能源转型困境（英）-LGIM&BHP.pdf

2022 | The energy transition dilemma For professional clients only. Not to be distributed to retail clients. Capital at risk. The energy transition dilemma A joint research paper by LGIM and BHP3 2 2022 | The energy transition dilemma 2022 | The energy transition dilemma Executive summary A common goal of limiting global warming to well-below 2°C – and ideally 1.5°C by the end of the century as set out in the Paris Agreement – does not mean there is a common or accepted path for how to get there. There are as many ‘pathways to Paris’ as there are climate scenario models. Yet there are some points on which all models seem to agree. 1. Radical change to the world’s energy and land use systems is required. 2. The battle will be won or lost in populous emerging markets, where energy supply must grow to meet increasing demand while these markets simultaneously transition to low-carbon sources. 3. Action must be taken as soon as possible, as it will be significantly less costly in monetary and socio- environmental terms than delayed action. 4. Policy must address all fundamental elements of the transition to allow the demand and supply sides of the energy system to adjust as required. Carbon pricing calibrated to the end-goal is a core ingredient of any effective policy framework. The lessons of history and the cold logic of market dynamics show that addressing demand is one of the most important ways to exert leverage on the supply side of the energy and land-use system. None of the above will be feasible if the supply of metals does not keep pace with the spectacular demands of the energy transition. Metals are essential inputs for the hardware of decarbonisation – there will be no energy transition without a very large increase in the production of critical minerals. Yet the production of minerals can itself be an emission-intensive process. There are two clear roles for investors here: • Engage constructively with the sector to help drive down operational emissions. • Mobilise the capital that will be required to ensure metal supply does not become a bottleneck in the race to Paris. We believe investors must be a part of the transition through engagement, focusing efforts on creating an environment where companies, governments and allocators of capital work together to build the ecosystem where clean energy alternatives compete with and beat the incumbent greenhouse gas-emitting technologies. Consumers adopting new products or services when the utility from doing so demonstrably exceeds the incumbent option is, more or less, the story of economic progress since the Industrial Revolution. However, while the historical pattern has been organic, with spurts of rapid progress as sectoral innovation clusters emerged, interspersed with periods of more sedate rates of change, what is required now is change that is economy- wide, global, sustained and contemporaneous across sectors. And it needs to occur at unprecedented speed.5 4 2022 | The energy transition dilemma 2022 | The energy transition dilemma The Paris Agreement aims to hold “… the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels, recognising that this would significantly reduce the risks and impacts of climate change”. This means global emissions must reach net zero by 2050, requiring the world’s energy and land use systems – the economy’s ‘engine room’ and society’s ‘bread basket’ – to undergo the fastest, most coordinated transition in human history. Successful transition will require a vast capital reallocation and will likely generate material risks and opportunities, placing investors and global capital markets at the very centre of the challenge. Building out electricity transmission; distribution infrastructure; and renewable generation capacity is highly capital intensive (offset somewhat by lower operating expenses). Annual average energy capital investments would rise from around US$2tn today (2.5% of GDP) to around US$5tn for the period from 2021-50 (4.5% of GDP in 2030, falling to 2.5% of GDP by 2050) in the International Energy Agency s (IEA) Net Zero 2050 scenario. 1 Total investment requirements in energy supply and infrastructure over the next 30 years could range from US$92-173tn, according to Bloomberg New Energy Finance. 2 Governments world-wide will need to play their part, directly contributing finance and using public policy to encourage private sector involvement. Introduction – many roads to Paris Against this backdrop many investor portfolios, as they are presently composed, face considerable risks under Paris-aligned pathways, in our view. LGIM’s analysis of asset valuations under its Paris-aligned scenarios shows that a representative global equity index could be worth 6% less today in net present value terms in an immediate action well-below 2°C scenario, or 15% less in a net zero 1.5°C scenario, considering impacts to 2050. If action is delayed by 10 years, but still achieves a well-below 2°C (around 1.75°C) outcome, the loss rises to 20%. That is compared to asset value to 2050 in the absence of physical and transitional climate risk. 3 Investors have an important role to play in supporting companies in future-proofing their business models and significantly reducing their carbon footprint to reduce their exposure to climate transition risk and contribute to the mitigation of physical climate risk. Equally central to meeting the challenge is the global resources sector, which sits at the intersection of this change and will be pivotal on both sides of the decarbonisation coin. The total value chain for natural resources, from discovery, to extraction, through processing, distribution and use is highly energy intensive, which in today’s world, also means carbon intensive. As shown in the following chart, companies in the energy and basic materials sectors are among the most carbon-intensive equity issuers. 1. Sources: https://www.iea.org/reports/net-zero-by-2050 2. Source: https://about.bnef.com/new-energy-outlook/ 3. Further information on LGIM’s climate risk metric is provided in Appendix 1. Basic materials( 3 % ) Communications (13 % ) Consumer, Cyclical (9 % ) Consumer, Non-cyclical (25 % ) Energy (3 % ) Financial( 17 % ) Industrial (9 % ) Technology (15 % ) Utilities( 4 % ) 05 00 1,000 1,5002 ,000 2,5003 ,000 3,500 Carbon revenue intensity ( tCO2e / m US$) Weighted average Median Source: LGIM Analysis, as at 31 December 2021. The value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested. Notes to chart: (1) Results shown are for a representative global equities portfolio and include Scope 1 and 2 emissions (2) Average is weighted by market capitalisation. (3) Numbers in brackets indicate the Index’s PV in each sector (4) Black error bars show the interquartile range of carbon revenue intensity within the sector Figure 1: Carbon revenue intensity of global equities7 6 2022 | The energy transition dilemma 2022 | The energy transition dilemma On a business-as-usual basis, rising standards of living and population growth point to increasing resource consumption. Modern life is fundamentally dependent on the metals, energy and chemicals that the natural resources sector provides, affordably and at scale. And as the difficulty of finding and developing new mineral deposits increases, even as existing assets see their grades inevitably decline, the industry’s energy footprint is likely to continue to grow for both demand and supply reasons. The resources industry must provide the material building blocks of the hardware required to radically reconstitute how we produce energy and use land. Whether the nickel used in electric batteries; the uranium needed to power zero operational 4 carbon emissions nuclear reactors; the steel used in wind turbines; the potash required to boost agricultural yield for biofuels and conserve land for afforestation; the silver and silicon used in solar panels; or the copper that will enable the electrification megatrend at large, the products produced by this industry will only grow in importance to the world. Ergo, the size of the prize for reducing and ultimately eliminating the sector’s operational carbon footprint is large. That is why a number of major resources companies, like BHP, have established ambitious and transparent objectives for operational emissions reduction. In the six years or so since the Paris Agreement was adopted, thousands of scientists and economists have set out to model how the world might go about meeting its objectives. LGIM first published “orderly” and “disorderly” pathways to well-below 2°C (around 1.75°C) – referred to as ‘Destinations’ – in 2019. In 2022, LGIM added a 1.5°C scenario that achieves net zero CO2 emissions around 2050. BHP had done similarly in 2015, in its Portfolio Analysis, and updated this in its Climate Change Report 2020 (available at bhp.com/climate), which included a Paris-aligned technical pathway to 1.5°C and a non-linear “Climate Crisis” scenario. This 1.5°C pathway has since been incorporated in corporate planning processes, as described in BHP’s Climate Transition Action Plan 2021 (CTAP – also available at bhp.com/climate). The respective suite of LGIM and BHP scenarios, and of more than 100 Paris-aligned scenarios that we have looked at (see Appendix 2) virtually all, explicitly or implicitly, converge on the following important conclusions: 1. the need to radically transform the way the world produces and consumes energy and uses land; 2. the need for massive investments in clean energy to meet this transformative challenge; 3. the utility of universal pricing of carbon emissions to tackle the demand side of carbon intensive energy use and to stimulate the supply of clean alternatives is unmatched by other potential levers; 4. the fact that this battle is global: it can’t be won in the developed world alone, but it can be lost in the developing world, where the majority of future emissions are likely to come from under a business-as-usual scenario; 5. the need for unprecedented levels of international cooperation to accommodate all of the above, including the containment of carbon leakage and swift diffusion of clean technology; 6. and the need for a step-wise increase in the supply of the future-facing metals that are the building blocks of the hardware of decarbonisation. That’s often where the similarities end. The complexities of the energy system, the array of commercial and emergent decarbonisation options and the behavioural and policy choices and levers available to modellers – which can, at least theoretically, be deployed in almost infinite combination – mean that a very wide variety of pathways can be generated that target alignment with the goals of Paris. Given this fundamental reality, substantial differences between independently modelled pathways to the Paris-aligned end-state can and do arise, depending on the assumptions chosen with respect to: efficiency; international cooperation and coordination; domestic policy frameworks; the rate of technological development and adoption; and behavioural change. While global emissions curves in these scenarios all trend downwards towards a green end-state, the shape of these curves vary considerably. Some cut emissions more steeply in the early years before easing towards the objective further out, others produce almost constant linear progress, while more still are relatively less ambitious in the early years, allowing technology to mature, policy ambition to rise steadily and certain segments of the capital stocks to reach end-of-life before seeing emissions plunge towards net zero on a just-in-time basis. While it is important to note that different time-paths to the end-state carry different physical climate risks (just-in-time being potentially riskier than early action on multiple fronts, all else being equal, as we will argue below), some of the Intergovernmental Panel on Climate Change’s past work has shown that scenarios that technically meet the goals of the Paris Agreement can reach net zero from as early as 2045 to as late as 2080. This variety is not helpful to those who advocate for a simple “consensus” path to Paris that can be used in, for instance, financial reporting for listed companies or climate investment risk analysis. The scientists and economists who comprise the climate modelling community are a long way from landing on an uncontentious “one size fits all” scenario that can serve this purpose. This is partly due to the reality that settling on a single pathway based on the information we have today is inappropriate (and arguably impossible) given the complexity of the systems under consideration, the long time frames involved and the inherent uncertainty pertaining to most of the major assumptions. Critically, even the area that could be the simplest – national and international policy frameworks – at this stage leaves much to speculation: even post COP26. Prior to the 2021 summit in Glasgow and the weeks leading in, the world’s governments fell into two basic camps on this score. Either they were still mapping out a bottom-up plan to effectively deliver on top-down ambitions that are aligned with the aggregate goals of Paris. Or they were lacking a top-level ambition that is proportionate to the global challenge to begin with. Post Glasgow, there are, thankfully, fewer countries in the second camp. New pledges on methane, and a net zero goal for India, if delivered, certainly constitute positive progress. We hope that as the many announcements from COP26 are translated into official policy, this greater clarity will reduce the variations in assumptions across the research community, as well as help to bend the global emissions curve closer to “a” (not yet “the”) Paris-aligned road. We revisit this issue below when we discuss the pricing of carbon. To reiterate the point, at our current collective state of knowledge, we firmly believe that no single scenario should become the unquestioned benchmark. Accordingly, we advise interested parties to study the growing suite of pathways consistent with Paris, seek to learn from them all, and embrace the complexity – from which will spring opportunity. The closer to the analytical work you sit, the less likely you are to elevate any single pathway as the unique or superordinate road to Paris, that is too heavy a burden for any one scenario to carry – including those we have created ourselves (See Appendix 2). 4. Here we distinguish between “operational” emissions from the generation process itself and “cradle to grave” emissions, which draws the boundary more widely, and are more correctly assessed as “low” rather than “zero” carbon.