A few months ahead of the UN Climate Change Conference (COP26), the International Energy Agency (IEA) has published its global roadmap for limiting global warming to 1.5°C and achieving net zero carbon dioxide emissions by 2050, and the recommended measures are drastic.
The IEA was established in 1974 in the framework of the OECD and in the wake of the 1973 oil crisis with the aim of ensuring energy security and stability i.e. enough fossil fuel to run the power, transport, and industrial processes of developed economies.
The IEA only became interested in renewables much later in 2009 and even then devoting only 2% of its budget to renewables. In recent years, however, the agency has done a 180 degree turn, and on 18 May it published a report with a Roadmap that sets out more than 400 milestones to guide the global journey to net zero emissions by 2050. These include, from today, no investment in new fossil fuel supply projects and no further final investment decisions for new unabated coal plants. By 2035, there should be no more sales of new internal combustion engine passenger cars, and by 2040, the global electricity sector should have reached net zero emissions.
In the IEA’s vision, clean energy, led by solar and wind power, would dominate the world’s energy systems by 2050. The agency calls for a historic level of new investments to meet that goal, reaching USD 5 trillion in 2030. In addition, the amount of new solar and wind electrical capacity added each year, which reached a record high in 2020, must quadruple.
The agency envisions 90% of electricity coming from renewable sources, with wind and solar PV together accounting for almost 70%. Most of the remainder comes from nuclear power. Fossil resources would only provide one fifth of the energy (compared to four fifths today) for uses such as plastics.
The IEA also calls for global commitment and inclusive transition. Dr Fatih Birol, the Executive Director of the agency, said that “despite the current gap between rhetoric and reality on emissions, our Roadmap shows that there are still pathways to reach net zero by 2050.” He added, “The one on which we focus is – in our analysis – the most technically feasible, cost‐effective and socially acceptable. Even so, that pathway remains narrow and extremely challenging, requiring all stakeholders – governments, businesses, investors and citizens – to take action this year and every year after so that the goal does not slip out of reach.”
These announcements will likely cause a lot of noise and have real consequences, as the IEA’s reports are very influential with energy groups, which base their investment strategy on the agency’s forecasts, governments when they draw up their public policy, and shareholders in anticipating market developments.
There are still challenges to be solved in this trajectory. Specifically, that of metals and rare earths, which are essential to the transition. A few weeks ago, the IEA predicted that by 2040, consumption of lithium will have increased 40-fold and nickel 20-fold. These are enormous needs for materials that are sometimes unevenly distributed around the world and are extracted under poor social or environmental conditions, depending on the country.
At QUAERO CAPITAL, we acknowledge the responsibility of the asset management industry in the fight against climate change and we take climate issues into account as an integral part of our responsible investment policy. We are proud to say that more than 40% of the assets managed is dedicated to sustainable strategies and we expect this proportion to rise in the coming years. We recently adopted a climate policy, and part of this policy is the restriction across our funds of investments in the companies most negatively impacting climate change mitigation, as well as a commitment to reducing our own operational footprint.