IPCC report: why the detail matters to energy investors - Financial Professionals - Schroders
IPCC report: why the det…
Batteries, electric cars and wind power; an energy transition investor explains what’s changed following this week’s IPCC report.
The United Nation's Intergovernmental Panel on Climate Change (IPCC) report will shock many people.
Essentially, it’s a summary of the work produced over years of combined effort between the world’s top environmental scientists. Importantly, to avoid doubt and remove controversy, the findings are endorsed by the world's governments, before the report is released.
To put into context what the data is highlighting, not only do we need to get to net zero emissions globally by 2050, but we would also need to proactively remove carbon from the atmosphere from that point onwards in order to limit global temperature increases to between 1 - 1.9 degrees Celsius by 2100.
With respect to CBAMs, the EU is phasing this in to provide businesses and other countries with legal certainty and stability. Initially it will apply only to a selected number of goods at high risk of carbon leakage, such as iron and steel, cement, fertiliser, aluminium and electricity generation. Revenues from CBAM will contribute to the EU's budget, as laid out in the December 2020 Interinstitutional Agreement on budget and own resources.
Using an open market carbon price, the CBAM system works on the basis that EU importers will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU's carbon pricing rules.
In fact, both the International Energy Agency (IEA) and Bloomberg New Energy Finance (BNEF) estimate, that based on $100 - $120 trillion of the required investment over the next 30 years in order to get to net zero in 2050, the annual run rate of capital expenditure across these five broad sectors needs to DOUBLE from here.