadmaps’ or ‘sector pathways’ provide information on the routes we can travel as a global community. The knowledge and rigor of the scientific community, the strategic direction of governments and the know-how of industry all provide data points on this global map. “

OECM emerged as a suitable model because it is readily translatable to granular sector pathways. It uses assumptions suited to the needs of the Alliance – a no-overshoot scenario, meaning it does not rely on high levels of unproven Bioenergy with Carbon Capture and Storage (BECCS) and Carbon Capture, Use and Storage (CCUS).

The study informs us that global and regional Scope 1 and Scope 2 emissions must fall between 2021 and 2025 by around 28% (plus or minus 5%), with some differences across sectors.

Alliance members endeavour to be informed on science-based sector pathways to net zero by 2050 with emissions (scope 1-2) and energy intensity and carbon intensity (scope 1-2) milestones in 5-year intervals for agreed high-emitting sectors. The number of sectors and regions will expand until it is possible to account for Scope 3 in full.

Members may use the OECM set of sector pathways to support engagement with investee companies, gauge individual corporate pathways, and as a guide to establishing their sector targets or rely on current or future sector pathways as they develop.

The OECM study found the decarbonization of portfolio holdings of energy, utilities, transport, steel, and cement investments to achieve the Paris Climate Agreement target is achievable based on current technologies. It is economically viable and cost competitive in the mid to long term.

The rapid and consequent decarbonization of the power sector is vital to achieve the 1.5 °C pathway. Renewables-based power generation is the backbone of decarbonization for all the financial sectors analysed as fossil fuels are replaced by increased electrification.

There is no alternative to a phase-out of coal power and coal-based heat generation in OECD Europe or OECD North America by 2030. The delayed phase-out of coal will put the Paris Climate Agreement beyond reach, the OECM model found. This is in line with the Alliance’s Position on Thermal Coal.

Marcus Bruns, Nordic Head of Sustainability, Storebrand, and Alliance working group co-lead on sector targets, said: “To ensure that we are on track towards our long-term target of being net zero by 2050 in our investments we need to understand what this transition can look like for the sectors that amount for the largest part of our portfolio emissions. “

“This science-based report is one of many tools needed to further analyze the pathways to a low-carbon society. This is one of very few sector pathways for high-emitting sectors, showing how future energy demand can be produced in a way that is aligned with a 1.5-degree scenario.”

Jean-Francois Coppenolle, Aviva’s Head of Credit & Sustainability Risk and working group co-lead on sector targets, said: “As investors we have committed to reduce the carbon footprint of our investments. To help the companies transform as fast as possible, we need to better understand the constraints and possibilities of each sector by contributing to more and better research.”

“In order to be able to set sector targets, the Alliance requested that the scientific community provides transition sector pathways that could be readily integrated applied in the investment decision-making process.”

Media contact
Oliver Wagg
+44 7885 377 264

Notes to editors

The Alliance seeks and expects to include more such sector decarbonization pathways from a variety of models and welcomes the availability for inclusion and comparison of a growing range of sector pathways from multiple sources.

The Alliance identified the highest-emitting sectors in its financial portfolios. It then prioritised a subset of these sectors based on the expected impact of engaging them. These priority sectors are: energy, including coal, oil, and gas; utilities, with a focus on power and gas supply; materials in specific steel and cement; transport, including aviation, shipping, and heavy- and light-duty road travel.

Please see table key findings below


Key Findings

*CO2e, CO2equivalents

The table shows the key results for all the financial sectors analysed. Provided are Scope 1and Scope 2emissions in CO2equivalents (CO2e), which include energy-related CO2and CH4emissions. Based on the methodology used for Sector 1 and 2 emissions, the emissions cannot be summed. The calculation of Scope 3emissions was not possible because this would require an analysis of all sectors.

(†) The implementation of new hydrogen and synthetic fuels and increased electrification will increase the Scope 2emissions, while the Scope 1emissions will decrease. The share of electric vehicles in road transport and the use of hydrogen and synthetic fuels in aviation and shipping are currently almost zero on a global scale, so the increase in emissions from 2019 to 2025 cannot be provided as a percentage.

  • The Energy and Utility sectors play key roles in allowing all other industries to meet the 1.5 °C target. Whereas the Steeland Cementindustries might be able to set up their own renewable energy and power supply or acquire power with power purchase agreements (PPA), the Transportsector is dependent on the EnergyandUtilitysectors to provide sufficient amounts of renewable electricity and bio- and synthetic fuels to supply airlines, shipping, and road vehicles for passenger and freight transport.
  • The Energy and Utility sectors must be the first movers to decarbonize energy for their customers, to allow them to fulfil their emissions reduction targets.
  • The key responsibility of the Transportsector is to move to electric vehicles, biofuels, and renewably produced synthetic fuels. Manufacturers of road vehicles, planes, and ships are required to phase-out fossil-fuel-based combustion engines over the next two decades.
  • The market share of electric road vehicles—for passenger and freight transport—must increase from currently around 2% globally to 30% by 2030. The increased electricity demand must be met by renewably generated electricity.
  • The rapid electrification of road transport has cross benefits for the Energysector and especially for the Utilitiessector, because increased numbers of electric vehicles will come with higher storage capacities for electricity and significant demand-side-management possibilities to integrate high shares of variable solar and wind generation. An increasing charging infrastructure is a pre-condition for mainstreaming electric vehicles (EV).
  • The estimated investments in new power – and heat-generation capacities and in bio – and synthetic fuel production are calculated to be US$60 trillion between 2021 and 2050 under the 1.5 °C pathway—an average of US$2 trillion annually or around 1.5% of global GDP. This does not include investments in new energy infrastructure.
  • Fuel cost savings will more than compensate for the increased investment required in renewable power and heat generation by all industries.
  • Whereas early action in the Energy, Utilities, and Transportsectors is required and technologies are available to avoid process-related emissions, the Steeland Cementindustries will require more time. In this analysis, we recommend that the renewable energy supply for the production processes of steel and cement be implemented first. The reduction in process emissions is calculated for the period after 2030 and requires a gradual change in production processes.
  • The Steelindustry must move to electricity-based steel-making processes, such as electric arc furnace (EAF) and hydrogen-based steel production, by 2035. The latter is currently still in its demonstration phase and must move into mainstream steel manufacturing within the next 15 years.
  • Based on current technologies, the process emissions of the Cementindustry cannot be reduced to zero. Therefore, nature-based carbon sinks—mainly forests—are factored in to compensate for the residual cement emissions in 2050. The authors of this analysis recommend that the Cementindustry—among all other industries—support projects to expand nature-based solutions for negative emissions (i.e., carbon sinks) on both global and regional levels. Furthermore, the replacement of steel and cement with alternative building materials is vital to reducing emissions.
  • Under the 1.5 °C pathway, 18% of those investments must go to solar photovoltaic and 28% to wind power (onshore and offshore). A significant share of solar and wind electricity is used in this pathway to produce synthetic fuels and hydrogen for industrial processes, heat, and fuels for aviation and shipping. Between 2021 and 2025, approximately 2,500 GW solar photovoltaic, 1000 GW onshore wind, and 150 GW offshore wind power plants must be installed globally. Compared with the market volumes in 2019, solar photovoltaic must increase from 115 GW per year (GW/a) to 500 GW/a; onshore wind from 54 GW/a to 200 GW/a; and offshore wind from 6 GW/a to 30 GW/a.
 About the UN-convened Net-Zero Asset Owner Alliance

 Convened by UNEP FI and the Principles for Responsible Investment (PRI), the Alliance is an international group of 33 institutional investors managing over $5 trillion assets delivering on a bold commitment to transition our investment portfolios to net-zero GHG emissions by 2050. The Alliance shows united investor action to align portfolios with a 1.5°C scenario, addressing Article 2.1c of the Paris Agreement. The Alliance is part of the UNFCCC Race to Zero campaign and supported by WWF and Mission 2020.