Historically, the pace of global policy change has been glacial. The next few years may see a torrent of changes, and investors are likely unprepared.
A UN-backed investor group has created a tool — the "Inevitable Policy Response" — meant help to businesses, investors and governments account for policies likely to exist as soon as the mid-2020s that will change the global energy mix.
Market trends, increasing social pressure and a mechanism spelled out in the 2015 Paris Agreement that encourages countries to assess and tighten their climate goals make it more likely than before that new regulations will come to pass, according to the authors.
Widespread adoption of these policies, analysts say, would significantly reduce projected emissions — though they may still fall short of what scientists say is necessary to keep warming below 1.5 degrees Celsius. The scenarios are designed to help people better see the scale of the transition that's likely coming as warming accelerates, fossil fuels decline and stricter regulations accelerate changes already taking place in markets.
The new work is "a high-conviction policy-based forecast, not a hypothetical scenario," analysts contend. Investors have been making decisions based on projections that may be unlikely to happen because they only account for existing and announced policies — not the ones gaining momentum. The new work is reflective of the new reality.
The authors conclude that coal will peak globally by 2022 at the latest, oil by 2028 and natural gas around 2040. Renewables rise to half of all electricity by 2030 and almost all of it by 2050.
The initiative is a collaborative effort between the Principles for Responsible Investment (a network of more than 2,300 asset owners, asset managers and related-services providers) and several other climate-finance research groups. PRI members include BlackRock Inc., Goldman Sachs Asset Management and J.P. Morgan Asset Management. The analysis was conducted by London-based Vivid Economics.
Putting projections on a short time frame means the project's authors will know how their work holds up fairly quickly, said Mark Fulton, project coordinator and founding partner of Energy Transition Advisors.
"As you get towards 2023, if you're not seeing way more discussion, and way more serious planning," Mr. Fulton said, "then you start to get nervous."