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October 2022

Navigating

Energy

Transitions

Mapping the road to 1.5°C

IISD REPORT

IISD.org ii

Navigating Energy Transitions

Published by the International Institute for Sustainable Development

This publication is licensed under a Creative Commons Attribution-

NonCommercial-ShareAlike 4.0 International License.

International Institute for Sustainable Development

The International Institute for Sustainable Development (IISD) is an

award-winning independent think tank working to accelerate solutions

for a stable climate, sustainable resource management, and fair

economies. Our work inspires better decisions and sparks meaningful

action to help people and the planet thrive. We shine a light on what

can be achieved when governments, businesses, non-proﬁts, and

communities come together. IISD’s sta of more than 120 people, plus

over 150 associates and consultants, come from across the globe and

from many disciplines. With oces in Winnipeg, Geneva, Ottawa, and

Toronto, our work aects lives in nearly 100 countries.

IISD is a registered charitable organization in Canada and has 501(c)(3)

status in the United States. IISD receives core operating support from

the Province of Manitoba and project funding from governments inside

and outside Canada, United Nations agencies, foundations, the private

sector, and individuals.

Navigating Energy Transitions: Mapping the road to 1.5°C

October 2022

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Canada R3B 0T4

Tel: +1 (204) 958-7700

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IISD.org iii

Navigating Energy Transitions

Acknowledgements

The International Institute for Sustainable Development would like to thank the authors and the

reviewers for their contribution to the preparation of this report. The authors and reviewers have

contributed to the report in their individual capacities; their aliations are only mentioned for

identiﬁcation purposes.

Authors

Chapter 1: Angela Picciariello (International Institute for Sustainable Development)

Chapter 2: Olivier Bois von Kursk, Greg Muttitt (International Institute for Sustainable Development)

Chapter 3: Olivier Bois von Kursk, Greg Muttitt, Angela Picciariello (International Institute for

Sustainable Development)

Chapter 4: Mohamed Adow (PowerShift Africa), Andreas Goldthau (Willy Brandt School of Public

Policy at the University of Erfurt and Institute for Advanced Sustainability Studies), Diala Hawila

(International Renewable Energy Agency), Thijs Van de Graaf (Ghent University)

Chapter 5: Mara Abbot (Ceres), Thomas Day (NewClimate Institute), Frederic Hans (NewClimate

Institute), Andrew Logan (Ceres), Silke Mooldijk (NewClimate Institute), Kyla Tienhaara (Queen’s

University, Ontario)

Chapter 6: Lucile Dufour, Angela Picciariello (International Institute for Sustainable Development)

Reviewers

Alaa Al Khourdajie (Imperial College London; IPCC, Working Group III Technical Support Unit),

Andrea Bassi (International Institute for Sustainable Development), Nico Bauer (Potsdam Institute

for Climate Impact Research), Sarah Brown (Ember), Anna Christie (University of Edinburgh),

Kate Dooley (University of Melbourne), Lucile Dufour (International Institute for Sustainable

Development), Lisa Fischer (E3G), Claire Fyson (Climate Analytics), Phil Gass (International

Institute for Sustainable Development), Anna Geddes (International Institute for Sustainable

Development), Ivetta Gerasimchuk (International Institute for Sustainable Development), Neil

Grant (Climate Analytics), Kaisa Kosonen (Greenpeace International), Michael Lazarus (Stockholm

Environment Institute), Aman Majid (Climate Analytics), Merete Villum Pedersen (Ministry of Foreign

Aairs, Denmark), Annalisa Perteghella (ECCO Climate), Elke Pfeier (Net Zero Assets Owner

Alliance), Steve Pye (UCL Energy Institute), Lukas Schaugg (International Institute for Sustainable

Development), Kelly Trout (Oil Change International)

Chief scientiﬁc editors

Olivier Bois von Kursk, Lucile Dufour, Greg Muttitt, Angela Picciariello (International Institute for

Sustainable Development)

Media and outreach communications

Charly Blais, Aia Brnic, Natalie Jones, Paulina Resich (International Institute for Sustainable

Development), Maria Dolben, Conor Quinn (Greenhouse Agency)

Graphic and layout design

Katherine Clark, Elise Epp, Anna Pokhilenko (International Institute for Sustainable Development)

Language editing

Strategic Agenda

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NavigatingEnergyTransitionsMappingtheroadto1.5°CIISDREPORT©2022InternationalInstituteforSustainableDevelopmentIISD.orgOctober2022NavigatingEnergyTransitions©2022InternationalInstituteforSustainableDevelopmentHeadOfficePublishedbytheInternationalInstituteforSustainableDevelopmentThispublicationislicensedunderaCreativeCommonsAttribution-111LombardAvenue,NonCommercial-ShareAlike4.0InternationalLicense.Suite325Winnipeg,ManitobaInternationalInstituteforSustainableDevelopmentCanadaR3B0T4TheInternationalInstituteforSustainableDevelopment(IISD)isanTel:+1(204)958-7700award-winningindependentthinktankworkingtoacceleratesolutionsWebsite:www.iisd.orgforastableclimate,sustainableresourcemanagement,andfairTwitter:@IISD_newseconomies.Ourworkinspiresbetterdecisionsandsparksmeaningfulactiontohelppeopleandtheplanetthrive.Weshinealightonwhatcanbeachievedwhengovernments,businesses,non-profits,andcommunitiescometogether.IISD’sstaffofmorethan120people,plusover150associatesandconsultants,comefromacrosstheglobeandfrommanydisciplines.WithofficesinWinnipeg,Geneva,Ottawa,andToronto,ourworkaffectslivesinnearly100countries.IISDisaregisteredcharitableorganizationinCanadaandhas501(c)(3)statusintheUnitedStates.IISDreceivescoreoperatingsupportfromtheProvinceofManitobaandprojectfundingfromgovernmentsinsideandoutsideCanada,UnitedNationsagencies,foundations,theprivatesector,andindividuals.NavigatingEnergyTransitions:Mappingtheroadto1.5°COctober2022IISD.orgiiNavigatingEnergyTransitionsAcknowledgementsTheInternationalInstituteforSustainableDevelopmentwouldliketothanktheauthorsandthereviewersfortheircontributiontothepreparationofthisreport.Theauthorsandreviewershavecontributedtothereportintheirindividualcapacities;theiraffiliationsareonlymentionedforidentificationpurposes.AuthorsChapter1:AngelaPicciariello(InternationalInstituteforSustainableDevelopment)Chapter2:OlivierBoisvonKursk,GregMuttitt(InternationalInstituteforSustainableDevelopment)Chapter3:OlivierBoisvonKursk,GregMuttitt,AngelaPicciariello(InternationalInstituteforSustainableDevelopment)Chapter4:MohamedAdow(PowerShiftAfrica),AndreasGoldthau(WillyBrandtSchoolofPublicPolicyattheUniversityofErfurtandInstituteforAdvancedSustainabilityStudies),DialaHawila(InternationalRenewableEnergyAgency),ThijsVandeGraaf(GhentUniversity)Chapter5:MaraAbbot(Ceres),ThomasDay(NewClimateInstitute),FredericHans(NewClimateInstitute),AndrewLogan(Ceres),SilkeMooldijk(NewClimateInstitute),KylaTienhaara(Queen’sUniversity,Ontario)Chapter6:LucileDufour,AngelaPicciariello(InternationalInstituteforSustainableDevelopment)ReviewersAlaaAlKhourdajie(ImperialCollegeLondon;IPCC,WorkingGroupIIITechnicalSupportUnit),AndreaBassi(InternationalInstituteforSustainableDevelopment),NicoBauer(PotsdamInstituteforClimateImpactResearch),SarahBrown(Ember),AnnaChristie(UniversityofEdinburgh),KateDooley(UniversityofMelbourne),LucileDufour(InternationalInstituteforSustainableDevelopment),LisaFischer(E3G),ClaireFyson(ClimateAnalytics),PhilGass(InternationalInstituteforSustainableDevelopment),AnnaGeddes(InternationalInstituteforSustainableDevelopment),IvettaGerasimchuk(InternationalInstituteforSustainableDevelopment),NeilGrant(ClimateAnalytics),KaisaKosonen(GreenpeaceInternational),MichaelLazarus(StockholmEnvironmentInstitute),AmanMajid(ClimateAnalytics),MereteVillumPedersen(MinistryofForeignAffairs,Denmark),AnnalisaPerteghella(ECCOClimate),ElkePfeiffer(NetZeroAssetsOwnerAlliance),StevePye(UCLEnergyInstitute),LukasSchaugg(InternationalInstituteforSustainableDevelopment),KellyTrout(OilChangeInternational)ChiefscientificeditorsOlivierBoisvonKursk,LucileDufour,GregMuttitt,AngelaPicciariello(InternationalInstituteforSustainableDevelopment)MediaandoutreachcommunicationsCharlyBlais,AiaBrnic,NatalieJones,PaulinaResich(InternationalInstituteforSustainableDevelopment),MariaDolben,ConorQuinn(GreenhouseAgency)GraphicandlayoutdesignKatherineClark,EliseEpp,AnnaPokhilenko(InternationalInstituteforSustainableDevelopment)LanguageeditingStrategicAgendaIISD.orgiiiNavigatingEnergyTransitionsExecutiveSummaryKeyMessages:•Accordingtoalargeconsensusacrossmultiplemodelledclimateandenergypathways,developinganynewoilandgasfieldsisincompatiblewithlimitingwarmingto1.5°C.Globaloilandgasproductionandconsumptionmustdecreasebyatleast65%by2050.•Governmentsshouldcreateenablingenvironmentsforredirectingbothpublicandprivatecapitalflowstowardthecleanenergytransition,includingthedeploymentofadditionalsolarandwindcapacity.TheannualinvestmentgapfortherequiredwindandsolardeploymentamountstoUSD450billionuntil2030.ForecastsindicatethatuptoUSD570billionwillbespenteveryyearinnewoilandgasdevelopmentandexplorationduringthesameperiod.•ThereisnoroomfornewfossilimportinfrastructureinEuropein1.5°C-alignedgasphase-outpathways.ExistingimportcapacitycanmeetthegasdemandforEuropeinthemedium-andlonger-term.In2022and2023,theshort-termsupplycrunchanditspotentiallydireconsequencescannotbealleviatedintimebynewlyaddedgascapacity.Thisreportaimstoinformpolicy-makers,investors,andcompaniesonwhatisrequiredtoaligntheirenergydecisionswiththegoalsoftheParisAgreement,basedonmodelledpathwaysconsistentwithlimitingwarmingto1.5°C.Webasethisanalysisonthefirst-evercomparisonofselectedclimateandenergyscenariosacrossthefullbodyofpublishedglobalmodelledpathways:thosereviewedbytheIntergovernmentalPanelonClimateChange(IPCC),thoseproducedbyintergovernmentalorganizationssuchastheInternationalEnergyAgency(IEA)andtheInternationalRenewableEnergyAgency(IRENA),andbytheprivatesector.Thereportfocusesonpathwaysforthephase-outofoilandgas,andfortheexpansionofwindandsolar,requiredtoprovideagreaterthan50%probabilityoflimitingglobaltemperatureswithinthe1.5°Climit.Wedonotaddresscoal,becauseParis-alignedpathwaysforcoalphaseouthavebeenextensivelyreviewedelsewhere(YanguasParraetal.,2019).Moreover,wefocusonwindandsolarenergysincetheyprovidethemostgreenhousegasmitigationpotentialatthelowestcostfromallcurrentlyavailableoptionsinallsectors(IPCC,2022).Wefindahighdegreeofalignmentbetweenscenarios,suggestingthatacommonsetofactionsisrequired.Thesmallvariationsfoundacrossscenariosillustratethatthereisstillarangeofpathstoimplementthissetofactionsinlinewiththe1.5°Ctarget.Nowmorethanever,understandinghowenergydecisionsbypolicy-makers,investors,andcompaniesaffectourabilitytocomplywiththistargetisessential.Thecurrentenergycrisisposessubstantialriskstotheachievementofacleanenergytransition,butalsoshowsthevalueofshiftingourenergysystemsfromfossilfuelstocleanenergy.IISD.orgivNavigatingEnergyTransitionsPhase-outPathwaysforOilandGasProductionOurcomparisonofmultipleclimateandenergyscenariosfindsthat,fortheworldtoreachnet-zeroemissionsinlinewiththe1.5°Ctarget,globaloilandgasproductionneedstodeclinerapidly.AccordingtothemedianofselectedIPCCscenariosandtheIEA’sNetZeroEmissionsby2050(NZE)scenario,oilandgasproductionshoulddeclinerespectivelyby15%and30%by2030,andby65%by2050,comparedto2020levels.Productionvolumesfromalready-operatingfieldsandthosecurrentlyunderdevelopmentwouldgeneratemoreoilandgasemissionsthanwouldbepermissibleunderthesepathways(FigureES1).Itimpliesthatnonewoilandgasfieldsshouldbedeveloped,astheywouldeithergeneratestrandedassets,orpushtheworldbeyondthe1.5°Ctarget,unlesscurrentlyproducingfields’operationsaresignificantlycurtailed.FigureES1.Globaloilandgasproduction,basedonselectedIPCCandIEA1.5°Cpathways2520SelectedIPCC1.5°CpathwaysNewﬁeldsIEANZEpathway15exceed1.5°CNewexplorationGtCONewﬁeldsFieldsunder10developmentProducingﬁelds502025203020352040204520502020Sources:Byersetal.,(2022);IEA(2021);RystadEnergy(2022b).Allotheranalyzedpathways—theillustrativemitigationpathwayhighrenewables(IMP-Ren)scenario,theBloombergNewEnergyFinanceNewEnergyOutlookpathway,theIPCCIMPlowdemand(IMP-LD)scenario,theOneEarthClimateModel,Navigant,andtheIRENAWorldEnergyTransitionsOutlookscenario—reinforcethefindingsoftheselectedIPCCscenariosandIEA’sNZEscenario.Theypointtotheurgentneedforproductiontodeclinebyatleast65%betweennowand2050,withsmallvariationsinthesteepnessofproductiondeclinerates.Sinceoilandgasconsumptionneedstodeclineatroughlythesamepaceasforecastedproductionfromexistingfields,thesescenariosbearsimilarimplicationstotheIISD.orgvNavigatingEnergyTransitionsIPCCscenarioandIEA’sNZEscenario:inordertoalignwiththe1.5°Cgoal,nonewfieldsshouldbeopened(FigureES2).FigureES2.Globaloilandgasproduction,basedonotherselected1.5°Cpathways25Newﬁeldsandexploration20UnderdevelopmentandproducingﬁeldsGtCO15SelectedIPCC1.5°Cpathways10IEANZEpathwayBPNet-Zero5IRENADNVNet-Zero0IMP-Ren2020BNEFIMP-LDNavigantOECM202520302035204020452050Sources:BNEF(2021);BP(2022);Byersetal.,(2022);DNV(2021);IRENA(2022);Navigant(2018);RystadEnergy(2022b);Teskeetal.,(2022).DevelopmentPathwaysforWindandSolarCapacityEnablingastructuralshiftintheenergysectorinlinewith1.5°Cpathwayswillrequiresignificantlyscalinguptheannualrateofrenewabletechnologydeployment.Ourreportfindsthatpoliciescurrentlydeployedinsupportofrenewableenergyfallshortoftheseobjectives:accordingtotheselectedIPCCscenariosandIEA’sNZEscenario,by2030,annualcapacityadditionsshouldbeatleast2.5timeshigherforwindand1.5timeshigherforsolarenergycomparedtocurrentpolicyforecasts(FigureES3).Allotheranalyzedscenariosbroadlyconfirmtheneedtorapidlyaddfarmorewindandsolarcapacitythanplanned,andgenerallypointtoevenhigherrequiredratesofdeploymentforthetwotechnologies.IISD.orgviNavigatingEnergyTransitionsFigureES3.AnnualwindandsolarcapacityadditionsunderselectedIPCCandIEA1.5°Cpathways400WindcapacityWIND(IEANZEpathway)350Windcapacity(selectedIPCC3001.5°Cpathways)250Newpoliciesneededtoenablefastergrowth200GW150100Windprojection(basedoncurrentpolicies)5020202025203002015700SolarcapacitySOLAR(selectedIPCC1.5°Cpathways)600Solarcapacity(IEANZEpathway)500Newpoliciesneededto400enablefastergrowthGW300Solarprojection200(basedoncurrentpolicies)02020202520302015Sources:BNEF(2022);Byersetal.,(2022);IEA(2022).FinancingSolarandWindDeployment:TheinvestmentgapAllanalyzedscenariospointtheneedtomassivelyincreasewindandsolarcapacitiesinordertoeffectivelydisplaceoilandgasproduction.Toachievethis,investmentsinrenewableswillneedtoincreaserapidlyduringthecourseofthisdecade.OurselectionofIPCC1.5°Cpathwaysshowsthat,betweennowand2030,totalannualinvestmentsinbothwindandsolarshouldamounttoaboutUSD830billion.Currentinvestmentplansdonotcomeclosetosuchamounts.Unlessnewpoliciesareimplemented,therewillbeanannualinvestmentgapofmorethanUSD450billionuntil2030.IISD.orgviiNavigatingEnergyTransitionsHowever,estimatesshowthatcapitalandoperationalexpendituresfortheexplorationandextractionofoilandgasinnewfields—incompatiblewithIPCC,IEA1.5°Cpathways,andourbroaderselectionofscenarios—areexpectedtoreachUSD570billionannuallyby2030,foracumulativetotalofUSD4.2trillionbetween2020and2030(FigureES4).Bythemselves,theseinvestmentswouldsufficetobridgetheentireinvestmentgapforwindandsolarby2030.FigureES4.WindandsolarinvestmentneedsandinvestmentgapsSelectedIPCC1.5°Cpathways2030investmentforecast1,000USDbillion/year800SolarInvestmentNewﬁeldsand600gapexploration400Investmentgapissmallerthaninvestmentforecastinnewoilandgasdevelopment200InvestmentforecastWindProducingﬁelds0202020252030Windand2015SolarOilandGasSources:Byersetal.(2022);RystadEnergy(2022b)TheWarinUkraineanditsImplicationsforEnergySystemsIn2022,theenergymarketdisruptionsduetotheRussianinvasionofUkraineandtheconsequenteconomicsanctionsonRussiahavestrainedglobalgassupplies.Theybringquestionsonthepresentandfutureroleofgasinenergyandpowersystemstotheforefrontofpolicydiscussions.Yetthereplacementofgaswithcleanpowergenerationalternativesisanimportantstepinachievingoilandgasproductionlevelsthatarecompatiblewitha1.5°Cfuture.Ourreportfindsthatglobalgaspowergenerationcapacityshoulddecreasebymorethan55%by2035comparedto2020levels.Currentlyforecastedgenerationfromgaspowerplantsalreadyinoperation,inconstruction,orbeingplanned,isexpectedtodelivermoregenerationcapacitythanwouldbeconsistentwiththeParisAgreementthroughouttheforthcomingdecades(FigureES5).Therefore,theconstructionofnewgas-firedpowerplantsrisksleadingtoadangerouslyhighnumberofstrandedassets.IISD.orgviiiNavigatingEnergyTransitionsFigureES5.Globalgaspowercapacity2,500GW2,000Gaspowerplants1,500Announced1,000Inpre-constructionUnderconstruction500OperatingSelectedIPCC1.5°Cpathways02025203020352040204520502020Source:Byersetal.(2022);GlobalEnergyMonitor(2022).InEurope,theshortageofgassupplyhassofarpushedpolicy-makerstoacceleratethetransitiontorenewableenergies,ontheonehand,andtopursuealternativegassupplies,ontheother.BasedontheselectedIPCCpathways,ourreportfindsthatexistingglobalimportcapacitycouldmeetmedium-andlong-termEuropeandemandwithoutRussianimports,ifEuropeweretoreducegasconsumptioninlinewiththe1.5°Ctarget(FigureES6).Thepotentialsupplycrunchin2022and2023couldhavedireconsequences,butnewgassupplyinfrastructurewillnotcomeonlineintimetoaddressitadequately.NotonlycanEuropemeetitsenergyneedsbyreducingdependenceonRussiangassupplythroughacceleratingrenewableenergy,energyefficiencyandelectrification,itmustdosotoalignwith1.5°Cpathways.TheEuropeangascrunchhasalsopromptedaglobaldashforgas,whichisincompatiblewiththetimelyachievementofanenergytransitioncompatiblewiththe1.5°Ctarget.Assuch,theimpactsoftheenergycrisismayalsobeconsiderableindevelopingcountries,especiallythosewithexploitablegasreserves.TheymayfacehigherrisksofstrandedassetsoncetheEuropeandashforgashasreacheditspeak.Itisthereforeessentialthatdevelopingcountriescontinuetopursue1.5°C-compatibletransitionpathways,andleapfrogfromcurrentfossil-basedenergyparadigmstocleanenergysourcesthatcanguaranteeamoresustainableandsecureenergyfuture.Itrequiresdedicatedpoliciestofostercapacitybuildingandinfrastructuredevelopment,andsupportofdonorcountriesandinternationalfinancialinstitutionsthroughadequatestreamsofclimatefinance.IISD.orgixNavigatingEnergyTransitionsFigureES6.EuropegasconsumptionandsupplyEuropegasconsumption(Bcm/year)800Europe1.5°C700alignedgas600consumption500400Russiagassupply300200LNG100(80%utilization)0MENApipelines2020(90%utilization)AzerbaijanexistingﬁeldsEuropeexistingﬁelds202520302035Source:Author’scalculations,basedonBP(2022b);Byersetal.(2022);GlobalEnergyMonitor(2022a);RystadEnergy(2022b);EuropeanCommission(2022c)ThePrivateSectorandtheEnergyTransitionPhasingoutoilandgasproductionanddeployingwindandsolarcapacitiesinlinewiththe1.5°Ctargetrequiresconcertedeffortsfrompublicandprivateactorsalike.Inthisreport,wehavetakenacloserlookattwokeyareaswheretheprivatesectorcanpositivelycontributetothetransition,andwheregovernmentscanplayanenablingrole.Governmentsmustactpromptlytopreventthelicensingofnewoilandgasfields.Currently,considerablebarriersexisttogovernments’abilitytodosowithoutincurringtheriskoflegalaction.Ifgovernmentsweretocancelallupstreamoilandgasprojectsby2050inlinewithIEA’sNZEscenario,ourreportfindsthattheymightriskanaggregateUSD234billionclaimsinso-calledinvestor-statedisputesettlements,andatotalofUSD340billioniftheyadditionallycancelledprojectsindevelopmentbutnotyetproducingoilandgas.Possiblesolutionstothisissuerangefrommoratoriaonanyfurtherlicensingorissuingofexplorationpermitsforoilandgas,andthepaymentofacompensationbygovernmentsinreturnforawaiveroftreatyrights,toeventuallyreformingandterminatinginvestmenttreatiesaltogether.Investorstoohaveanimportantroletoplayinthetransitiontoa1.5°C-compatiblefuture.Inthelastcoupleofyears,anunprecedentedwaveofcorporatenet-zerotargetshasbeenannounced.However,therecurrentlyexistsnoclearandconsistentdefinitionforthesetargets.Thishasparticularlybeenthecasefornet-zerotargetsintheoilandgassector,oftenoverestimatingcompanies’actualemissionsreductions.Tothisend,otherframeworksandtoolsareemergingtofillthegaps.Theseincludeinternationalclimatedisclosurereportingframeworksandnational-levelmandatorydisclosurerequirements.IISD.orgxNavigatingEnergyTransitionsKeyRecommendationsTheselectionofmodelledpathwaysanalyzedinthisreportallpointtoacommonsetofactionstolimitglobalwarmingto1.5°C.Basedonthesepathwaysandouranalysisofthecurrentopportunitiesandbarrierstopolicychange,werecommendthat:1.Governmentsshouldpreventthedevelopmentandlicensingofanynewoilandgasfields.Developinganyfieldsbeyondthosealreadyinoperationorunderdevelopmentwouldposesubstantialrisksofeithernotmeetingthe1.5°Ctargetorcreatingstrandedassets,becausethosefieldswouldhavetobedecommissionedbeforetheendoftheirlifespan,unlesscurrentlyproducingfields’operationsaresignificantlycurtailed.2.Governmentsmustprovidemoreandbettersupporttowindandsolardeployment.Theyneedtoimprovecurrentpoliciesandputinplacenewones,toincreasesolarandwindcapacityworldwide.Theseshouldincludepolicyframeworksaimedatreducingpermittingandlicensingdelaysforrenewables’installation,aswellaslocalizingrenewableenergyvaluechainstomakethemmoreresilienttotradewars,politicalconflicts,andpricevolatility.3.Governmentsshouldcreateenablingenvironmentsforredirectingbothpublicandprivatecapitalflowstowardthecleanenergytransition,includingthedeploymentofadditionalsolarandwindcapacity.Theforecastedinvestmentsintheexplorationanddevelopmentofnewoilandgasfields—incompatiblewiththe1.5°Cpathways—arehigherthantheinvestmentgapforwindandsolardeployment.4.Thecurrentenergycrisis,experiencedbyEuropeinparticular,shouldnotbetackledbyincreasingthecontinent’srelianceongas.Doingsowouldriskputtingthe1.5°Ctargetevenfurtheroutofreach,orcreatingstrandedassetsfornewlybuiltinfrastructurebothinEuropeandingas-exportingcountries,whilenotsolvingtheshort-termcrunch.GovernmentsandinvestorsshouldinsteadviewthecrisisasanopportunitytofurtherstepupEurope’scleanenergyambition,bystrengtheningexistingframeworkssuchastheEUFitfor55packageandtheEuropeanGreenDeal.5.Investmenttreatiesneedtobeurgentlyandradicallyreformedorrepealedtoallowgovernmentstoenforce1.5°C-compatibleoilandgasphase-outpathways.Governmentscantacklethisissuebypursuingoneoracombinationofexistingsolutions,namelyamoratoriumonanyfurtherlicensingorissuingofexplorationpermitsforoilandgas,settingupsystemstopayoutcompensationinreturnforawaiveroftreatyrights,andeventuallyreformingandterminatinginvestmenttreaties.6.Governmentsshouldbetterregulatethelong-termtargetsofthecorporatesector,atboththeglobalandnationallevels,toensurethattheysupportthegoalsoftheParisAgreement.Regulativeapproachesbygovernmentsholdcriticalpotentialtoensurehighlyambitiouscorporatelong-termtargets.SuchregulationcouldproviderobustlydefinedconceptsthataddsubstantivecriteriatoensureParisAgreementcompatibility,andmandatecomprehensiveandthird-partyverifieddisclosurepractices.IISD.orgxiNavigatingEnergyTransitions7.Governmentsshouldsetupmandatoryrequirementsforcompanies’reportingmethodologies.Untilthen,investorscanfillthegapbyadoptingvoluntaryreportingmethodologies.Corporateclimatereportingisinstrumentaltotheabilityofthefinancialsectortochannelcapitalwhereitismostneededtoacceleratetheenergytransition.Rigorousmandatorystandardswouldenabletheproductionofstandardizedmaterialinformation,consistentlydisclosedwithinandacrosscountries.IISD.orgxiiNavigatingEnergyTransitionsTableofContents1.0Introduction.....................................................................................................................................................................12.0Energy/ClimateModelsandEnergyPathways.............................................................................................42.1StrengthsandLimitationsofEnergy/ClimateModels..................................................................................62.2EquityandRegional/NationalTargets.........................................................................................................................72.3KeyUncertainties:CCSandcarbondioxideremoval.....................................................................................82.4ThePathwaysUsedinThisReport.................................................................................................................................93.0EnergySystemTransformationandInfrastructureNeeds...................................................................133.1Paris-alignedOilandGasPhase-outTimelines...............................................................................................153.2TheRoleofGasPowerGenerationintheEnergyTransition...................................................................193.3RenewableEnergyDeploymentNeeds.....................................................................................................................213.4RegionalDimensions..............................................................................................................................................................243.5FinancingtheTransition.....................................................................................................................................................264.0TheWarinUkraineandtheGeopoliticsofEnergyTransitions..........................................................304.1TheWarinUkraineandtheDashforGas..............................................................................................................314.2AlternativestoGasinEurope........................................................................................................................................404.3ImplicationsforRenewablesoftheWarinUkraine......................................................................................454.4OpportunitiesforDevelopingCountriestoLeapfrog.................................................................................525.0FosteringEnablingEnvironmentstoAcceleratetheTransitiontoNet-Zero...............................575.1LegalandEconomicChallengestotheEnergyTransition.......................................................................585.2InvestmentTreatiesandOilandGasPhase-out............................................................................................595.3CorporateNet-zeroTargets:Aninadequatestateofplayenteringacrucialdecade....625.4InstitutionalInvestorToolsandStrategies:Agrowingmovement,withaneedforreliableinformation..........................................................................................................................................................................706.0ConclusionsandKeyPolicyRecommendations..........................................................................................78Resources...............................................................................................................................................................................81Appendix..............................................................................................................................................................................102IISD.orgxiiiNavigatingEnergyTransitionsListofFiguresFigureES1.Globaloilandgasproduction,basedonselectedIPCCandIEA1.5°Cpathways......vFigureES2.Globaloilandgasproduction,basedonotherselected1.5°Cpathways........................viFigureES3.AnnualwindandsolarcapacityadditionsunderselectedIPCCandIEA1.5°Cpathways............................................................................................................................................................................................................viiFigureES4.Windandsolarinvestmentneedsandinvestmentgaps............................................................viiiFigureES5.Globalgaspowercapacity.....................................................................................................................................ixFigureES6.Europegasconsumptionandsupply..............................................................................................................xFigure3.1Globaloilandgasproduction,basedonselectedIPCCandIEA1.5°Cpathways.......16Figure3.2Globaloilandgasproduction,basedonotherselected1.5°Cpathways............................17Figure3.3Globalgaspowergenerationcapacity............................................................................................................20Figure3.4AnnualwindandsolarcapacityadditionsunderselectedIPCCandIEA1.5°Cpathways...........................................................................................................................................................................................................22Figure3.5AnnualwindandsolarcapacityadditionsunderBNEF,NetworkforGreeningtheFinancialSystem,andOECM1.5°Cpathways....................................................................................................................23Figure3.6Cumulativewindandsolarcapacitydeploymentneeds,2022–2030...................................25Figure3.7Windandsolarinvestmentneedsandinvestmentgaps....................................................................27Figure3.8Regionalcumulativeinvestmentneedsforwindandsolar,2022–2030..............................28Figure4.1Wholesalegaspricesinkeymarketssince2018....................................................................................32Figure4.2EUnaturalgasimportsbysource........................................................................................................................33Figure4.3EstimatedtimeneededfortheRussianFederationtoshiftitsgasexportstoAsia.....34Figure4.4Europe’sLNGrushsinceFebruary2022.........................................................................................................35Figure4.5LNGexports(billioncubicmetres)intheIEA’snet-zeroscenario............................................39Figure4.6Europegasconsumptionandsupply,bcm/year.....................................................................................40Figure4.7TTFpricedevelopment,NaturalGasForwardDayAhead,USDpermetricmillionBritishthermalunit...................................................................................................................................................................................42Figure4.8Globalweightedaveragetotalinstalledcost,capacityfactor,andLCOEofnewlycommissionedutility-scalesolarPV,onshoreandoffshorewind,2010–2021..........................47Figure4.9Renewableshareofannualpowercapacityexpansion......................................................................49Figure5.1Climateinitiativesforfinancialinstitutions:Alandscape................................................................72Figure5.2Mapofclimatereportingframeworksandresources...........................................................................74IISD.orgxivNavigatingEnergyTransitionsListofTablesTable2.1Scenariosfeaturedinthisreport:UseofCDRandCCS......................................................................11Table3.1Oilandgasproductionphase-outpaceinkeymodelpathways..................................................19Table4.1MajorAfricannaturalgasprojectsthatmayaccelerate....................................................................36Table5.1Shortcomingsofexistingnet-zeropledgesacrosssectorsidentifiedinrecentlypublishedliterature,andofnet-zeropledgesandrelatedtransitionplansintheoilandgassector.........................................................................................................................................................................................................64TableA.1ScenariofilteringcriteriabasedonIPCCfeasibilityandsustainabilityassessmentforCCSandCDR......................................................................................................................................................103TableA.2Listofthe26IPCC1.5°CpathwaylimitingCDRandCCSdeployment.............................104IISD.orgxvNavigatingEnergyTransitionsAbbreviationsandAcronymsAR6IPCCSixthAssessmentReportBECCSbioenergyandcarboncapturestorageBITbilateralinvestmenttreatyBNEFBloombergNewEnergyFinanceCCScarboncaptureandstorageCCUcarboncaptureandutilizationCCUScarboncapture,utilization,andsequestrationCDRcarbondioxideremovalCIFcost,insurance,andfreightECTEnergyCharterTreatyEUEuropeanUnionFF55Fitfor55FSRUfloatingstorageandregasificationunitsGHGgreenhousegasGRIGlobalReportingInitiativeIAMintegratedassessmentmodelIEAInternationalEnergyAgencyIIGCCInstitutionalInvestorsGrouponClimateChangeIMPillustrativemitigationpathwayIMP-LDIMPlowdemandIMP-RenIMPhighrenewablesIPCCIntergovernmentalPanelonClimateChangeIRENAInternationalRenewableEnergyAgencyISDSinvestor–statedisputesettlementISSBInternationalSustainabilityStandardsBoardLCOElevelizedcostofelectricityLNGliquefiednaturalgasMDBmultilateraldevelopmentbanksNGFSNetworkforGreeningtheFinancialSystemIISD.orgxviNavigatingEnergyTransitionsNZENetZeroEmissions(by2050)OECDOrganisationforEconomicCo-operationandDevelopmentOECMOneEarthClimateModelPRIPrinciplesforResponsibleInvestmentPVphotovoltaicSASBSustainabilityAccountingStandardsBoardSBTiScienceBasedTargetsInitiativeSECSecuritiesandExchangeCommissionTCFDTaskForceonClimate-relatedFinancialDisclosuresTPITransitionPathwaysInitiativeTTFTitleTransferFacilityUNCTADUnitedNationsConferenceonTradeandDevelopmentUNFCCCUnitedNationsFrameworkConventiononClimateChangeIISD.orgxvii1.0IntroductionNavigatingEnergyTransitionsTheworldmustsetitselfonapathwayconsistentwithlimitingglobalwarmingto1.5°Ctoavoidthemostdisruptiveandtragicconsequencesofclimatechangeonpeople,ecosystems,andeconomies.Thisisextremelyurgentandeveryfractionofadegreematters:atpresentratesofgreenhousegas(GHG)emissions,theworld’sremainingcarbonbudgetwillbeextinguishedinapproximately8years.Theworldcanstillachievethe1.5°Cgoal,butthewindowtodosoisnarrowingquickly.GovernmentsmusturgentlyexceedtheambitionoftheircurrentParisAgreementpledges.MitigatingGHGemissionsfromfossilfuelswillrequirefossilfuelproductiontodeclinerapidly,aswellasafastandsustainedestablishmentofalternativeandcleanermodesofenergyconsumptionandproduction.Thatrequires,amongotheractions,amajorshiftofinvestmentflowsfromfossiltowardcleanenergysources.ThewarinUkraineandtheresultantenergycrisishaveonlymademorepressingtheneedtoreducecountries’dependenciesonfossilfuelsandmoveasfastaspossibletowardcleanermodesofenergyproduction.Energyscenarioscanplayakeyroleinfosteringsuchatransformationbyindicatingsuitableenergypathwaysthatcanbetranslatedintopolicyframeworksconducivetoacleanenergytransition.Theycanalsoinformtheshiftofcapitalflowsawayfromfossil-basedenergyproductionandtowardrenewableenergysources,inlinewithart.2.1coftheParisAgreement,“makingfinanceflowsconsistentwithapathwaytowardlowGHGemissionsandclimate-resilientdevelopment.”Thisreportaimstoinformpolicy-makers,investors,andcompaniesonwhattheycandotoaligntheirenergydecisionswiththegoalsoftheParisAgreement,basedonmodelledpathwaysconsistentwithlimitingglobalwarmingto1.5°C.Webasethisanalysisonpathwaysfromaselectionofthemostauthoritativeenergyandclimatemodels,whichrepresentandprovideinsightsaboutpossiblewaysthefuturecouldunfold,basedonvarioustechnical,economic,societal,andpolicyassumptions.Thisreportisthefirsttocomparefindingsacrossthefullbodyofpublishedenergymodelpathways:thosereviewedbytheIntergovernmentalPanelonClimateChange,thoseproducedbyintergovernmentalorganizationssuchastheInternationalEnergyAgencyandtheInternationalRenewableEnergyAgency,andbytheprivatesector.Thereportfocusesonpathwaysforthephase-outofoilandgas,andfortheexpansionofwindandsolar,requiredforagoodchanceofglobaltemperaturesstayingwithinthe1.5°Climit.Modelsrestonanumberofassumptions,forexamplerelatedtothecosts,performance,andavailabilityofvariousenergytechnologiesinthefuture.Ourreportbeginsbydiscussingtheseassumptions,outliningthemainstrengthsandlimitationsofeachmodel,andexplainingthechoiceswemadeintermsofselectionofscenarios(Chapter2).Wethenanalyzetheselectionofscenariosanddrawkeyconclusionson:•Therequiredphase-outpathwaysforoilandgasproductionbetweennowand2050,atthegloballevel.•Therequiredlevelsofsolarandwindenergydeploymenttosubstitutefossilenergyproduction,atbothglobalandregionallevels.IISD.org2NavigatingEnergyTransitions•TheinvestmentgapsbetweencurrentandplannedspendingandtheinvestmentneededtoachieveParis-alignedinvestmentpathways,bothgloballyandregionally(Chapter3).ThecurrentenergyandgeopoliticalcrisestriggeredbytheongoingwarinUkraineareaffectingthestrategicenergydecisionsmadebygovernmentsandprivateactors,andmaybeexacerbatingsomeofthebarrierstoacleanenergytransition.Butitisalsocreatingarenewedurgencytomovefasterwiththeenergytransitionthanhassofaroccurred.Weanalyzethemainenergyconsequencesofthewar,withaparticularfocusonEurope’srecentdashforgas,anddiscussthevariousoptionsavailabletomoveEuropebeyondgas.Moreover,weoutlinetheexpectedimpactsofthewaronrenewableenergydevelopmentindifferentregions,andoptionsfordevelopingcountriestoleapfroginspiteofthedashforgas(Chapter4).Inordertoprovideclearandactionablerecommendationsforpolicy-makers,financialactors,andinvestors,thereportdiscussestheroleoftheprivatesectorinsuchatransition,andofgovernmentstocreateanenablingenvironmentforprivateactors.Wehighlightsomeofthemainlegalandeconomicbarriersfacedbygovernmentswhentryingtophaseoutoilandgasproduction,relatedtothemultitudeofinvestmenttreatieswhichprotecttheforecastedrevenuesthatoilandgascompaniesmightgeneratewiththeirlicensedreserves.Wealsodiscussframeworksandtoolsthatcouldhelpmakecorporatenet-zerotargetsmoreeffectiveandaligninstitutionalinvestors’strategieswitha1.5°C-compatibleworld(Chapter5).Finally,werecommendanumberofactionsthatgovernments,investors,andfinancialinstitutionscantakeinordertoachievepositivechangeinlinewiththeimplicationsoftheenergyscenarios(Chapter6).IISD.org32.0Energy/ClimateModelsandEnergyPathwaysNavigatingEnergyTransitionsKeyInsights•Energyandclimatemodelsrepresentandprovideinsightsaboutwaysthefuturemayunfold,basedonvarioustechnical,economic,societal,andpolicyassumptions.Analysisofsuchfutures(“pathways”)playsakeyroleininformingclimatepolicydecisions.•Thisreport’scorefindingsarebasedontwo1.5°Cpathways:themedianof26pathwaysreviewedintheIntergovernmentalPanelonClimateChange’s(IPCC’s)SixthAssessmentReport(AR6),andtheNetZeroEmissionsby2050scenario(NZE),publishedbytheInternationalEnergyAgency(IEA)inthe2021editionofWorldEnergyOutlook.Wealsocomparethesewithseveralotherpathwaystoidentifycommonfeaturesanddifferences,namely:theIPCCillustrativemitigationpathways(IMPs)—IMP-RenandIMP-LD—aswellaspathwaysfromtheInternationalRenewableEnergyAgency(IRENA),OneEarthClimateModel(OECM),BloombergNewEnergyFinance(BNEF),Navigant,DNV,andBP.•Twocriticalassumptionsinmodelsregardtheavailabilityatscaleofmethodstoremovecarbondioxide(CO2)fromtheatmosphereand/orofcarboncaptureandstorage(CCS)technology.Giventheuncertaintiesrelatedtothedeploymentofthesetechnologies,thescenariosanalyzedinthisreportareselectedbecausetheydonotexceedIPCCjudgementsoffeasibleandsustainabledeploymentlevels.Energyandclimatemodels1representandprovideinsightsaboutwaysthefuturemayunfold,basedonvarioustechnical,economic,societal,andpolicyassumptions(Mossetal.,2010).Analysisofthesemodelledfutures(“pathways”)2playsakeyroleininformingclimatepolicydecisionsandfeaturescentrallyinreportsoftheIPCC.Pathwayslimitingwarmingto1.5°C(withnoorlowovershootofthetarget)generallyseeCO2emissionsreducedby48%by2030,comparedwith2019levels,andreachingnet-zerobyaround2050(IPCC,2022).3Mostpathwaysseereducedusageofallthreefossilfuelsby2030andmajorreductionsby2050,withcoaldecliningthefastest(IPCC,2022,Table3.6).However,theworldremainsfarofftrack.In2022,greenhousegasemissionsarecontinuingtoincrease,andwhiletheworldcanstillachievethe1.5°Cgoal,thewindowforthisisclosing.GovernmentsmusturgentlyexceedtheambitionsoftheircurrentParisAgreementpledges(NationallyDeterminedContributions)andbeginenactingproposedchangesbeforethe1.5°Cgoalmovesoutofreach(IPCC,2022).1Thisreportusestheterm“energy/climatemodels”(orsometimesjust“models”)toincludebothintegratedassessmentmodels(IAMs),whicharegenerallymanagedbyacademicresearchgroupsandassessedbytheIPCC,andmodelsoftheenergysystemalone,suchasthosepublishedbyintergovernmentalandprivatesectororganizations.IAMsrepresenttheenergy,climate,andeconomicsystemsinanintegratedway.2Theterms“pathway”and“scenario”areoftenusedinterchangeably.Inthisreport,wegenerallyusetheterm“scenario”whendescribingtheassumptionsinputtedintothemodel,and“pathway”whendescribingtheresultingenergysystemsandemissionsoutputtedfromthemodel.3Specifically,thisreferstopathwayswhoseprobabilityoflimitingend-of-centurywarmingto1.5°Corlessisgreaterthan50%,categorizedasC1byWorkingGroup3inAR6.IISD.org5NavigatingEnergyTransitionsEnergy/climatemodelsareusedforawidevarietyofpurposes.Forexample,IEA’sWorldEnergyOutlook(2021c,p.3)aimsat“enablinggovernmentstounderstandwhattheyneedtodotoputemissionsintorapidandsustaineddecline”toreachnet-zeroemissionsby2050.OECM,commissionedbytheUN-convenedNet-ZeroAssetOwnerAllianceandtheEuropeanClimateFoundation,“providesverygranularsectorspecificnet-zeropathwaysbasedoncurrentlyavailabletechnologies[…]Forassetownerscommittedtonet-zeroportfolioalignment,sectorpathwayinformationisofutmostimportanceforinvestmentportfoliosteering”(Teskeetal.,2020,p.3).Someacademicstudiesaimtobetterunderstandhowdifferentfactorsshapepossiblefuturesthroughasking“Whatif?”questions(EvansandHausfather,2018).Thesemodelscanshedlightontheimplicationsofpolicychoicesorexplorethemosteffectiveorlowest-costmeanstoachievepolicygoals.ResearchersusedmodelstoassessthepaceatwhichcoalpowergenerationshouldbephasedouttoachievetheParisAgreement’sgoals(Rochaetal.,2016),whichinformedthegoalsofthePoweringPastCoalAlliance(2018),whosemembershavecommittedtophasingoutcoalpowerby2030inthecountriesoftheEuropeanUnionandOrganisationofEconomicCo-operationandDevelopment,andby2050inothercountries.Tointerprettheimplicationsthatmodelpathwayscarryforreal-worlddecisions,itisnecessarytounderstandhowmodelswork,whytheywerebuilt,andwhattheirstrengthsandweaknessesare.Thisreportaimstoinformpolicy-makers,investors,andcompaniesonwhatitwouldtaketoaligntheirenergydecisionswiththeParisAgreement’sgoals,basedonglobalmodelledpathwaysconsistentwithlimitingwarmingto1.5°Candshowingaprobabilityof50%orhigher.WebasethisanalysisonpathwaysreviewedbytheIPCCaswellasthosegeneratedbyintergovernmentalorganizationssuchastheIEAandIRENAandthosefromtheprivatesector.Thereportfocusesonthephase-outofoilandgas,andexpansionofwindandsolar.Wedonotaddresscoal,becauseotherreportshaveextensivelyreviewedParis-alignedpathwaysforcoalphase-out(YanguasParraetal.,2019).2.1StrengthsandLimitationsofEnergy/ClimateModelsModelsarepowerfultoolsforrevealingtheinteractionsbetweendifferentelementsofcomplexsystems,includingdramaticallychangingsystems(DeCarolisetal.,2017;Tayloretal.,2014).Theyhelpexploretherangeoffuturesthataretechnicallyandeconomicallyviable.Forexample,modelshelpedenablepolicydiscussionsonthe1.5°CgoalintheParisAgreement,bydescribingatechnicallyandeconomicallyviableenergysystemtolimitemissions(vanBeeketal.,2022).Assimplifiedmathematicaldepictionsoftheworld,modelsnecessarilyrestonmanyassumptions,andthefurthertheylookintothefuture,themoreuncertaintheseassumptionsbecome.Theseincludenotonlybig-pictureassumptionsabouttheshapeoftheworld,suchasonpopulationsizeorenergyservicedemands,butalsoparametersdescribingthecosts,performance,andavailabilityofvariousenergytechnologies(Keppoetal.,2021).IISD.org6NavigatingEnergyTransitionsDifferentmodelsdisplaydifferentstrengths.Forexample,modelsmanagedbyacademicresearchersareoftenmoretransparentintheirmethodologiesandmoreflexibleintheirexplorationofresearchquestions.Intergovernmentalorganizations’energymodelstendtonarrowtherangeofpossibilitiestheyconsider,whichmakesusingtheirpathwayssimplerfordecision-makersbutprovideslessdetailforthemtoprepareforanuncertainfuture.Energymodelsmanagedbycommercialorganizationsoftenusethemostup-to-datecostestimatesbutcanbelesstransparentinhowtheywork,makingithardertointerpretanyoftheirconclusions(Pfenningeretal.,2017;Skeaetal.,2021).Thesemodelsalsosuffertrade-offsbetweenthelevelofcomplexityordetailtheyprovideandthecomputingpowerrequiredtooperatethem.Modelsvariouslygivemoreresolutioningeography,technologicalprocesses,enduses,infrastructure,oractors.Morefundamentalassumptionsunderpinthestructurallogicbywhichmodelsbringtogetherthesevariedfactors,eitherbysimulatinghowfuturedecisionswillbemadeorbyidentifyingsomekindofoptimumpathway.Whethersimulatingoroptimizing,modelscommonlyrelyonalogicbasedoneconomicandtechnicalefficiency.Assuch,mostenergy/climatemodelspoorlyrepresenthumanbehaviours,social-politicalfactors,ordisruptivechanges(LiandStrachan,2016;McCollumetal.,2017;Wilsonetal.,2019),thoughtherearenascenteffortstobetterreflectsocio-politicalfactorsinmodels(Cherpetal.,2018;Geels,BerkhoutandVanVuuren,2016;Mercureetal.,2019;Trutnevyteetal.,2019).2.2EquityandRegional/NationalTargetsGenerally,IAMshavenotbeenadoptedfortherepresentationofcomplexvaluejudgments,astheassumptionsrequiredforthiscouldbehighlycontentious.Oneofthemostimportantofthesejudgmentsishowtoequitablysharemitigationeffortsbetweendifferentcountriesandactors(Keppoetal.,2021;Pyeetal.,2020).4Itiswidelyrecognizedthatcertaincountrieshavecontributedmorethanotherstoclimatechangethroughpastemissions,andthatcountriesvarysignificantlyinthefinancialandotherresourcestheyhaveavailabletocontributetosolvingtheproblem(IPCC,2022).Thisisknownastheprincipleofcommonbutdifferentiatedresponsibilitiesandrespectivecapabilities,whichisacentraltenetofboththeUNFrameworkConventiononClimateChange(UnitedNations,1992,art.3.1)andtheParisAgreement(UnitedNationsFrameworkConventiononClimateChange,2015,art.2.2).Anequitableinternationalapproachhasseveraldimensions,twoofwhichtendtorecurinequitydebatesandreceivebroadacceptance:differentiatedmitigation,whereGlobalNorthcountriesactsooneranddomoretoreducetheiremissions;andclimatefinance,whichwealthiercountriesprovidetopoorerones(CalverleyandAnderson,2022).ClimatenegotiationsinvolveseriouscontestationabouthowmuchmoreandhowmuchsoonerGlobalNorthcountriesmustact,whichwealthiercountriesshouldprovidefinance,whichpoorcountriesshouldreceiveit,aswellastheamountprovided.Insomeanalyses,thetwodimensionsarelinked:ifdevelopingcountriesreceivemorefinance,theymaybeableto4Equityconsiderationscanbeincorporatedintomodelsifappropriatelyinterpreted(viavaluejudgmentsand/orassumptions)andcodifiedintoauseableform.IISD.org7NavigatingEnergyTransitionsmitigatefaster,withlessdifferenceinpacefromdevelopedcountries(Holz,KarthaandAthanasiou,2018).Therefore,thegeographicbreakdownofmitigationeffortswilldependontheapproachtoequity.Inthisreport,wediscussfossilfuelphase-outonlyatthegloballevel.Asageneralguide,phase-outshouldbefasterintheGlobalNorththantheglobalaveragesuggestedhere.Conversely,wedoprovideabasicregionalbreakdownofgrowthinwindandsolardeploymentbasedonthemodels,withthecaveatthatintheGlobalSouththesewillonlybemeaningfulastargetstotheextentthatsufficientfinanceismadeavailable.2.3KeyUncertainties:CCSandcarbondioxideremovalTwocriticalassumptionsinenergy/climatemodelsregardtheavailabilityofmethodstoremoveCO2fromtheatmosphereand/orofCCStechnology,5neitherofwhichhaveyetbeendeployedatasignificantscale.RegardingCO2removal(CDR),theIPCChassaid“CDRdeployedatscaleisunproven,andrelianceon[CDR]isamajorriskintheabilitytolimitwarmingto1.5°C”(Rogelj,ShindellandJiang,2018,p.96).Theseassumptionsarehighlyconsequentialforthekindofenergysystemthatmaybeconsideredconsistentwithtemperaturelimits.ThemorecountriesundertakeCDRinthefuture,thelongertheworldcantaketodecreasenear-termemissions(andbyextension,thelongeritcantaketodecarbonizeenergysystems)(IPCC,2022).Similarly,CCScreatesapotentialmeanstodecouplefossilfuelusefromCO2emissions,intheoryallowingcontinueduseoffossilfuelsevenasemissionsdecline(Budinisetal.,2018).Manymodelsrelyonverylarge-scaleCDR,withremovalachievedeitherbycarbonsequestrationthroughreforestationandafforestation,orthroughbioenergywithCCS(BECCS).6Thisreliancehasbeenhighlycontroversialwithinthescientificcommunity,wheresomeviewmajorCDRas“essential”toachievingtheParisAgreement’sgoals,giventhedifficultyofreducingemissions(Galán-Martínetal.,2021),whileothersseeCDRrelianceas“anunjustandhigh-stakesgamble”(AndersonandPeters,2016)thatisatbesthighlyspeculative.ModelsthataimtominimizetotalsystemcostsoftenfavourCDR:laterremovalsofCO2provideawaytopushcostsdecadesintothefuture,resultinginlowerdiscountedcosts(Emmerlingetal.,2019;IPCC,2022;RosenandGuenther,2016).Yetthatverydistanceinthefutureincreasestheuncertaintyofdeployment.Relianceonitalsocreatesthedangerwhere,bythetimethoseuncertaintiesareresolved,theemissionswillalreadyhaveoccurred.Therefore,ifCDRcannotbedeployedtotheextentexpected,itwillbetoolatetoreversetheemissions(Smithetal.,2015).5CCSissometimesconsideredalongsidecarboncaptureandutilization(CCU),usingthecombinedtermCCUS.InCCU,thecapturedCO2isused,forexamplebybeingprocessedintofuels,orbybeingpumpedintooilfieldstoincreasereservoirpressuresanddriveenhancedoilrecovery(EOR).UseofwasteCO2toproducefuelsisaveryearly-stageandspeculativetechnology;ifsuccessfullydeployed,itwillnotreducetheamountofCO2enteringtheatmosphere,butwillratherobtainadditionalenergyservicesfromthecarbonbeforetheCO2isemitted.InthecaseofEOR,anyemissionsbenefitfromstoringtheCO2isoffsetbyadditionalemissionsarisingfromtheextraoil.Forthesereasons,inthisreportwefocusonlyonCCS,notCCU.6OtherproposedmethodsofCDR–includingthroughdirectaircapture,soiloroceansequestration,orenhancedweathering–playlessofaroleinmostmodels.IISD.org8NavigatingEnergyTransitionsMajorlimitationsanduncertaintiessurroundfuturedeploymentofCDR.BothforestsandBECCSrequireconsiderablelandarea.Forexample,capturing11.5GtofCO2peryearusingBECCS(comparedwithpresentannualglobalemissionsof40GtCO2)wouldrequirealandareaof380–700Mha,whichisequivalenttoonetotwotimesthesizeofIndia,orto25–46%oftheworld’sarableland.CapturingthesameamountwithforestswouldrequirethreetimesasmuchlandasBECCSwould(IPCC,2022).Thislandrequirementraisesconcernsregardingcompetitionwithfoodproductionandbiodiversityimpactswherewildlandisconverted.Takingtheselimitsintoaccount,scholarshaveestimatedwhatcouldbeconsideredthemaximumsustainablepotentialofvariousCDRapproaches(deConincketal.,2018;Fussetal.,2018).Therearealsofeasibilitychallengesforallenergysystemchanges,relatedtotheirtiming,disruptiveness,andscale,whichotherresearchershaveassessed,includingforBECCSandfossilCCS(Brutschinetal.,2021;IPCC,2022,AnnexIII,TableII.1).Evenatpotentiallyfeasiblelevels,theuncertaintiesremainaboutwhetherandhowCDRorCCScanbedelivered.CCSdeploymenttodatehasconsistentlyfallenbehindexpectations.Aftermorethan30yearsofeffortstocommercializeCCS,todaythereareonly27CCSfacilitiesinoperation,whichhaveatotalnameplatecapacityof36MtCO2(0.1%ofglobalemissions).Onlyfiveofthesefacilitiesaimtodeliverlong-termstorageofCO2,whiletheothersareusedinenhancedoilrecovery(GlobalCCSInstitute,2021).ManyCCSprojectshavefailed(RobertsonandMousavian,2022;Wang,AkimotoandNemet2021),andcostsremainhighcomparedwithotherlow-carbonalternatives.Indeed,thecostsofafacilitywithCCSwillalwaysbehigherthanthecostsofthesamefacilitywithoutCCS(Budinisetal.,2018).ForeitherCCSorCDR,someofthelargestchallengesrelatetogovernance.Manyunansweredquestionsremainonhowthesemeasurescanbeimplemented,monitored,andregulatedtoensuretheireffectiveness,andwhatinstitutionsareneededtodeliverincentives,funding,andpenaltiesatthegloballevel(Greenpeace,2021).2.4ThePathwaysUsedinThisReportThisreportaimstoprovideguidanceforenergydecisionstogovernments,investors,andcompanies,especiallyconcerningoil,gas,wind,andsolar.Ourcorefindingsarebasedontwo1.5°Cpathways:•Themedianof26pathwaysreviewedintheIPCCAR6WorkingGroup3(IPCC,2022),usingdatahostedontheInternationalInstituteforAppliedSystemsAnalysis’ScenarioExplorer(Byersetal.,2022).•TheIEA’sNZEscenario,publishedinthe2021editionofWorldEnergyOutlook(IEA,2021c).ThemethodologyforselectingthepathwayswasbasedontheapproachfirstproposedbyClimateAnalytics(2018)andemployedintheProductionGapReportstoanalyzepathwaysfromtheIPCCSpecialReportonGlobalWarmingof1.5°C(StockholmEnvironmentalInstituteetal.,2021).ItusedtheIPCCScenarioExplorerdatabasetoselectpathwaysthatIISD.org9NavigatingEnergyTransitionsareconsistentwithcertaincriteria.Thesetof26IPCCpathways7selectedforouranalysisconsistsofthepathwaysinAR6thatalignwiththe1.5°Climit,excludingthosewhoseusageofBECCSorfossilCCSiscategorizedbytheIPCCasraisingmediumtohighfeasibilityconcerns.ItalsoexcludesthosewhoseforestCDRexceedstheIPCC’sestimateofmaximumsustainablepotential(seeappendixformoredetail),whichisintendedtoprovideamorerealisticaccountoftheirpotentialcontributionsoverthecomingdecades.Thesubsetofpathwaysalllimitwarmingto1.5°C(greaterthan50%probability)witheitherlimitedornoovershoot.Theyaregeneratedusingthree8models:MESSAGE-GLOBIOM,9REMIND-MAgPIE,10andWITCH.11Allthreeareoptimizationmodelsthatfindsolutionswiththelowestcostorhighesteconomicwelfare,subjecttovariousreal-worldconstraints.TheNZEscenarioisgeneratedusingtheIEA’sWorldEnergyModel,asimulationmodeloftheenergysystem,usingexogenousfuturepolicyassumptionsthatarelistedinthedocumentation(IEA,2021b).ItthusreliesontheIEA’sexplicitjudgmentaboutwhichpoliciesaremostrealisticallyachievable,ratherthanembeddingpolicychoicesincost-optimizationasanoverridingprinciple.WefocusonthesetwopathwaysbecausetheIPCCandIEAarewidelyusedinthecurrentliterature,andinthecaseoftheIPCC,thediversityofpathwaysimprovestherobustnessofouranalysis.Moreover,wealsocomparethesewithotherwell-knownpathwaysemployedbyfinancialinstitutions,consultancies,andtheprivatesectortoidentifycommonfeaturesanddifferences.Mostofthesepathwaysareconsistentwithlimitingwarmingto1.5°Cwithgreaterthan50%probability,andnotrelyingonCCSorCDRtoagreaterextentthanjudgedfeasibleorsustainable,asabove.12Theotherscenariosconsideredinthisreportare:•IPCCIMP-Ren(illustrativemitigationpathwayhighrenewables):oneoftheIPCC’s26pathways,itisalsoshownseparatelybecausetheIPCCusesitasanillustrativemitigationpathway(IMP)torepresentafuturewithahighlevelofrenewableenergy.•IPCCIMP-LD(IMPlowdemand):anotherofthe26pathways,thisIMPrepresentsafuturewithlowenergydemand,achievedthroughchangesinsocietalbehaviours.•OECM:developedbytheUniversityofTechnologySydneyfortheNet-ZeroAssetOwnersAllianceanddesignedtogiveahighlevelofsectorgranularitytohelpinforminvestordecisions(Teskeetal.,2020).7TheIPCCdoesnotproducethesepathwaysbutrathercollectandassessquantitative,model-basedscenariosrelatedtothemitigationofclimatechange.ThefinalselectionofscenariosconsideredbytheIPCCWorkingGroup3wasconductedbyauthorsoftheAR6report.8TheAR6alsoconsidered1.5°Cpathwaysgeneratedusingsevenothermodels,butallofthesepathwaysexceededthefeasibility/sustainabilitythresholdsonCDRandCCSdiscussedabove.9ManagedbytheInternationalInstituteforAppliedSystemsAnalysisnearVienna,Austria.10ManagedbythePotsdamInstituteforClimateImpactResearchinPotsdam,Germany.11ManagedbytheEuropeanInstituteonEconomicsandtheEnvironmentinMilan,Italy.12BasedontheCDR/CCScriterion,wedonotincludescenariosfromtheNetworkforGreeningtheFinancialSystem,fromShellorfromEquinor.IISD.org10NavigatingEnergyTransitions•BloombergNewEconomicFinance(BNEF)greenscenario:oneofthreenet-zeroscenariosinBNEF’sNewEnergyOutlook2021,whichprioritizescleanelectricityandgreenhydrogen.Itusesacarbonbudgetconsistentwitha67%chanceofkeepingwarmingbelow1.75°C(BNEF,2021).•IRENAWorldEnergyTransitionsOutlook1.5°CPathway:usesmacroeconometricmodellingtoassessthesocio-economicimpactofadiversepolicybasketwithmoderatecarbonpricestolimitwarmingto1.5°C(IRENA,2022d).•NavigantPathwaytoNet-Zero:a1.5°Cscenariofor100%DecarbonizationoftheGlobalEnergySystemby2050,itwasdevelopedtoprovidemaximumfeasibility,givingpreferencetooptionsthathavehighsocialandpoliticalacceptability(Navigant,2018).•DNVPathwaytoNetZero:aimstoachieve1.5°Cwithintheboundsoftechno-economicandpoliticalfeasibility.Accordingly,itemploysanintegratedsystemdynamicssimulationmodelthatreflectsrelationshipsbetweendemandandsupplyinseveralinterconnectedmodules(DNV,2021).•BPnet-zeroscenario:oneofthreepossibleenergytransitionscenariosandtheonlyonethataimstolimitwarmingto1.5°C,thisscenarioisbasedonasubsetofscenariosfromtheIPCC’sSpecialReportonGlobalWarmingof1.5°C,excludingtheonesconsideredtogiveoverlyoptimisticassumptionsaboutclimatepolicies(BP,2022a).WhilethisreporthasexcludedscenariosrelyingonCDRorCCSbeyondfeasibility/sustainabilitythresholds(above),itshouldbenotedthatallthescenariosconsideredinthisreportrelyonCDRtosomeextent,andmostrelyonCCS.GiventhatneitherCDRnorCCShaveyetbeendeployedatasignificantscaleandthattheyraiseformidablechallengesofcost,sustainability,andgovernance,aprecautionaryapproachtojudgingenergytransitionpathwaysshouldseektominimizerelianceonCDRandCCS.CDRcannotbeconsideredanalternativetorealemissionsreductions(Dooley,NichollsandMeinshausen,2022),andpathwayswithfasterdecarbonizationshouldbepreferredoverthosethatrelymoreonCDR.Asummaryofthescenarios’useofCDRandCCSfollowsinTable2.1.HavingdiscussedtherangeofpathwaysconsistentwiththeParisAgreementandthe1.5°Cgoal,thisreportwillconsidertheirimplicationsforarangeofaspects,beginningwiththequestionofthelicensingofnewoilandgasfields,andtheinvestmentsneededinrenewableenergytechnologies.IISD.org11NavigatingEnergyTransitionsTable2.1Scenariosfeaturedinthisreport:UseofCDRandCCSBECCSFossilCCSAfforestation/ReforestationMtCO2203020502030205020302050IPCCscenariosmedian701,0306702,1407302,090IPCCscenariosfirstquartile509104001,320360790IPCCscenariosthirdquartile2402,4607702,7109102,160IEANZEIPCCIMP-Ren2601,3801,3305,2502001,300IPCCIMP-LD3102,4004105601,340230IRENA--OECM003,160BNEFGreenScenario9005,0001,1002,300Navigant00DNV00--BP--------3,3004,7001,3003,900Notes:Allfiguresroundedtothenearest10.IncludesBECCSIncludesfossilandindustrialprocessCCSSources:BNEF(2021),BP(2022),Byersetal.,(2022),DNV(2021a),IRENA(2022),Navigant(2018),Rystad(2022),Teskeetal.,(2022).IISD.org123.0EnergySystemTransformationandInfrastructureNeedsNavigatingEnergyTransitionsKeyInsights•Accordingtoalargeconsensusacrossmultiplemodelledenergypathways,developinganynewoilandgasfieldsisincompatiblewithlimitingwarmingto1.5°C.Globaloilandgasproductionandconsumptionmustdecreasebyatleast65%by2050.•Theinvestmentlevelsneededforwindandsolartechnologiesin1.5°C-alignedpathwayscanbeachievedbyredirectingfinancefromnew,1.5°C-incompatibleoilandgasfields.TheannualinvestmentgapfortherequiredwindandsolardeploymentamountstoUSD450billionuntil2030.ForecastsindicatethatuptoUSD570billionwillbespenteveryyearinnewoilandgasdevelopmentandexplorationduringthesameperiod.•ThereisnoroomfornewfossilimportinfrastructureinEuropein1.5°C-alignedgasphase-outpathways.ExistingimportcapacitycanmeetthegasdemandforEuropeinthemediumandlongerterm.In2022and2023,theshort-termsupplycrunchanditspotentiallydireconsequencescannotbealleviatedintimebynewlyaddedgascapacity.Thischapterpresentsadetailedassessmentofwhatanenergytransitionconsistentwithlimitingtemperatureriseto1.5°Cwouldrequire.Itfocusesspecificallyonemissionsreductionfromoilandgasandonthecorrespondinglevelsofwindandsolarcapacitiesthatneedtobeinstalledtodeliverasuccessfultransitiontoacleanenergysystem.TheanalysisisbasedonclimateandenergymodelsassessedbytheIntergovernmentalPanelonClimateChange(IPCC)andpublishedbytheInternationalEnergyAgency(IEA),andseveralotherscenariosfromselectedmodellinggroups.Theassessmentoftheembodiedcarbonemissionsfromlicensedoilandgasreservesshowsthatanyextractionbeyondfieldsalreadyinproductionorunderdevelopmentwouldunleashsignificantlymorecarbondioxideintotheatmospherethanourselectionofscenariosdeemedconsistentwiththe1.5°Cgoal.Thispointstowardtheneedtopreventtheexplorationanddevelopmentofanynewoilandgasfields,andtoensureanorderlyandmanagedphase-outoffossilfuelproduction.Inlightofthecurrentenergymarketturmoilanddebatesaroundgassupplies,thechapterwillalsoprovideanassessmentoftherolegaspowergenerationshouldplayintheselected1.5°Cscenarios.Finally,thischapterpresentsanoverviewoftherequiredlevelsofwindandsolardeploymentin1.5°C-alignedpathways,bothatglobalandregionallevels,andoftheinvestmentsneededtoenablethedeploymentofthesetechnologies.IISD.org14NavigatingEnergyTransitions3.1Paris-alignedOilandGasPhase-outTimelinesDespiterepeatedwarningsoveraquicklytighteningcarbonbudget,theconsultancyfirmRystadEnergyestimatesthat,intheabsenceofstrongerclimatepolicies,oilandgasproductionforecastsshowthatextractionvolumesareexpectedtocontinuetoriseabovecurrentlevelsuntilatleastthe2030s(RystadEnergy,2022b),duetothecontinueddevelopmentofnewfieldsandthepotentialextractionfromlicensedreservescurrentlybeingexplored.ThiscontinuedgrowthriskspushingtheworldwellbeyondtheParis-agreedtemperaturegoal.TheProductionGapReportestimatedthatgovernmentsstillplantoproducemorethandoubletheamountoffossilfuelsin2030thanwhatwouldbeconsistentwithlimitingglobalwarmingto1.5°C(StockholmEnvironmentalInstituteetal.,2021).Thissectioncomparestheforecastedlevelsofoilandgasjointproductionwiththe1.5°C-consistentvolumesfromawiderangeofselectedscenarios.Weassessoilandgasvolumesjointly,astheextractionofoilandgasistypicallyconductedbythesamecompaniesandfinancedthroughthesamefinancialframeworks,andexplorationactivitiesareoftenconductedinsuchawaythattherelativelevelsofoilandgasproductionareonlyknownwhenadiscoveryismade.Figure3.1belowshowsthevolumesofalllicensedoilandgasreservesglobally,expressedintermsoftheirembodiedcarbonemissions.Thesereservesarebrokendownintothedifferentstagesoftheirproductionlifecycle,13toshowcasetheirrespectivecontributiontothe1.5°C-consistentcarbonbudgetfortheoilandgasindustry.Thepotentialemissionsofforecastedoilandgasproductionfromcurrentlylicensedreservesassumethatnofurtherclimatepoliciesareimplemented,accordingtotheprojectionsbyRystadEnergy’sUCubemodel.Superimposedonthisaretwopathwayswhichareconsistentwith1.5°C.OnerepresentsthemedianofselectedpathwaysfromtheIPCCSixthAssessmentReport(AR6),whiletheotheristheIEA’sNetZeroEmissionsby2050(NZE)scenario(seechapter2).Thesetwopathwaysbothshowthatoilandgasproductionshoulddeclinebyatleast65%by2050from2020levels.Thereafter,mostoftheremainingemissionswouldhavetobecapturedandsequesteredfortheworldtoreachnet-zerocarbonemissionsbythemiddleofthecenturytostabilizetheclimateto1.5°Cby2100.13Licensedoilandgasfieldsthatarealreadyinoperationorunderdevelopmentaredistinguishedfromthosewherediscoveryhasbeenmade,andfromthosewherealicencehasbeenawardedbutexplorationhasnotyetstarted.IISD.org15NavigatingEnergyTransitionsFigure3.1Globaloilandgasproduction,basedonselectedIPCCandIEA1.5°Cpathways2520SelectedIPCC1.5°CpathwaysNewﬁeldsIEANZEpathway15exceed1.5°CNewexplorationGtCONewﬁeldsFieldsunder10developmentProducingﬁelds502025203020352040204520502020Sources:Byersetal.,(2022);IEA(2021);RystadEnergy(2022b).Intheshorterterm,theselectedIPCCandIEApathwaysshowcasea15%and30%reductioninoilandgasproductionby2030respectively.Thisisequivalenttoanaverageannualoilandgasproductiondeclineof2%and3%fortherestofthisdecaderespectively;inthe2030s,theaverageproductiondeclineacceleratesto4%and5%respectively.Theimplicationsofthisareimportantforfutureenergydecisions.Whileenergyscenariosdonotprovideanyprescriptiveinsightsonwhattheproductiondeclineratesimply,theproductionfromcurrentlyoperatingfieldsandthoseunderdevelopmentwouldalreadygeneratemoreoilandgasemissionsthanwouldbeconsistentwiththe1.5°CgoalunderboththeIEANZEandselectedIPCC1.5°Cpathways.14Assuch,newfieldscouldintheorybedevelopedinalignmentwiththoseproductionlevels,aslongasexistingfieldswithcorrespondingproductionlevelswereclosed.Inpractice,however,itisparticularlydifficulttocloseexistingfields,foreconomicandpoliticalreasonsrelatedtojobs,vestedinterests,andinfrastructurelock-ineffects,aswellaslegalreasonsrelatedtothecostlycompensationowedtoinvestorswhengovernmentsattempttodoso,andtheimplicationsofwhichwediscussindetailinchapter5ofthisreport.Therefore,unlessthesechallengescansomehowbeovercome,notonlyistherenoneedfornewfields,butmostimportantlythereisnoroomfornewfieldstobedevelopedifwearetolimitwarmingto1.5°C.ThisisalignedwithwhattheIEAconcludedinitsWorldEnergyOutlook2021report.Anynewdevelopmentofoilandgasfieldswouldultimatelyeither14Productionfromconventionaloilandgasfieldsgenerallydeclinesbyabout4%peryearasreservoirpressuredecreases,evenwhenongoinginvestmentismadetoimprovethefields’productivity,suchasdrillingadditionalwellsormaintaininginfrastructure(RystadEnergy,2022b).IISD.org16NavigatingEnergyTransitionsgeneratestrandedassets15—eitherbecausetheyhavetoshutdownearlyorbecauseexistingfieldswillneedtoproducesignificantlylessthantheiranticipatedamounts—orpushtheworldbeyondthe1.5°Cgoal.3.1.1SensitivityAnalysisofaBroaderSetofScenariosBesidestheselectedIPCC1.5°CpathwaysandtheIEANZEscenarios,thissectionanalyzeseightadditionalParis-alignedoilandgasphase-outpathways(detailsonthesecanbefoundinchapter2).TheanalysisoftheseadditionalscenariosshowsthattheconclusionsderivedfromtheselectedIPCC1.5°CpathwaysandtheIEANZEarewidelysharedamongenergymodelsacrossintergovernmentalorganizations,academicinstitutions,andprivatesectorconsultancies.AsFigure3.2shows,theseadditionalpathwaysfollowsimilartrajectoriestotheIEANZEandthemedianofselectedIPCC1.5°Cpathwaysuntilthemiddleofthecentury,implyingtheconclusionthatthereisnoroomfornewoilandgasfieldsbeyondthosealreadyinoperationorunderdevelopmentisrobustacrossmodels.Figure3.2Globaloilandgasproduction,basedonotherselected1.5°Cpathways25Newﬁeldsandexploration20UnderdevelopmentandproducingﬁeldsGtCO15SelectedIPCC1.5°Cpathways10IEANZEpathwayBPNet-Zero5IRENADNVNet-Zero0IMP-Ren2020BNEFIMP-LDNavigantOECM202520302035204020452050Sources:BNEF(2021);BP(2022);Byersetal.,(2022);DNV(2021);IRENA(2022);Navigant(2018);RystadEnergy(2022b);Teskeetal.(2022).Althoughtherearesomeminorvariationsacrossscenarios,especiallyinthe2020s,theyallshowthatoilandgasproductionneedstodecreasebyatleast65%by2050.Short-termdifferencesintherateofproductiondeclineacrossmodelsarelargelyduetotheirvaryingassumptionsoncarboncaptureandstorage(CCS)andcarbondioxideremoval(CDR),aswellasassumptionsontherateofcoalphase-out.Moreover,severalpathwaysshowninFigure3.2seeoilandgasproductiondecreasingbelowlevelsconsistentwithexistingfields15Strandedassetsare“assets[that]sufferfromunanticipatedorprematurewrite-downs,downwardrevaluationsorareconvertedtoliabilities”(Caldecott,HowarthandMcsharry,2013).IISD.org17NavigatingEnergyTransitions(InternationalRenewableEnergyAgency[IRENA],illustrativemitigationpathwaylowdemand[IMP-LD],Navigant,andtheOneEarthClimateModel[OECM]);thisimpliesthatnotonlyshouldnewfielddevelopmentbestopped,butfurthermeasuressuchasdecreasedinvestmentsinexistingfieldsovertimeand/orearlyretirementofthosefieldsshouldbeconsideredaswell.Othersexceedexisting-fieldproductioninthenext10to15years,butthenfallbelowitlateron(IMPhighrenewables[IMP-Ren],BloombergNewEnergyFinance[BNEF],andDNV),indicatingapotentialriskforsomeassetsofbecomingstrandedifnewfieldsweredevelopedintheshortterm.OnlyintheBPscenariodoesthe1.5°Cpathwayremainconsistentlyaboveproductionfromexistingfields,butthenoilandgasproductiondeclinesbynearly70%by2050.Asmentioned,therateofoilandgasproductiondeclineineachmodelisaffectedbytheunderlyingassumptionseachmodelrestson.Thosescenarioswiththeleastrelianceoncarbonsequestrationdisplayedsignificantlyfasterdeclineinoilandgasproduction(seechapter2forassessmentofcarbonsequestrationineachscenario).Thisindicatesthatoilandgasproductioninenergytransitionpathwaysisverysensitivetoassumptionsmaderegardinglevelsofcarbonsequestration.AdoptingaprecautionaryapproachtofutureavailabilityofCDRandCCStechnologies—bylimitingtheirdeploymentlevelsinlinewiththeIPCC’sfeasibilityandsustainabilityassessment—implieslesscarbonsequestrationandfasteroilandgasphase-outpathwaystobeconsistentwith1.5°C.Therefore,thisagainpointstotheneedtoendnewoilandgasdevelopmenttoreflectthecurrenttechnicalcapacitiesandsustainabilityconcernsassociatedwithCDRandCCSmethods.Assumptionmadeontherateofcoalphase-outalsohaveasignificantimpactontheoilandgasdeclineratesintheshortterm.AsshowninTable3.1,thereareconsiderabledifferencesinthepercentagereductionofoilandgas,measuredseparatelyin2030,2040,and2050,forallthescenariospresentedinthischapter.ThesedifferencestendtoincreasewithtimeastheenergymixeschangeandthedeploymentoffossilCCStechnologiesenablesgreateruseofabatedgaspowergeneration.Moreover,scenarioswithhigherlevelsofCDRandCCStendtohaveslowerratesofdecreaseofoilandgasproduction.Asshowninthissection,theanalysisofglobaloilandgasreservesand1.5°C-consistentproductionlevelsshowsthatgovernmentshavegrantedlicencesinexcessofwhattheworldcanaffordtoproducetocomplywiththeParis-agreedtemperaturetarget.Therefore,licensedreservesbeyondtheonesalreadyinproductionorunderdevelopmentshouldbekeptundergroundiftheworldistolimittemperaturerisetobelow1.5°C.Analysisinthischaptershowsthatthisconclusionissharedamongawiderangeofwell-knownandhighlyreferencedscenariosintheliterature,allsupportingtheconclusionthatthereisnoroomfornewoilandgasfieldswhendesigningpoliciestoalignwithlimitingwarmingto1.5°C.IISD.org18NavigatingEnergyTransitionsTable3.1Oilandgasproductionphase-outpaceinkeymodelpathways203020402050Oil29%57%78%IPCCmedian29%42%42%GasOil21%54%76%IEANZEGas6%45%56%Oil3%47%77%IPCCIMP-Ren33%58%78%GasOil47%75%90%IPCCIMP-LD47%75%85%GasOil37%-86%IRENAGas22%-48%Oil31%89%98%OECMGas14%54%100%Oil1%56%83%BNEFGas7%56%85%Oil12%44%74%DNVGas12%39%69%Oil24%95%91%NavigantGas36%75%85%Oil6%44%76%BPGas0%30%55%Sources:BNEF(2021);BP(2022);Byersetal.,(2022);DNV(2021);IEA(2022);IRENA(2022);Navigant(2018);RystadEnergy(2022);Teskeetal.(2022)3.2TheRoleofGasPowerGenerationintheEnergyTransitionManycurrentpolicydiscussionsfocusontheroleofgasinenergysystems,withsomecompaniesandgovernmentssuggestinggascanserveasa“transitionfuel”,sinceitsemissionsintensityislowerthancoaloroilatthepointofcombustion(DeetjenandAzevedo,2020).Criticsarguethat,whenmethaneleakageistakenintoaccount,gaspowergenerationcanbelittleornobetterthancoal,andthatacceleratingthetransitiontowindandsolarcanfulfilltheworldenergydemandatincreasinglycompetitivecosts(Fysonetal.,2022;Lazard,IISD.org19NavigatingEnergyTransitions2020).Thesefugitivemethaneemissionsalsospreadthroughoutupstream,midstream,anddownstreamstages,whichmakesthemhardertoabate(Alvarezetal.,2018).Moreover,theextractionoffossilgasfromunconventionalreservoirsalsohasahigheroverallwaterfootprintandenergydemandthanconventionalfields(Qinetal.,2018).Furthermore,therecordhighenergypricestriggeredbythewarinUkraineandsubsequentsanctionshaveexposedcriticalrisksfromrelianceonfossilgasintheenergysystem(seechapter4).TheserisksandcurrentdisruptionsintheenergymarketcallforathoroughassessmentoftherolegasoughttoplayinaParis-alignedfutureenergysystem.Aspowergenerationisthelargestuseofgas(Shuklaetal.,2022),thissectionassesseshowmuchroomthereisforgaspowerinenergymodelslimitingwarmingto1.5°C.TheIPCCdatabaseof1.5°Cpathwaysshowsthatthereisalargerangeofgasconsumptionacrossscenarios(Byersetal.,2022).ThesedifferencesarelargelydependentonthescaleofdeploymentofabatedgaspowerplantsequippedwithCCS.Thissectioncomparestheforecastedglobalcapacityofgaspowerplantswiththecapacityconsistentwiththe1.5°CpathwaysassessedfortheIPCC/InternationalInstituteforAppliedSystemsAnalysisScenarioExplorerdatabaseuntil2035.16Figure3.3Globalgaspowergenerationcapacity2,500GW2,000Gaspowerplants1,500Announced1,000Inpre-constructionUnderconstruction500OperatingSelectedIPCC1.5°Cpathways02025203020352040204520502020Note:Thefollowingassumptionsaremade:•Thetotalinstalledcapacityfrompowerplantsinconstructionwithmissingvalueasstartdateweredistributedevenlyover4yearsbetween2022–2025.•Thetotalcapacityfromproposedpowerplantswithmissingvalueasastartdateweredistributedevenlyover10yearsbetween2025–2030.•Gaspowerplantshaveanoperationallifeof30yearsbeforebeingdecommissioned.•Operatingpowerplantswithastartdatepriorto1982aredecommissioned5yearsafter2022.Source:Byersetal.(2022);GlobalEnergyMonitor(2022b).16TheIPCCAR6ScenarioExplorerandScenariosDatabaseishostedbytheInternationalInstituteforAppliedSystemsAnalysis,whichcollectsalltheunderlyingdatabehindthescenariosassessedbyIPCCWorkingGroup3.IISD.org20NavigatingEnergyTransitionsFigure3.3showsthatglobalgaspowergenerationcapacityneedtodecreasebyabout55%by2035comparedwith2020levels.However,currentforecastgaspowergenerationfromplantsalreadyinoperation,inconstruction,orbeingplanned,areexpectedtodelivermorecapacitythanwouldbeconsistentwiththeParisAgreementthroughouttheforthcomingdecades.Thisimpliesthatthereisnoroomfortheconstructionofnewplants,whichwouldriskleadingtostrandedassetsif1.5°Cpathwaysareusedasaguidetolimitwarmingto1.5°C.Therefore,allnewconstructionsofgaspowerplantsbeyondthosealreadyinoperationorinconstructionwouldeventuallyhavetobedecommissionedbeforetheendoftheireconomiclifetime,orberetrofittedtoincludeCCS,unlessexistingplantsinoperationareeventuallytooperateatamuchlowercapacity.Moreover,furtheranalysisofthesamesubsetofselectedIPCC1.5°Cpathwaysshowsthatthegenerationofelectricityfromallunabatedgaspowerplantsneedstodecreasebyabout95%by2040,inordertolimitwarmingto1.5°C.Sincegaspowerplantscommonlyoperateforabout30years,nonewunabatedgaspowerplantsshouldbebuilt,toavoidanyfuturestrandedassetsorsignificantlyunderutilizedbuiltcapacity.RetrofittinganexistinggaspowerplanttoinstallCCScapabilitiesissignificantlymorecostlythanincludingsequestrationtechnologyfromthestart(Muttittetal.,2021).Therefore,itwouldbeilladvisedtoassumethatnewunabatedplantsshouldberetrofittedin10or15years.Accordingly,basedontheanalysisofselectedIPCC1.5°Cpathways,andconsideringtheconcernsoverCCScapabilities,inordertomeettheParisAgreementtemperaturegoalnonewgaspowergenerationcapacityshouldbedeveloped.3.3RenewableEnergyDeploymentNeedsEnablingastructuralshiftintheenergysectorinlinewith1.5°Cpathwayswillrequiresignificantlyscalinguptheannualrateofrenewabletechnologydeploymentastheworldmovesawayfromcarbon-basedenergysources.TheIPCCAR6analysisofavailabletechnologiestomitigategreenhousegasemissionsconcludedthatwindandsolartechnologieshavethebiggestmitigationpotentialatthelowestcostpertonneofCO2displaced(IPCC,2022).Acceleratingthistransitionisofconsiderableimportancenotonlyforclimatepurposesbutalsobecausetransitioningtoarenewableenergysystemtendsto“supportandreducethecostsofkeyelementsofhumandevelopment,suchaseducation,health,andemployment”(IPCC,2022);thiswouldinturnfacilitatetheachievementoftheUNSustainableDevelopmentGoals.Moreover,withthecurrentdisruptionsintheEuropeanenergymarketpushingelectricitypricesaboveEUR350/MWh,andyear-aheadcontractsreachinguptoEUR1,000/MWhinsomecountries,windandsolarenergieshavebecomeincreasinglycostcompetitive(Hancock,2022).ThisalsoincreasestheimperativetoacceleratetheenergytransitionandincreasetherateofdeploymentofthesetechnologiesinordertotackletheelectricitypricehikesandenergysecuritychallengesbroughtonbythewarinUkraine.Furtheranalysesonthisareprovidedinsection4.3inthenextchapter.Thissectionreviewsthepaceofwindandsolardeploymentthatisconsistentwith1.5°Cenergypathways.Figure3.4showshowwindandsolar1.5°C-compatibledeploymentratescomparetothedeploymentforecastsforthesetechnologiesundercurrentpolicies.ThecurrentpoliciesforecastismadebyBNEF;itisnoteworthythatBNEFestimatesareIISD.org21NavigatingEnergyTransitionssignificantlymoreoptimisticthanmanyotherforecastersintermsofforecastedwindandsolardeploymentrates,hencethedeploymentgapweareestimatingisratherconservative.IntheassessedIPCC1.5°Cpathways,windandsolarcapacityadditionsreach350gigawatts(GW)and660GWrespectivelyby2030.Thisrepresentsrespectivelyafourfoldandfivefoldincreaseinannualcapacityadditionfromcurrentlevels.TheIEANZEpathway,showninFigure3.4,followsanalmostidenticaltrajectoryandtotalannualdeploymentby2030.Conversely,forecastsofexpecteddeploymentofwindandsolarcapacitybasedonthecurrentglobalpipelinesofprojectsandthefutureimplementationofcurrentpoliciesshowanincreaseincapacityadditionoverthecomingdecadereaching135GWand400GW(BNEF,2022).AsalsoshowninFigure3.4,thisleavesalargedeploymentgapthatneedstobebridgedinordertosupplyenoughenergytomeettheworld’senergydemandin1.5°Cpathways.Figure3.4AnnualwindandsolarcapacityadditionsunderselectedIPCCandIEA1.5°Cpathways400WindcapacityWIND(IEANZEpathway)350Windcapacity(selectedIPCC3001.5°Cpathways)250NewpoliciesneededtoenablefastergrowthGW200150100Windprojection(basedoncurrentpolicies)5020202025203002015700SolarcapacitySOLAR(selectedIPCC1.5°Cpathways)600Solarcapacity(IEANZEpathway)500Newpoliciesneededto400enablefastergrowthGW300200Solarprojection(basedoncurrentpolicies)02020202520302015Sources:Byersetal.(2022);IEA(2022).IISD.org22NavigatingEnergyTransitionsBoththeIPCCandIEANZEpathwaysshowthatby2030,annualcapacityadditionsshouldbeatleast2.5timeshigherforwindenergyand1.5timeshigherforsolarcomparedtoforecastsbasedoncurrentpolicies.Thisindicatesthatadditionalpoliciesareneededtoenablegrowthconsistentwith1.5°C.Figure3.5illustratesthatevenunderdifferentassumptionsandpolicies,energymodelsfromBNEF,OECM,andtheIPCCIMP-Renallshowaneedforsignificantlyhigherdeploymentthanisforecastundercurrentpolicies.Thesepathwaysvaryconsiderablyintheirdeploymentneed.However,theyallshowthatby2030,windcapacitymustbeatleast2timeshigherandsolarmustbe1.5timeshigher,withanumberofscenariosindicating3.5timesforwindand4.5timesforsolar.Figure3.5AnnualwindandsolarcapacityadditionsunderBNEF,IMP-Ren,andOECM1.5°CpathwaysGW1,200BNEFWINDIMP-RenOECM1,000Newpoliciesneededto800enablefastergrowth600400200Windprojection0(basedoncurrentpolicies)20152020202520302,000IMP-RenSOLAROECMBNEF1,500NewpoliciesneededtoGW1,000enablefastergrowth5000Solarprojection2015(basedoncurrentpolicies)202020252030Sources:BNEF(2022);Byersetal.(2022);Teskeetal.(2022).IISD.org23NavigatingEnergyTransitionsAccordingly,estimatesfromBNEFindicatethatwindcapacitydeploymentmayneedtobeashighas1,000GWannuallyby2030,almost3timeshigherthantheIPCCandIEAestimatesshowninFigure3.5.Similarly,theIMP-Renpathwayindicatesthatsolarcapacityinstallationwouldneedtoreachmorethan1,800GWannuallyby2030toorchestrateanenergytransitionconsistentwiththe1.5°Cgoal.Globalassessmentsofrenewableenergydeploymentneedsareessentialtodrawapictureofthefutureoftheenergysystemandofthescaleoftheinterventionsrequiredbygovernments’climatepolicies.Additionally,theregionaldimensionsofthetransitionandthedeploymentgapsprovidenecessaryinsightstoinformpolicyandinvestmentdecisionsatregionalandnationallevels.3.4RegionalDimensionsWehavematchedtheregionaldataavailablefromthesamesetofIPCC1.5°Cpathways17presentedabovewithBNEFcountry-levelforecastsofwindandsolarcapacitydeployment.Thisway,weestimatedthedeploymentgapforthesetechnologiesacrosstheIPCCregions(i.e.thedifferencebetweenthedeploymentlevelsneededtocomplywiththe1.5°Cgoal,ordeploymentneeds,andtheforecastedcapacitybasedonexistingpolicies).By2030,morethan850GWofwindcapacitymustbeinstalledinAsia;thisrepresentshalfoftheglobalcapacitythatneedstobedeployedbetween2022and2030,and70%oftheglobaldeploymentgapforwind.WhiletheOrganisationforEconomicCo-operationandDevelopment(OECD)andEuropeancountriestogetheraccountforaquarterofthetotaldeploymentneeds,theircurrentpoliciesseemtocoversuchneedstoabetterextent,hencetheircorrespondinggapincapacitydeploymentisonlyabout30GWbetween2022and2030.Whiletheregionalpicturelookssimilarforcumulativesolarcapacity,theOECDandEuropeancountriespresentthelargestdeploymentgapoverthecourseofthisdecade,withnearly430GWofmissingcapacitybytheendofthedecade.Asia(exceptJapan)istheregionwheremostsolarcapacityadditionsareneeded,withnearly50%oftotalcapacityneedingtobebuiltinthisregion.Comparedtoforecasteddeployment,significantadditionalpoliciesandinvestmentswillbeneededtobridgethe340GWdeploymentgapinthisregionoverthecomingyears.17Fromthe26selectedIPCC1.5°Cpathwaysassessedinthisreport,only11includedregionallydisaggregateddata.Accordingly,theanalysisofregionaldeploymentofwindandsolarcapacityisbasedonthedataprovidedbytheREMINDandWITCHmodels,andexcludedthedatafromMESSAGEix.Seeappendixformoredetailsonscenariosselection.IISD.org24NavigatingEnergyTransitionsFigure3.6Cumulativewindandsolarcapacitydeploymentneeds,2022–2030WINDAsiancountriesexceptJapanOECD90andEU(andEU1.5°Ccandidate)countriesconsistentLatinAmericancountriesForecastMiddleEastandAfricaFormerSovietUnion02004006008001,000GWSOLAR1.5°CAsiancountriesconsistentexceptJapanForecastOECD90andEU(andEUcandidate)countriesLatinAmericancountriesMiddleEastandAfricaFormerSovietUnion2004006008001,0001,2001,4001,6000GWSource:Byersetal.(2022).AsshowninFigure3.6,theregionwiththesmallestshareofcumulativewindandsolardeploymentisrepresentedbycountriesoftheformerSovietUnion.However,thisregionneedstoincreaseitssolarcapacitybyover6timestheexpectedlevelsprojectedbycurrentprojectpipelinesandpoliciesintheregion.ThereisalsosignificantcatchinguprequiredforwindenergyinLatinAmerica,aswellasintheMiddleEastandAfrica.Capacitydeploymentneedstobe2and3timeslargerrespectivelycomparedtocurrentforecasts.Itisimportanttonotethattheassessmentfromintegratedassessmentmodelsoftherequiredcapacityadditionsineachregiondonotnecessarilyreflectorincorporateconsiderationsofequityandaccess.FurtherconsiderationstotheprincipleofcommonbutdifferentiatedresponsibilitiesandrespectivecapacitiesoftheParisAgreementwouldrequireanacceleratedtransitionfromhigh-incomecountriesandlargehistoricalemitters.Equityconcernwouldlikelyinvolvefasteroilandgasphase-outpathwaysforhigh-incomecountrieslessdependentontheirfossilindustries(CalverleyandAnderson,2022).IISD.org25NavigatingEnergyTransitionsOtherkeysystemchangesareneededtosupportthetransition.Integratingelectricitygrids,buildingtransmissionlines,andstoragefacilitieswillalsobenecessarytodealwiththeintermittenciesofarenewableenergysystem.Moreover,beyondthesupply-sideenergysystemchangeaddressedinthischapter,otherenergyefficienciesanddemand-sidemeasuresshouldbeconsideredtofullyimplementasuccessfulenergytransitioncompatiblewiththeambitionoflimitingwarmingto1.5°C.3.5FinancingtheTransitionTheeconomicandlegalchallengesrelatedtophasingoutfossilfuelproductionandtheobstaclesposedbytheconflictinUkrainetoimplementingambitiousenergypolicies(chapter4)exposedcriticalthreatstotheworld’scapacitytoorchestrateanorderlytransitiontonet-zeroemissionsby2050.Moreover,thestrainedfiscalcapacityofgovernmentsafterhistoricallysignificantspendingpackagesinresponsetotheCOVID-19pandemiccreatesanadditionalriskofunderinvestmentintheenergytransition.Thissectionwillprovideanassessmentofthefinancingneedsthatarenecessarytodelivertherenewableenergycapacityalignedwiththe1.5°Cgoal.TranslatingtherenewableenergycapacityconsistentwiththeselectedIPCC1.5°CscenariosintomonetarytermswillprovideapictureoftheinvestmentgapsbetweencurrentandplannedspendingandtheoneneededtoachieveParis-alignedinvestmentpathways.Theregionaldisaggregationofinvestmentneedswillalsoprovideanassessmentofwherethelargestneedsare.Deliveringtheresourceswhereitmattersmostwillrequirenotonlygovernmentsbutalsofinancialinstitutionsandcorporationstoredirecttheircapitalawayfromfossilfuelsandtowardrenewables.3.5.1InvestmentGapsBasedontheIPCCpathwaysassessedinthisreport,thissectionpresentstheglobalinvestmentneedsrequiredtodeliverthewindandsolarcapacityconsistentwithmeetingthetemperaturetargetoftheParisAgreement.Inordertoeffectivelydisplacefossilfuels,investmentinrenewableswillneedtoacceleraterapidlyduringthecourseofthisdecade.SelectedIPCC1.5°Cpathwaysshowthatbetweennowand2030,annualinvestmentinsolarenergyneedstoincrease3timesovercurrentlevelsandmorethan4.5timesforwind.Together,totalannualinvestmentsinbothwindandsolarshouldamounttoaboutUSD830billionby2030.Figure3.7showsthisevolutionofinvestmentneedsbymultiplyingtherequiredcapacityadditionsshowninthischapterbythecapitalcostforwindandsolarforecastedbyIRENAforthecomingdecade18(AsmelashandPrakash,2019;PrakashandAnuta,2019).Italsoillustratesthesizableinvestmentgapinannualinvestmentlevels,andshowsthatunlessothernewpoliciesareimplemented,investmentlevelsareonlyexpectedtodeliverUSD380billionofinvestmentinwindandsolarenergycombinedby2030.ThisleavesanannualinvestmentgapofmorethanUSD450billionby2030.18SeeappendixforfullmethodologyonthecalculationofinvestmentcostsbasedonIRENAcostcurvesIISD.org26NavigatingEnergyTransitionsFigure3.7WindandsolarinvestmentneedsandinvestmentgapsSelectedIPCC1.5°Cpathways2030investmentforecast1,000USDbillion/year800SolarInvestmentNewﬁeldsand600gapexploration400Investmentgapissmallerthaninvestmentforecastinnewoilandgasdevelopment200InvestmentforecastWindProducingﬁelds0202020252030Windand2015SolarOilandGasSources:Byersetal.(2022);RystadEnergy(2022).However,capitalandoperationalexpendituresfortheexplorationandextractionofoilandgasinnewfields—whichareincompatiblewithselectedIPCCandIEA1.5°Cpathways—areexpectedtoreachUSD570billionannuallyby2030(RystadEnergy,2022).Bythemselves,theseinvestmentswouldsufficetobridgetheentireinvestmentgapforwindandsolarin2030.Between2020and2030,investmentsinnewoilandgasfieldsareexpectedtocumulativelyreachmorethanUSD4.2trillion.Preventinginvestmentsinanyoilandgasfieldsbeyondthosealreadyunderdevelopmentisessentialtolimitingtemperatureriseto1.5°C,andcouldadditionallyfreeupasignificantsumofcapitalrequiredtofillthewindandsolarinvestmentgap.Inotherwords,theproblemisnotashortageofavailablecapital,butratherthatexistingenergyinvestmentisgoingtothewrongplaces.Theglobalinvestmentgapprovidesusefulguidancetoassessthescaleofmeasuresrequiredtomobilizeadequatemeanstoimplementtheenergytransition.However,theenablinginvestmentpoliciesnecessarytoenablemobilecapitalflowstowardrenewablesaregenerallyintertwinedinnationalandregionalcircumstances.Itisthereforeimportanttoalsoassesstheregionalinvestmentneedsandgapstofacilitatechannellingcapitaltowhereitismostuseful.Theregionaldisaggregationofglobalinvestmentneedsrevealscrucialinsightsintothestateoftheenergytransitionacrossdifferentpartsoftheworld.BasedonthemedianofselectedIPCC1.5°Cpathways,aregionalcomparativeassessmentoftheforecastedcumulativeand1.5°C-compatibleinvestmentsinwindandsolarbetween2022and2030isshowninFigure3.8.ThefigureillustratestherelativeinvestmentneedsandregionalinvestmentgapsforfiveIPCCregionsuntiltheendofthedecade.IISD.org27NavigatingEnergyTransitionsNotably,itshowsthatmorethantwothirdsofthetotalwindenergycumulativeinvestmentneedsarelocatedinAsianeconomies(excludingJapan);thisaccountsforjustover70%ofthetotalUSD385billioninvestmentgapforwindtechnologiesglobally.Accordingly,aboutUSD1.2trillionisrequiredjustfortheinstallationofwindfarmsinAsiaaloneby2030,basedonthe1.5°C-consistentIPCCpathwaysassessedinthisreport.However,thehighestincreasenecessarytofilltheregionalgapsissituatedinLatinAmericaandtheMiddleEastandNorthAfrica,with45%and55%investmentgrowthrespectivelyrequiredtodeploythewindcapacityalignedwith1.5°Cpathways.Intermsofinvestmentneedsforsolarcapacitydeployment,theOECDandEUcountrieshavethelargestgap,withmorethanUSD330billionofadditionalinvestmentneededby2030.However,thelargestshareoftotalinvestmentstillneedstooccurinAsiancountriesexceptJapan.WhilethecountriesoftheformerSovietUnionaccountforthesmallestshareoftotalrequiredinvestment,thisregionalsohasthemostgrowthtoachieveoverthecomingdecade,withinvestmentlevelsexpectedtobe10timesundertheestimatedneed.Figure3.8Regionalcumulativeinvestmentneedsforwindandsolar,2022–2030WINDAsiancountriesexceptJapanOECD90andEU(andEU1.5°Ccandidate)countriesconsistentLatinAmericancountriesForecastMiddleEastandAfricaFormerSovietUnion02004006008001,0001,2001,400USDbillionSOLAR1.5°CAsiancountriesconsistentexceptJapanForecastOECD90andEU(andEUcandidate)countriesLatinAmericancountriesMiddleEastandAfricaFormerSovietUnion2004006008001,0001,2001,4000USDbillionSource:Byersetal.(2022).IISD.org28NavigatingEnergyTransitionsGovernmentshaveacriticalroletoplayincreatinganenablingenvironmentthroughregulatoryframeworksandfiscalreformsforinvestmentstoflowawayfromfossilfuelsandtowardrenewables.Globally,fossilfuelsreceivesubsidiesofUSD370billionperyear,whilerenewableenergiesreceiveonlyUSD100billion(Bridleetal.,2019).Addressingtheseimbalanceswouldsignificantlychangetheeconomicandincentivestructuresintheenergysector.Moreover,mobilizingthevastamountsofcapitalpresentedinthischapterintotheenergytransitionwillrequireredirectinginvestmentsbythefinancialsector.TheIPCC’slatestassessmentreportobservedthatthe60largestbankshaveprovidedUSD3.8trilliontofossilfuelcompaniessince2016(IPCC,2022).Aschapter5willshow,financialinstitutions’net-zerostrategiesarecurrentlyinadequatetoeffectivelyalignwiththeParisAgreementtargets.Thiscanbepartlyattributedtocorporatenet-zerotargets’lackoftransparency,coverage,andinadequateuseofscenarios.IISD.org294.0TheWarinUkraineandtheGeopoliticsofEnergyTransitionsNavigatingEnergyTransitionsKeyInsights•ThewarinUkrainehascausedafurthertighteningofglobalgasmarkets,forcingEuropetoseeknewsourcesofgasprovision,bothintheformofliquefiednaturalgas(LNG)andgaspipelineexpansion.This“dashforgas”bearsmedium-tolong-termconsequences,bothforEurope’sambitiontoreachthe1.5°Cgoalandforothercountries,especiallydevelopingones,wheretheconstructionofnewgasinfrastructuresisbeingplanned.•FourmainalternativestogasinEuropehaveemergedinrecentdebates:significantdemandreductionandgassavings;fuelswitchtoalternativeenergycarriers;astronguptickininvestmentinrenewablesandtheenergytransition;andachangeintheEUgasmarketmodel,carryingpossibleeffectsforanemerginggreenhydrogenmarket.•Newrisksofderailingenergytransitionplansinmanypartsoftheworld,atleastintheshortterm,haveemergedinthecontextofthewar.However,inthelongterm,thecost-competitivenessofrenewablescontinuestoincrease.Keyconcernsrelatetosupplychaindisruptions,whichareputtinganunprecedentedstrainontherenewablesindustry,especiallyaspolicyinstrumentscontinuetofocusoncompressingprices.Thedesignofrenewablecompetitiveprocurementmechanismsandpowermarketshavenowresurfacedasever-pressingneeds.•Developingcountriesfacegreatchallengesinthecontextoftheglobalenergytransition.Totacklesuchchallenges,thesecountriesneedtoabandonfossilenergyandleapfrogtowardrenewableenergyinanequitableandjustmanner.Thiswouldnotonlybecompatiblewithtacklingtheongoingclimatecrisisbutalsounlockthecontinent’shumanandeconomicpotential.4.1TheWarinUkraineandtheDashforGas4.1.1CurrentDynamicsintheGlobalGasMarketSincethesecondhalfof2021,globalgasmarketshavebeentighteningduetothecombinationofastrongpost-COVID-19economicrecovery,extremeweatherevents,andunplannedsupplyoutages.Europe,havingfallenatthecentreoftheseconsiderablemarkettensions,hasenteredthe2021/22heatingseasonwithstorageinventorieswellbelowaverage,justasRussianpipelineflowshaveregisteredasharp25%year-on-yeardropinthelastquarterof2021(InternationalEnergyAgency[IEA],2022c).TheRussianFederation’sinvasionofUkraineinFebruary2022furtherexacerbatedsuchmarketuncertaintyandpricevolatility(seeFigure4.1).Inmanymarkets,highergaspriceshavehadsignificantknock-oneffectsonfertilizer,food,andelectricityprices.Inresponsetothewar,theUnitedStates,theEuropeanUnion,andothershaveimposedeconomicsanctionsagainsttheRussianFederationandhaveannouncedplanstophaseouttheirrelianceonRussianenergysupplies.IISD.org31NavigatingEnergyTransitionsFigure4.1Wholesalegaspricesinkeymarketssince2018Europe6050USD/MMBtu403020JapanUSA10201920202021202202018Notes:Pricesaremonthlyaveragewholesaleprices.GaspriceforEurope:TitleTransferFacility(TTF).GaspricefortheUnitedStates:spotpriceatHenryHub.GaspriceforJapan:LNGimportprice,cost,insurance,andfreight(CIF);recenttwomonths’averagesareestimates.Source:WorldBank(2022).CuttingenergytieswiththeRussianFederationwillbeparticularlyhardfortheEuropeanUnion.In2020,importsfromtheRussianFederationsatisfied41.1%ofthebloc’snaturalgasneeds,withsomememberstatessuchasGermanybeingevenmoredependent(Eurostat,2022).ThevolumeofimportedfossilgasfromtheRussianFederationin2021was155billioncubicmetres(bcm).TheREPowerEUPlan,adoptedonMay18,2022,aimstocurbimportsofRussiangasbyaroundtwothirdsbytheendof2022andendthemby2027.RecentsharpcutsinPJSCGazprom’spipelinegasdeliveriestotheEuropeanUnionhaveraisedalarmsaboutwintersuppliesandthehugeeconomicandhumancoststheymayhaveonindustryandhouseholds,especiallyfuel-poorones.Asaresultofthecuts,gaspriceshaveskyrocketedinEurope,leadingtodemanddestruction,fuelswitching(gas-to-coal),andrecordimportsofLNG.Inthefirsthalfof2022,EUimportsofLNGroseby28bcmcomparedwiththesameperiodayearearlier(Figure4.2).Therapiduntanglingofthedecades-oldnaturalgastradingrelationshipbetweentheRussianFederationandEuropewillimpactglobalsupplies.TheRussianFederationisstilltheworld’slargestgasexporter,(IEA,2022c)anditsscopetodivertnaturalgasexportstoothercountriesislimitedbyalackofinfrastructure.TheRussianFederationsuppliedjustover30bcmofgastoAsiain2021,comparedwith155bcmofgasexportstotheEuropeanUnion.ItwilltakeatleastadecadefortheRussianFederationtoscaleupitsgasexportstoAsiatomatchthepre-warexportlevelstoEurope(seeFigure4.3).Whetheritwillactuallyachievethatgoalisuncertainasitrequiresdevelopingnewinfrastructurewhileundersanctionsaswellasforgingsupplyagreementswithnewcustomers.IISD.org32NavigatingEnergyTransitionsFigure4.2EUnaturalgasimportsbysource10987Totalnatural6gasimportsBcm543LNGimports2ImportsfromNorway1Importsfrom0Russia2020ImportsfromAlgeriaImportsfromminorroutes20212022Notes:Gasimportsareweeklydata,fromJanuary1,2020toAugust14,2022.“Russia”,“Norway”,and“Algeria”onlydenotepipelineimports.“Minorroutes”includesimportsfromAzerbaijanandLibya.Source:McWilliams,SgaravattiandZachmann(2021).LittlesparecapacityexistsinothercountriestoproduceorexportnaturalgasorLNG,anddevelopingnewreservesandinfrastructureexperienceslongleadtimes.Itusuallytakes3–5yearstobuildnewLNGplantsaftertakingafinalinvestmentdecision(Rozansky,2022),whileitcantakeevenlongerfordevelopingnew(conventional)gasreserves(Darko,2014).IISD.org33NavigatingEnergyTransitionsFigure4.3EstimatedtimeneededfortheRussianFederationtoshiftitsgasexportstoAsia180LNG160GPipedgas140BBcm/year120APipelinesandLNGgasterminals100FGArcticT2&3EFArcticT180BERedirectingLNGDYamalLNG60ACSakhalin2BFareasternroute40DAPowerofSiberia20C202520300APotentialfutureexportstoAsiaCurrentexportsCurrenttotheEUexportstoAsiaSource:IEA(2022e).4.1.2TheDashforGasGovernmentreactionstotheRussianenergyshockof2022coulddeterminewhethertheysetthemselvesonapathtoward1.5°Corlockincarbon-intensiveinfrastructure.WhileEuropeangovernmentshavereassertedorevenacceleratedtheirdecarbonizationplansintheimmediatewakeoftheRussianinvasion,theworseningenergycrunchhascompelledthemtoresorttoemergencymeasuresthatfocusonaddressingshort-termenergysupplyneedsratherthanlong-termneedstoreduceemissions.ThisisespeciallyapparentinawaveofnewplanstoboostLNGimportcapacityinEurope,includingexpansionsofoperatingterminals(seeFigure4.4).InthefirstmonthssincetheRussianFederation’sinvasion,anestimated150bcm/yearofnewlyproposedorrevivedLNGimportprojectswasannounced(Aitken,LangenbrunnerandZimmerman,2022).ThisequatestoatotaloperationalcapacitytoreceiveandregasifyLNGat160bcm/yearasofApril2022(GasInfrastructureEurope,2022).Offshoreterminals,alsoknownasfloatingstorageandregasificationunits(FSRUs),havebecomepopularduetotheadvantagestheycarryintermsofpermitrequirements,leadtime,andcost.IISD.org34NavigatingEnergyTransitionsFigure4.4Europe’sLNGrushsinceFebruary2022GermanyItalyGreeceNetherlandsSpainEstoniaUKCroatia010203040506070Bcm/yearOffshoreOnshoreNotes:BreakdownofnewplannedLNGimportcapacityadditions,includingexpansionsofexistingterminals,sinceFebruary2022.OffshorecapacitycoversFSRUs,floatingstorageunitsandfloatingregasificationunits.Source:GlobalEnergyMonitor(2022a).TheseLNGplansoftenreceivegovernmentbacking.InGermany,whichcurrentlyhasnoLNGterminal,thefederalgovernmenthasadoptedtheLNGAccelerationActtofast-trackthedevelopmentofnewLNGinfrastructure(GermanFederalGovernment,2022).TheREPowerEUPlanentailsEUR10billionofinvestmentinnewgasinfrastructureby2030throughtheProjectsofCommonInterestframework(EuropeanCommission,2022a).TheLNGrushisnotlimitedtoEurope.Somecountrieswithlargegasreservesviewthecurrentgeopoliticalcrisisasanopportunitytoexpandtheirgasexportinfrastructure.IntheUnitedStates,forexample,theFederalEnergyRegulatoryCommissionhasalreadypickedupthepaceinapprovingprojectsrelatedtoLNG(Shaykevich,BernhardtandBird,2022).OthermajorLNGexporterssuchasQatarareconsideringboostingexportcapacity(FoxmanandStapczynski,2022).ThewarandhighgaspriceshavealsofuelledrenewedmomentumtodevelopandexpandLNGterminalsinCongo,Mauritania,Tanzania,andSenegal–countriesthatdonotcurrentlyexportLNG(IEA,2022b;Ng’wanakilalaandDausen,2021).Similarly,Canada,whichdoesnothaveLNGexportterminals,isindiscussionswithEuropeancountriesabouteventuallysupplyingthemwithLNGandisconsideringfast-trackingnewLNGprojects(Tuttle,2022).ThedashforgasisnotlimitedtoLNGbutalsoincludespipelines.InFebruary2022,Nigeria,Niger,andAlgeriasignedanagreementtorestartthedevelopmentofthepreviouslydormantTrans-Saharanpipeline.InearlyJune,theGovernmentofNigeriaapprovedtheplantobuildanoffshoregaspipelineviatheWestAfricancoasttoMorocco(AfricaNews,2022).Europe’spushtodiversifygassupplieshasrevivedplansfortheconstructionoftheEastMedIISD.org35NavigatingEnergyTransitionsgaspipeline,linkingtheEasternMediterraneantoGreeceandtherestofsouth-eastEurope(Michalopolous,2022).Therehasalsobeenaflurryofnewgasimportdeals.Morethan23milliontonnesperyearofLNGexportdealshavebeensignedinthefirsthalfof2022(WoodMackenzie,2022),withChinesebuyersdominatingthemarketonthedemandside(IEA,2022e,p.38)andUnitedStatescompaniesdominatingonthesupplyside(Paul,2022).Germanysignedalong-termimportcontractwithQatar,withfirstshipmentsestimatedfor2024(Delfs,NienaberandRatcliffe,2022).ItalianenergymajorEniS.p.A.hassignedimportdealswithAlgeria,Angola,theCongo,Egypt,Mozambique,andQatar(NewsWires,2022;Rossi,2022a),andPolishoilandgascompanyPGNiGhassignedanLNGdealwithU.S.energyfirmSempraEnergy(Blake,2022b).EUofficialshavesteppedinandconcludedahostofpoliticalagreementstoboostnon-Russiangasimports.OnMarch25,theBidenAdministrationannouncedthatitwouldensuredeliveriesofanadditional15bcmofLNGtotheEuropeanUnionin2022(WhiteHouse,2022a).Inmid-June,theEuropeanUnionsignedamemorandumofunderstandingwithEgyptandIsraeltoboostLNGsuppliestoEurope(Euractiv,2022b).OnJuly19,theEuropeanUnionalsosignedadealtodoublegasimportsfromAzerbaijanfrom2027(Euractiv,2022a).SomecountriescitetheEuropeangascrisisasanincentivetodeveloporgrantpermitstonewgasreserves,includingAlgeria,Norway(Adomaitis,2022),andAzerbaijan(Griffin,2022).Ingeneral,totalupstreamoilandgasinvestmentissettoreboundby10%in2022comparedwiththepreviousyear(IEA,2022f).The(announced)exitsfromtheRussianFederationofoilmajorssuchasBP,ExxonMobil,Shell,andEquinorcouldseethemrefocusondevelopingandpotentiallyfast-trackingtheirnaturalgasprojectsinAfrica,includingLNGprojects,whichwerepreviouslyshelved(Table4.1)(RystadEnergy,2022a).Table4.1MajorAfricannaturalgasprojectsthatmayaccelerateProjectCountryOperatorFinalStart-upResourcesInvestment(MMboe)Decision2,330RovumaLNGPhaseMozambiqueExxonMobil202420282,1801–MambaSouth1,245(Area4LNG–T1&T2)780BirAllahMauritaniaBP20302035500(x-Marsouin)&OrcaYakaar–TerangaLNGSenegalBP20302034TanzaniaLNGT1UnitedShellPlc20262031(Block1&4)RepublicofTanzaniaEthiopia-DjiboutiEthiopiaPolyGCL20302033LNGT1(Calub&HilalaPhase2)IISD.org36NavigatingEnergyTransitionsProjectCountryOperatorFinalStart-upResourcesAngolaEniInvestment2026(MMboe)Quiluma/MaboqueiroDecision(NorthernGasMozambiqueEni425Complex)EthiopiaPolyGCL2023CoralFLNGPhase2NigeriaNPDC20282030400Nigeria20252029355DjiboutiFLNGEroton(Calub&HilalaNigeria2025–20282028–335Phase1)EquatorialShellPlcGuineaLukoil2030OML13(NLNGNigeriaSevenPlus)AlgeriaShellPlc20242025330NigeriaOML18Neptune20232027265RedevelopmentEquatorialEnergy(NLNGSevenPlus)GuineaUTM20242028260OffshoreHI-1Ltd.20232026140MarathonFortunaFLNGOil20232026135Uzu(NLNGSeven20242027135Plus)2025–20282027–110TouatPhase2(SkikdaLNG)2030UTMOffshoreFLNGEquatorialGuineaLNGT1Note:conservativeestimates.Source:RystadEnergy(2022b).4.1.3TheGeopoliticalandClimateConsequencesofEurope’sDashforGasEurope’shuntforenergycarriesprofoundimplicationsforgeopoliticalallegiances,energysecurityindevelopingandemergingeconomies,aswellastheworld’sabilitytomeettheParisAgreement’sclimategoals.OneoftheconsequencesofthewaristherenewedgeopoliticalimportanceoftheMediterraneanandAfricanregions,nowperceivedascentraltotheEU’senergysecurity.Europe’shuntforgassuppliescouldsquanderitspreviouseffortstofostergreenpartnershipswithitssouthernneighbours.ItcouldalsoleadtonewequilibriawithintheEuropeanUnionassouthernmembercountriessuchasItalyandSpaintrytopositionthemselvesasnewgashubs,shiftingthebalanceofEurope’senergysecurityfromtheEastIISD.org37NavigatingEnergyTransitionstotheSouth.Atthesametime,weseecloserfossilfuel-basedtiesbetweenEuropeandtheUnitedStates.SinceJune2022,theUnitedStateshasbeensendingmoregastoEuropethanRussia(Shiryaevskaya,2022a).Europe’sgasdiversificationeffortsdonoteliminatesecurityofsupplyrisks.Inlate2021,forinstance,theMaghreb–EuropegaspipelinewasshutdownduetoadiplomaticdisputebetweenAlgeriaandMorocco.Afewmonthslater,AlgeriathreatenedtocutgassuppliestoSpainifthelatterre-exportedthegastoMorocco.InSeptember2022,fightingeruptedbetweenAzerbaijanandArmenia,complicatingtheEU’sambitionstoincreaseitsimportsofAzerbaijanigas.SeveralcurrentorprospectivegasexportersinAfricaarestrugglingwithdomesticstability,notablyMozambiquewhereoilmajorTotalEnergiesSEhadtowithdrawitsstafffromanLNGprojectin2021duetothedeterioratingsecuritysituation.AnotherclearsideeffectoftheEU’sdashforgasandthewarinUkraineisthatemerginganddevelopingcountriesareincreasinglybeingpricedoutoftheLNGmarket.Sincethelastquarterof2021,andcontinuingin2022,buyersinemergingnationssuchasPakistan,Bangladesh,Thailand,andArgentinahavestruggledtoattractLNGimports(Stapczynski,2022;StapczynskiandKoh,2022).InJuly2022,aUSD1billionLNGpurchasetenderfromPakistandidnotreceiveasingleoffer(Stapczynski,2022).WhilesomedevelopingcountriessuchasBangladeshhaveresortedtocuttingofftheirelectricitysupplyforpartsoftheday,otherslikeIndiahaveresortedtousingmorecoal.Insomecases,LNGcargoesthatwereduetodevelopingcountrieshavebeendivertedsoastoprofitfromsurgingpricesinEurope,evenifsuppliersareforcedtopaypenaltiesundercontractswithdevelopingnations(ShahandHirtenstein,2022).FSRUsthatwererecentlycharteredbySenegal(sinceMay2021)andGhana(sinceJanuary2021)toimportLNGhaveyettoreceivetheirfirstcargoes.SimilarLNGimportprojectsplannedinCôted’IvoireandBeninhavebeenputonhold(IEA,2022e,p.48).InAsia,gaswaslongviewedasabridgefuelbetweencoalandrenewables,butduetothecurrentpriceshock,thatbridgemaybeshorterandnarrowerthanoriginallythought.TheprojectpipelineshowsthatdemandforLNGfromemergingeconomiesinAsiaissettoincreasebyaround22bcm,includingfromnewentrantsintotheLNGbusinesssuchasVietnamandthePhilippines,wherenewLNGterminalsaresettocomeonlinein2022(Reynolds,2022).Asneitherofthemhassignedlong-termcontracts,theywillneedtocompetewithEuropeandnorth-eastAsiaforlimitedspotcargoesintheyearsahead(IEA,2022e,p.43).EventhoughtheoutlookforLNGdemandmighthaveshiftedsinceFebruary2022,countriesthatplantobuildnewLNGterminalsfaceseveralrisks,includingdelays,costoverruns,outages,andamorecompetitiveandpotentiallyshrinkingmarketinthemediumterm(PlanteandNace,2021).Inallscenariosanalyzedinchapter3ofthisreport,gasproductionneedstodecreasesharplybetween2025and2050(by34%accordingtotheselectedIntergovernmentalPanelonClimateChange[IPCC]1.5°Cpathwaysassessedinthisreport;by85%accordingtotheBloombergNewEnergyFinancenet-zeroscenario;andby100%accordingtotheOneEarthClimateModelscenario).ThisequallyholdsforLNGtrade.Fortheworldtohavea50%chanceoflimitingglobalwarmingto1.5°C(Figure4.5)(IEA,2021a),IEA’sNetZeroEmissionsby2050(NZE)scenarioprojectsthatthereneedstobea60%declineinnaturalgastradedasLNGbetween2025and2050,aswellasa65%declineintradebypipeline.IISD.org38NavigatingEnergyTransitionsFigure4.5LNGexports(billioncubicmetres)intheIEA’snet-zeroscenario500400OtherAfricaLNGexports(Bcm)300MiddleEast200SoutheastAsia100Australia0Russia1971NorthAmerica19801990200020102020203020402050Source:IEA(2021a).NewfossilgasinfrastructuresuchasLNGterminalsandpipelinescanconsiderablyimpactclimategoals.Burningnaturalgaseventuallygeneratescarbondioxide,butlevelsofmethaneleakagealongtheentirenaturalgasvaluechainhavelongbeenunderestimated.Moreover,oncecapitalislockedin,theresultingemissionswillbelockedinaswell,ortheprojectswillbecomestrandedassets(Kemfertetal.,2022).AnexceptionmightbeFSRUs,whichhavebecomeverypopularinnorth-westernEuropebecauseoftheconsiderablyshorterleadtimescomparedwithonshoreterminals.Theseunitshavefewerlock-inrisksastheycanbecharteredforshorterperiods.However,thereareonly5–10FSRUsavailabletoEuropeintheshortterm(Dempsey,2022;EuropeanCommission,2022b).Policy-makersclaimthatnewnaturalgasinfrastructurewillbeabletohandlegreenfuelssuchashydrogenorderivatives(e.g.,ammonia)inthefuture(WhiteHouse,2022b).Yet,whenitcomestonewonshoreLNGterminals,majorquestionsremainaboutthetechnicalfeasibilityandbusinesscaseofdoingso(except,ofcourse,importsofsyntheticmethane)(Shiryaevskaya,2022b).Naturalgaspipelinescantheoreticallyberepurposedtohydrogeniftheyarebuiltusingsteelthathasalowsusceptibilitytohydrogenembrittlement.However,atthisstage,thecostefficiencyoftransportinghydrogenthroughpipelines,especiallyoverlongdistances,remainsunclear.Figure4.6showsEuropeangasconsumptioninthemedianIPCC1.5°CpathwayandintheIEA’sNZEscenario.Theselinesaresuperimposedonshadedareasrepresentingthevarioussourcesofgassupply,bothEuropeanproductionandimportinfrastructure.AssumingEuropereducesgasdemandinlinewith1.5°Cpathways,theexistingsupplyissufficientwithoutRussianimports,exceptforashort-termpotentialsupplycrunchin2022/23.ResearchbyArtelys(2022)andBrown(2022)hasshownthatEuropecanmeetitsenergyneedswhilereducingitsdependenceonRussiansupplythroughacceleratingrenewableIISD.org39NavigatingEnergyTransitionsenergy,energyefficiency,andelectrification,withoutnewgasinfrastructure.OuranalysisaddsthatnotonlycanEuropedoso,butalsoitmustdosotoalignwith1.5°Cpathways.Indeed,aswithglobaloilandgasproduction,buildingadditionalsupplywouldleadeithertoEuropeexceeding1.5°Calignedgasconsumptionortostrandedassets.Furthermore,additionalproductioncommonlytakes2–3yearsfromfinalinvestmentdecision,and5–10yearsfromtheawardofnewlicences,whileconstructionofnewpipelinesorLNGterminalstakesseveralyearsevenafterpermitsareawarded(whichitselfcanalsotakeyears).Therefore,neitheradditionalinfrastructurenorproductioncanaddressthenear-termsupplycrunch,asnomeaningfulinfrastructurecanbebuiltinthattime,makingnewproductionandinfrastructureunsuitablesolutions.Figure4.6Europegasconsumptionandsupply,bcm/yearEuropegasconsumption(Bcm/year)800Europe1.5°C700alignedgas600consumption500400Russiagassupply300200LNG100(80%utilization)0MENApipelines2020(90%utilization)AzerbaijanexistingﬁeldsEuropeexistingﬁelds202520302035Note:MENA:MiddleEastandNorthAfricaSource:Author’scalculations,basedonBP(2022b);Byersetal.(2022);GlobalEnergyMonitor(2022a);RystadEnergy(2022b);EuropeanCommission(2022c).However,doesthecurrentinfrastructureexistintherightplacesinEurope?Thisisstillanopenquestionandonethatwouldrequiremorein-depthinvestigation,whichisoutsideofthescopeofthisreport.4.2AlternativestoGasinEuropeInpolicydebates,fourelementsemergeascentralregardingalternativestogasinEurope:significantdemandreductionandgassavings;fuelswitchtoalternativeenergycarriers;astronguptickininvestmentinrenewablesandtheenergytransition;andachangeintheEUgasmarketmodel,withpossibleeffectsforanemerginggreenhydrogenmarket.IISD.org40NavigatingEnergyTransitions4.2.1GasSavingsDemandreductionshavebecomecentralinEUpolicydebatestoweatherpotentialgasshortagesinthewinterof2022–23,andtoavoidrationing.TheEuropeanCommissionestimatesthatEuropewillneedtosavesome45bcmofgasovertheheatingperiodoffallandwinter2022–23incaseofaRussiansupplycut.Tothatend,andbasedonaEuropeanCommissionproposal,theCouncilagreedinJuly2022onagas-savingtargetof15%,effectivebetweenAugust1,2022andMarch31,2023.Demandreductionisvoluntary,andcountriesarefreetochoosetheirrespectivepolicyinstruments.However,shouldcountriesmisstheirtargets–thatis,intheeventofa“Unionalert”(CounciloftheEuropeanUnion,2022)–theEuropeanCommissioncantakecoercivemeasures.Gas-savingneedswillbeunevenacrosstheEuropeanUnion.Accordingtoestimates,Germany’sreductionneedsmaybeupto30%comparedwithitsconsumptioninpreviousyears,whereastheNetherlandscouldcontinuewithoutsavings.CountriessuchasHungaryorBulgariamayevenfacesavingneedsofupto50%(McWilliamsandZachmann,2022a).Governmentsarebyandlargeheedingthecall,butmanyaremovingslowly,someareresisting,andothers,suchasHungaryorSpain,haveevenrejectedtheEU’sgas-savingplan.Differencesinthenationalpolicymeasuresthatareinplacereflecttherealitiesofacountry’srespectiveenergymixandenergysystems,butessentiallycentrearoundencouraginghouseholds,businesses,andindustrytoenhancesavingsandconservation.Forexample,FranceandSpainreportedlyrequirestorestocloseentrydoorstoavoidwastingenergyinairconditioningandheating.Effortsalsocentreonenhancingshort-termsavingsinheating,withdiscussionsinGermanyfocusingonchangesinlandlordandtenantlaw.Loweringtheindoortemperaturemay,infact,yieldannualenergysavingsestimatedat10bcmperdegreeacrossEurope(IEA,2022a),equivalenttoonefifteenthofthe2021Russiangasimports.Becausemuchofthehousehold-leveleffortswillneedtoremainvoluntary,observershavepointedtotheneedtousingsoftpolicytools,suchasnudging,toachievegas-savingtargets(Neuhoffetal.,2022).Mid-tolong-termeffortsincludesupportingenergyefficiencymeasuresinthebuildingstock,installingheatpumps,andfosteringdistrictheatingsystemslessdependentonnaturalgas.Forexample,theGovernmentofGermanysetthetargetof500,000newheatpumpsperyearfrom2024onward,atwhichpointthenewheatingsystemsmustrelyonatleast65%ofrenewables.Infact,salesofheatpumpswentupby25%in2022,signallinganincreaseintheappealofnon-gasheatinginfrastructureinhousing.Asfarasindustryisconcerned,Europeancorporationshadalreadyreactedtoahigh-priceenvironmentpriortothewarinUkraine,andreduceddemandbyapproximately7%(McWilliamsandZachmann,2022b).ThepricesofgasfuturesattheDutchvirtualtradingpointTTFsuggestthatthetightmarketenvironmentwillcontinuewellinto2023,arguablyfurtherincentivizingindustry-levelefficiencymeasuresandconservation/savings.Thereisroomforadditionalpolicymeasures,suchastheauctioningsystemproposedinGermany(DezemandWilkes,2022).However,therealsoarelimitsastohowmuchcompaniescansave.Unsustainablepricelevelsmayeventuallymeaneconomiccontractionandclosureofindustrialoperation.IISD.org41NavigatingEnergyTransitionsFigure4.7TTFpricedevelopment,NaturalGasForwardDayAhead,USDpermetricmillionBritishthermalunit6050USD/MMBtu403020100January2021July2021January2022July2022July2020Source:Nasdaq(2022).4.2.2FuelSwitchtoAlternativeEnergySourcesandCarriersAlternativestogasinEuropeincludeaswitchtootherfuels,bothfossilandrenewable.Inreactiontotighteninggasmarketsandfacingapotentialsupplyshortage,Europeanindustryhassoughttoreplacenaturalgaswithcoaloroilinindustrialprocesses.Forexample,thechemicalsectorhasinpartturnedtosteamgeneratorsrunningonoil,ashavepartsoftheglassindustry(Blas,2022).Coalregainedprominenceinpowergeneration,thankstoitsflexibilityinproduction,whichholdsparticularimportanceincountrieswithhighersharesof(morevolatile)renewableelectricity.Discussionsalsoemergedaroundprolongingrunningplants(Germany)orbuildingnewones(Poland)toreplacegasinthepowersector.Thereare,however,limitstofuelswitching.Someindustrialprocesses–notablyheating–arenotasefficientwhencomparedwithalternativefuelsorcarrierssuchaselectricity.Moreover,bothoilandcoalmarketsarestrainedaswell,andwhentheWesternoilembargoagainsttheRussianFederationisfullyimplemented,crudepricesmaysurgeevenfurther.Nuclearpowerhardlypresentsashort-tomedium-termsolution,givenitsconstructiontimesof10ormoreyears,inadditiontothedifficultiesofdeliveryitfaces(halfofFrance’snuclearreactorsweredownin2022).Climatechangeplacesadditionallimitsonalternativefuels.Duringthesummerof2022,exceptionaldroughtforcedanuclearpowerplantinFrancetohaltitsoperations,andinItalyaswellasotherregions,hydropowerprovedtobevulnerabletoclimateimpact.Finally,afuelswitchtofossilenergysourcesbearstheriskofdelayingthegreenindustrialtransformation.Inthiscontext,hydrogenhasemergedasapossiblesolutionforEuropeanindustry,particularlywhenitcomestoprocessheat.TheREPowerEUPlansinglesoutgreenhydrogenasameanstoreplaceRussiangas(EuropeanCommission,2022b).Indeed,allleadingEuropeaneconomieshaveputinplacehydrogenstrategies,althoughwithvaryingcharacteristicsandtargets(LambertandSchulte,2021),ashastheEuropeanUnion.Yet,itisfairtoassumethathome-growngreenhydrogenwillnotsufficetocovertheEU’sneeds,IISD.org42NavigatingEnergyTransitionsand10milliontonnesofrenewablehydrogenimportsmayberequiredby2030accordingtoREPowerEU.Greenhydrogenpartnershipsaretakingshape,suchasGermany’sAugust2022agreementwithCanada,whichisexpectedtoyield500,000tonnesofgreenammoniaby2025(Parkes,2022).TheEuropeanUnionisalsoenhancingitscooperationwithNorthAfricancountries,suchasMoroccoandEgypt,withaviewtocreatingaMediterraneangreenhydrogenpartnership.However,thequestionremainsopenastowhethersufficientpartnershipswillbeinplaceandoperationaltocoveradditionaldemandaspartofatimelyfuelswitch,aswellasthedegreetowhichgreenhydrogencandecarbonizeindustrialprocessesintheshorttermandatscale.Arguably,greenhydrogenwillnotpresentasolutiontothepresentcrisis,asthevolumesneededwillnotcomethroughwithinthenecessarytimeframe.4.2.3FosteringInvestmentinRenewablesandtheEnergyTransitionInthewakeoftheRussianFederation’sinvasionofUkraine,EuropeangovernmentsaswellastheEuropeanCommissionwerequicktostresstheneedtorampuprenewableenergycapacitytoreplacegasimportsfromRussia,andfossilfuelsmoregenerally.Thoughtheimpactofcurrenteffortswillnotnecessarilybeimmediate(andaremorelikelytobemedium-tolong-term),thewarinUkraineindicatesthatthereisthepotentialtosignificantlyacceleratetheEU’senergytransition.ThisisafunctionofnationalandEU-levelpolicyeffortstofosterrenewableenergyprojects,infrastructure,andrelatedinvestment.Tothatend,Europeangovernmentshavemobilizedsignificantamountsofpublicfunds.Germany,forexample,pledgedmorethanEUR200billionby2026forsustainableindustrialtransformation(Reuters,2022c),whileFranceannouncedincrementalspendingofEUR6billiontothesameend(Euractiv,2022a),inadditiontoanearlierEUR30billionofCOVID-19-relatedgreenrecoverymeasures.OtherEuropeancountriesalsoearmarkedsignificantpublicfunds.Thesenational-levelspendingeffortscomeinadditiontovariousbillion-euro-fundinglinessetupattheEuropeanlevel,madeavailableaspartoftheEuropeanGreenDealandtheEU’sGlobalGatewayinitiative.Notably,aEUR300billioninvestmentplaninrenewablesanddecarbonizationhasbeenannouncedaspartofREPowerEU,whichalsoentailsasolarenergystrategyaimedatboostinginstalledcapacity.However,notallofthesepledgesmaymaterialize,anditremainsunclearwhethergrandpolicyplanswillleadtorenewableenergyinfrastructurewithinareasonabletimeframe.Supplychainbottlenecksmayimpederapidrenewableenergyprojectimplementationanddeployment,andthoughtheREPowerEUPlanentailsapermittinginitiative,notoriouslyslowprocesses(particularlyinGermanybutalsootherEuropeancountries)mustbesignificantlyaccelerated.Further,notallthesepledgesrepresentnewmoney,butratherreshuffledbudgetpositions.Someofthenational-levelfundsmayevenbedivertedtobuffersocio-economichardship,potentiallyintheformoftransferstohouseholdsandcompaniesamidsoaringenergybills,thusavoidinganychangestotheEuropeanenergysystem.Nevertheless,therearedeterminedpolicyeffortsthatpresentlycouplewithsignificantpublicfunds,whichmayeventuallyenablethestructuralbreaksneededtoputtheEuropeanenergysystemontoasustainablepathway.ThesemeasureshaveemergedagainstthebackdropofIISD.org43NavigatingEnergyTransitionstheEUFitfor55(FF55)packageandtheEUGreenDeal(seebox1).Someobservershavearguedthatthepresentcrisisandtheensuingpolicymeasuresmayhelpachievethedecarbonizationtargetsaheadofschedule.Section4.3explorestheimpactsofthecurrentgeopoliticalsituationanditsprospectsforrenewablesdeploymentindepth.Box1.EUFF55packageandEuropeanGreenDealTheFF55packageisacomprehensivesetofpolicymeasuresaimedatcuttingEuropeanCO2emissionsbyatleast55%by2030.Itincludes,amongothermeasures,arevisionoftheRenewableEnergyDirectivetoincreasetheshareofrenewablesintheEUenergymixtoatleast40%;anenvisagedrevisionoftheEnergyEfficiencyDirectivetoincreasetheefficiencytargetsto36%and39%forfinalandprimaryenergyconsumption,respectively;andaJustTransitionFundaimedatalleviatingsocialhardship.Forsomeindustriesandsectors,suchastheautomotivesector,emissionswillneedtoachievea100%reductionby2035.TheFF55packageispartoftheEuropeanGreenDeal,whichsetsabindingtargetofclimateneutralityby2050.Approvedin2020,theEUGreenDealcomprisesasetofinitiativesaimedatfosteringaresource-efficient,circulareconomy,acleanenergysector,andasustainableapproachtofinance,mobility,andagriculture.Tothatend,theEUGreenDealaimstoachievethecirculareconomyanddecarbonizetheEuropeaneconomyintoasustainablemodelbasedonresource-efficientproduction.4.2.4ALoomingChangeintheEUGasMarketModel?ThewarinUkrainehastriggereddebatesaroundthedesignoftheEUgasmarket,andwhetheritwillstandthetestofthenewgeopoliticalrealities.Takingaleaffromtheliberalplaybook,theEUgassectorhadbeenanintegratedand(largely)privatizedmarketsincethelate1990s(GoldthauandSitter,2015).Thebasicideaofusingmarketcompetitionforenhancingconsumerbenefitworkedwellinamarketwithampleglobalsupply.Oncemarketstartedtightening,itcastconcernsovertheEUgasmarketamountingtoafair-weatherphenomenon,andwhetheritwarrantedarethink.Indeed,variouspolicymeasuresadoptedin2022alreadyseektocorrectsomeoftheincentiveproblemsentailedintheEUgasmarketmodel.Forexample,mandatoryEU-widerefillingtargets19havebecomebetteratensuringsufficientgasstorageregardlessofothermarketcircumstances(EuropeanParliamentandCounciloftheEuropeanUnion,2022).Therealsoaremovestowardamuchstrongerpublicownershipofenergyinfrastructure.GermanyhassteppedinandseizedcontrolofthenationalretailsubsidiaryofPJSCGazprom,theRussiannaturalgassupplier,andbyextensionofstoragefacilities(Moussu,2022).TheNetherlandsandtheUnitedKingdomareconsideringsimilarsteps(Cyrus,2022;Tan,2022).Whenitcomestogaspurchase,Statesarealsoresumingastrongerrole.Forexample,Berlin19MandatoryEU-widestoragerefillingtargetshavebeensetto85%byOctober1,2022and95%byNovember1,2022.IISD.org44NavigatingEnergyTransitionsmandatedtheGermanTradingHubEurope–anentitysetupbynetworkcompanies–toprocurearoundEUR1.5billionworthofLNGfortheGermanmarket(Reuters,2022b).Inaddition,stepshavebeentakentofacilitatejointgaspurchaseto“securetheEU'senergysupplyataffordableprices”(EuropeanCommission,2022d).Tothatend,EuropeanleadersestablishedtheEUEnergyPurchasePlatform.Currentlyavoluntarymechanism,theplatformtiesintotheEuropeanCommission’sREPowerEUPlan,seekingtogive“supporttocoordinatedgasrefillingoperations,forexamplethroughjointprocurement”(EuropeanCommission,2022f).Aprecedentfortheseeffortscanbefoundintheearly2000s,whentheEuropeanCommissionexploredtheoptionofestablishingajointpurchasingvehicleforCaspiangassupplies(IHSCambridgeEnergyResearchAssociates,2010),buttheplanfalteredduetoalackofpoliticalsupportandpracticalimpediments.ThedebateonreformingtheEUgasmarketmodelmustalsobeseeninthecontextofsoaringelectricityprices,whichprompteddiscussionsonrevisitingthemeritorderprincipleinpowermarketsandwouldeffectivelyresultindelinkingelectricitypricesfromgasprices.ItremainstobeseenwhetheralltheabovemeasuresaremerereactionstothetightgasmarketsituationcoupledwiththeeconomicfalloutoftheRussianFederation’sinvasionofUkraine,orwhethertheyamounttoaveritableseachangeinEUgasmarketdesign.However,itcanbearguedthattheEU’sapproachtonaturalgashassteppedoverfromaliberaltoageo-economicreadingofsupplymatters(GoldthauandSitter,2020).4.3ImplicationsforRenewablesoftheWarinUkraineThewarinUkraineandthesubsequentsanctionsandgassituationthreatentoderailenergytransitionplansinmanypartsoftheworld,atleastintheshortterm.Ontheonehand,fossilfuelinvestmentshavebecomeattractiveagain,followingseveralyearsoflowoilandgasprices,andarebeingdirectedtowardnewcountriestofilltheshortageresultingfromthesanctionsandconsequentgasshortages.Ontheotherhand,planstophaseoutorphasedowncoalhavebeendelayedtofilltheenergygapintheshortterm.However,thelong-termimpactsfavouranenergytransitionbasedonrenewableenergy.Thiscrisis,likethepastoilcrisesin1973and1979,hasbroughtenergysecurityandindependencetotheforefrontofpolicypriorities,alongwiththeurgencyoftacklingpollutionandclimatechange,aswellaswaterandfoodsecurity.Thedebatenolongercentresonwhetherrenewableenergycanfulfillthosepolicyobjectives,especiallyasthecost-competitivenessofrenewableshassteadilyincreasedcomparedwithfossilfuels,andmoresowiththerecentsurgeinprices.Instead,asthecost-competitivenessofrenewablescontinuestoincrease,thedebatehasshiftedtowardmountingconcernsthathighercostsandsupplychaindisruptionsareplacinganunprecedentedstrainontheindustry,especiallyaspolicyinstrumentscontinuetofocusonconstrictingprices.Asthecrisislooms,someofthemostpressingstructuralchangesneeded,suchasthoserelatedtothedesignofrenewablecompetitiveprocurementmechanismsandpowermarkets,haveresurfaced.IISD.org45NavigatingEnergyTransitions4.3.1EnergySecurityandIndependenceattheForefrontofPolicyPrioritiesFollowingthesanctionsandconsequentincreaseinglobalfossilfuelprices,somejurisdictionsmovedtoincreasetheirenergyindependenceandsecurityalongsidetheirrelianceonrenewables.Forinstance,theEuropeanCommissionannouncedtheREPowerEUPlaninMarch,inwhichtheysetthetargetofreducinggasimportsfromRussiabytwothirdsbytheendof2022,andentirelyby2030.Thestrategyfocusesonthreekeytopicareas:securingnon-Russiansuppliersofoilandgas,improvingenergyefficiency,andexpandingtheuseofrenewableenergy.TheEU’s2030targetforrenewableswouldincreasefromthecurrent40%to45%intheenergymix.TheREPowerEUPlanwouldbringthetotalrenewableenergygenerationcapacityto1,236gigawatts(GW)by2030(including600GWofsolarphotovoltaics[PV]and510GWofwind),15%higherthanthe1,067GWenvisagedunderFF55(EuropeanCommission,2022a).Germanyhasalsoincreaseditsambition,aimingtoaccelerateitsshifttorenewablepowerwhileseekinga100%renewableelectricitysupplyby2035.Itistargeting80%renewableshareinthepowermixby2030,includingmorethantriplingsolarenergycapacityto200GW(upfrom58GWin2021),doublingonshorewindenergycapacityto110GW(from56GWin2021),andmorethantriplingoffshorewindenergycapacityto30GW(fromaround8GWin2021)(RenewableEnergyPolicyNetworkforthe21stCentury,2022).Suchambitionsareincreasinglyachievablewiththecost-competitivenessofrenewables,especiallycomparedwithfossilfuels.4.3.2IncreasedCost-competitivenessofRenewablesComparedtoFossilFuelsRenewableswerealreadymorecost-competitivecomparedtofossilfuelspriortothe2021increaseinfossilfuelprices.Followingthesanctionsimposedin2022,fossilfuelpricesincreasedfurther,makingrenewablesmorecompetitive,evenwiththeslightincreaseincostsobservedinthepastyear,asdiscussedfurtherinthissection.Theglobalweightedaveragecostofnewlycommissionedrenewableenergyprojectscontinueditsdownwardtrendin2021(Figure4.8),despiterisingmaterialsandequipmentcosts,primarilyduetothedelayintheseextracostsbeingpassedontototalinstallationcosts.Inmanycases,theinstalledcostsofprojectscompletedin2021werebasedonpricesthathadbeenlockedinundercontractssignedinpreviousyears.Assuch,theimpactofincreasingcostsandpricesisexpectedtobefeltmorestronglyin2022andbeyond.AsshowninFigure4.8,between2010and2021,theglobalweightedaveragelevelizedcostofelectricity(LCOE),anindicatorofthecostofproducingelectricityoverapowerplant’slifetime,declinedby88%fornewlycommissionedutility-scalesolarPVprojects,andby68%and60%foronshoreandoffshorewind,respectively.IISD.org46NavigatingEnergyTransitionsFigure4.8Globalweightedaveragetotalinstalledcost,capacityfactor,andLCOEofnewlycommissionedutility-scalesolarPV,onshoreandoffshorewind,2010–2021TotalinstalledcostCapacityfactorLevelizedcostofelectricity2021USD/kW%2021USD/kW6,000500.45400.405,000350.35300.304,000250.25200.203,000150.15Fossilfuel100.10costrange0.052,0005001,0002010201002015202020152020201520202010SolarphotovoltaicOffshorewindOnshorewindSource:InternationalRenewableEnergyAgency(2022a).Meanwhile,wholesalepricesforgas(andelectricity)increasedsubstantiallyinsomepartsoftheworldasCOVID-19lockdownsandrestrictionswereeasinganddemandwassurging.IRENAestimatesthatwiththeriseingaspricesin2021,thenewrenewablecapacityaddedin2021hasthepotentialtoreduceelectricitygenerationcostsin2022byatleastUSD55billion(IRENA,2022c).Cost-competitivenessIncreasedFurtherin2022,MakingtheCaseforRenewablesStrongerThanEverFollowingthesanctionsandgasshortages,energypricescontinuedtheirupwardtrend.Asfossilfuelsbecomemoreexpensivein2022,theimpactonrenewablesbecomestwofold.First,renewableshavebecomeevenmoreattractiveasamoreaffordableandreliablesourceofenergy.Second,thereisanopportunitytochannelwindfallprofitsandadditionalrevenuesmadeinthefossilfuelssectortowardinvestmentsinrenewables.InAugust,theUnitedNationsSecretary-GeneralAntónioGuterresurgedgovernmentstoimplementwindfallleviesandtoutilisetherevenuestosupportvulnerablepeopleandfundtheenergytransition(Taylor,2022).TheUnitedKingdom’sEnergyProfitsLevyappliesa25%taxtoprofitsthatcompaniesmakefromextractingBritishoilandgas.ItisexpectedtoraisearoundGBP5billioninitsfirstyearandincreaseinvestmentsintheenergysector,butitremainsunclearhowthesetaxeswillsupporttheenergytransition(BBCNews,2022).IntheMiddleEastandNorthAfrica,highoilandgaspricesaredrivingenergyinvestments.TheinitiallyforecastedUSD805billionworthofinvestmentsinrenewableenergyandESG-IISD.org47NavigatingEnergyTransitionsrelated20projectsareprojectedtobeexceeded.Theregionisexpectedtoinstallaround20GWofsolarpoweroverthenext5years(EnergyConnects,2022).Moreover,higherpetrolcostsarepushingconsumerstowardelectricvehiclesincountrieswhereelectricalvehiclesandtherelatedinfrastructurearealreadyavailable(andaffordable)suchastheUnitedArabEmirates,amajoroil-producingcountry.Althoughtheincreasingcost-competitivenessofrenewableshashelpedadvancethecaseforrenewablesandotherenergytransition-relatedtechnologies,thereisariskofbackfiring.Atatimewheninvestmentsinfossilfuelsaremarkedbyhighreturns,investmentsinrenewableenergytechnologiesarebecominglessattractive,andconcernsareemergingabouttheprofitabilityoftheindustryinsomemarkets.4.3.3EmergingConcernsRegardingtheProfitabilityoftheWindandSolarIndustriesinSomeMarketsAlthoughrenewableenergyshowedresilienceduringthemarketdisruptionof2020and2021,dominatingthecapacitiesaddedgloballyineachyear(Figure4.9),theindustryisfacingthemanychallengesbroughtonbypandemic-drivensupplychaindisruptions,aswellasthespikeinenergyandcommoditypricesexperiencedinthepastcoupleofyears.ThewarinUkrainehasonlyexacerbatedthis.Morethanever,amidthehighcommodityandenergypricesthatareincreasingthecostofrenewables,whilethefossilfuelsectorbenefitsfromwindfallprofits,therenewableenergyindustryisvoicingitsconcernsregardingthecontinuedfocusofpolicyonreducingprices.Thiscontinuestobeusedasthemainmetrictomeasurethesuccessofrenewableenergyprocurementprocessessuchasauctions,whichareincreasinglybeingawardedatanegativeprice.Atthesametime,aswiththeCOVID-19crisis,thelimitationsofthecurrentpowermarketdesignhaveresurfacedamidhighenergyprices.20Environmental,social,andcorporategovernance.IISD.org48NavigatingEnergyTransitionsFigure4.9Renewableshareofannualpowercapacityexpansion300Generatingcapacity(GW)25020015010050020032005200720092011201320152017201920212001Increaseinnon-renewablesIncreaseinrenewablesRenewableshareofnewlyaddedcapacity(%)10080604020020032005200720092011201320152017201920212001Source:IRENA(2022b).CostsHaveIncreasedbutCompetitionContinuestoPressforLowPricesPVandwindsupplychainshavesuffereddelaysinshippinganddeliveryofkeycomponents,aswellasrisingpricesforenergy,shipping,rawmaterial,andlabour.Thecostofshippingrenewableenergyequipmentandthepricesformanyoftherawmaterialsusedfortheirproductionhavebeenontherisesincethebeginningof2021.ByMarch2022,thepriceofaluminumhaddoubled,copperhadrisenby70%,steelhadincreasedby50%,andfreightcostsrosealmostfivefold(IEA,2022g).ThepriceofpolysiliconreachedUSD40perkilograminthefirstquarterof2022,upfromUSD6.80perkilogramin2020(FitchSolutions,2022).Assuch,theinstallationcostsofwindandsolarhaveincreasedforthefirsttime,reversingtheIISD.org49NavigatingEnergyTransitionslong-termtrendofdecreasingcostsseeninthepastdecades.TheIEAestimatestheoverallinvestmentcostsofnewutility-scalePVandonshorewindplantstobebetween15%and25%higherin2022comparedwith2020(IEA,2022g).Thecostsofdevelopingprojectsareontherise,whiledevelopershadcommittedtopricesinpreviouslyagreedcontractsthatarenolongerfeasible.Inaddition,renewableenergyprojectsaresubjecttohigherfinancingcostsascentralbankstightenmonetarypolicyinresponsetothesurginginflation,pushingupinterestrates(Indo-AsianNewsService,2022).Meanwhile,biddersinauctionshavetocontinuecompetingfiercelyforprojectsandshrinkingtheirprofitmarginstopotentiallyunsustainablelevels.Thewindindustryhasbeenincreasinglystruggling,especiallyinEurope.AllfiveEuropeanturbinemanufacturersarecurrentlyoperatingataloss(WindEurope,2022a).Thesolarindustryhasalsoexperiencedchallengesassociatedwithlogisticsandtradewarsthathavecausedprojectdelaysandevencancellation,withheftypenaltiesondevelopers.21Meanwhile,policyinstrumentsforrenewableenergydeploymentstillfocusontheprice.Theuseofzero-bidauctions,whererenewableenergyprojectsdonotrelyonanysupportandearntheirrevenuesaccordingtothemarketpriceofelectricity,startedafewyearsback.Butincreasingly,evennegativebiddingisbeingutilized,wherebythedevelopersareexpectedtopaythegovernmentfortheabilitytosellelectricitytothegrid(whilepassingonthesecoststotheconsumers).22Governmentsmaybeenticedtobringinrevenueswithnegativebidding,butthishasseriousrepercussionsontheindustryasdeveloperspassonadditionalcoststotheirsuppliers,byfurthersqueezingthemfortheirequipment;andtotheirconsumers,byfurtherincreasingelectricitybills.Thisisnothelpingthesustainabilityoftheindustrynorthepoliticalbuy-inofconsumers.4.3.4MoreActionsNeededtoSpeedUpRenewableEnergyDeploymentAstheurgencyofanenergytransitionbasedonrenewableshasincreased,somegovernmentsaretakingconcreteactiontospeedupdeploymentontheground.InterventionstoReducePermittingandLicensingDelaysPermittingandlicensingdelayshavelongbeenreportedassomeofthemainchallengestorenewableenergydeployment,especiallyinEurope.TheREPowerEUActionPlan(EuropeanCommission,2022f)setsouttoaddresspermittinghurdlesthatareimpedingtherapiddeploymentofsolarandwindenergy.TheEuropeanCommissionhasprovided21IntheUnitedStates,SouthernCo.announcedthatalmost1GWofitsplannedsolarenergyprojectscouldbedelayedbyayear,duetosupplychainissuesinadditiontopossiblenewU.S.tariffsonimportsofsolarpanelsfromSouth-EastAsia.NextErarecentlyannounceditexpectedalmost2.8GWofitssolarandenergystorageprojectstobepushedto2023.22Toaddresstheseissues,IRENAhasputforwardproposalssuchasthedualmarket,makinglong-termpowerpurchaseagreementsthemainpillarsoftheorganizationalstructureinsteadofanexception(IRENA,2022a).IISD.org50NavigatingEnergyTransitionsrecommendationstotackleslowandcomplexpermittingforrenewableprojectsandhasproposedanamendmenttotheRenewableEnergyDirective.Anewlawplacingrenewablesas“overridingpublicinterest”–thatis,theirdeploymentcanbeprioritizedonacase-by-casebasis–hasbeenproposed,togetherwithrecommendationsandguidanceonhowpermittingprocessescanbesimplified.Theproposalincludesrenewablego-toareasthatlocalgovernmentsshoulddesignatewithinastrategicenvironmentalassessmentwhereprojectsmustbepermittedwithinoneyear.Tohelpcountriesidentifygo-toareas,theCommissionismakingdatasetsonenvironmentallysensitiveareasavailableaspartofitsdigitalmappingtoolforgeographicdatarelatedtoenergy,infrastructure,andindustry.Inaddition,existingpermittingdeadlinesof2yearsfornewprojectsand1yearforrepoweredprojectsarekept,withclarificationsprovidedonwhichproceduresandpermitsmustbedeliveredwithinthesetimeframes(WindEurope,2022b).MoreFocusonLocalizingRenewableEnergyValueChainsRecognizingtheimportanceofenergysecurity,countriesarenowmakingeffortstolocalizetheirvaluechainstobemoreresilienttotradewars,politicalconflicts,andpricevolatility.Deploymentpoliciessuchasauctionsarebeingtailoredtotheseobjectives,andotherpoliciesthatsupportthedevelopmentoflocalindustriesarebeingimplemented.Amongotherstrengths,auctionscanachieveobjectivesbeyondprice.Selectingwinningprojectsbasedoncriteriaotherthanpricecansupportthedevelopmentandsustainabilityoflocalvaluechains,asinthefirstroundsinSouthAfrica(IRENA,2019).Germany’sOffshoreWindLaw(WindSeeG),forexample,entailsatwo-trackauction:oneforsitesthatstateauthoritiesdonotpre-survey(andwhereuncappednegativebiddingisallowed),andanotherforsitesthattheydopre-survey.Forthelatter,twoauctionsarescheduledforJuneandAugust2023,respectively,wherethepricecriterionwillaccountfor60outof100points,andtheremaining40willbebasedontheuseofgreenelectricityandgreenhydrogeninthemanufacturingofwindturbines,aquotafortrainingandeducation,thefinalizationofapowerpurchaseagreement,andtheprotectionofnatureandbiodiversityintheinstallationofwindturbines.Theintroductionofcriteriabeyondpricewaswelcomedtoaccountfortheaddedvalueofwindenergy,afterhavingawardedbidssolelyonthepriceuntilrecently,whichhasstrainedtheindustry(Dickson,2022).DiscussionsbetweenmajorEuropeanturbinemanufacturersandtheEUIndustryCommissioneronhowtheEUrecoverymoneycansupportthesupplychainandhowtheEUtradepolicycansupporttheircompetitivenesshighlightedhowrenewableenergyauctionsshouldbeindexedtoinflation,andhowtheyshouldmoveawayfromtheprice-onlyapproachthathasincreasinglyresultedinnegativebidding,hurtingrevenuesandfeasibility(WindEurope,2022a).ForsolarPV,theneedforlocalizingsupplychainshasemergedinkeyregions.Europe,India,andtheUnitedStatesareallintroducingplansandmajorincentivesforverticallyintegratedmanufacturingatscalescomparabletothosealreadydevelopedinChina(Hutchins,2022).U.S.senatorsareproposingschemes,includingtaxcreditsformaterialsusedtoproduceUnitedStates-madesolarproducts.OneoftheEuropeanCommission’sindustrystrategies,theEuropeanSolarInitiative,focusesondevelopingthesolarsupplychainacrossthebloctoreachanannualproductionlevelof20GWby2025.AroundEUR8to10billionwouldIISD.org51NavigatingEnergyTransitionsbeneeded,reflectiveoftheEUR8billiontradedeficitforsolarenergy(predominantlyPV)importedintotheEuropeanUnion.IncentiveswillberequiredtoenablebiggermarketsharesofEU-manufacturedsolarproducts(FitchSolutions,2022).Whilethissectionhighlightssomeofthechallengesforrenewablesexpansion,italsoshowshowpolicydesigncanbetailoredtoservespecificobjectivesandprioritiesandaddressspecificchallengestodeployment.AsshowninFigure4.9,renewableshavecontinuedtheirprogressinthepast2years.ButIRENAanalysisfindsthatcontinuingonthispath,ifall2030targetsannouncedtodateareachieved,globalinstalledrenewablecapacitywouldonlyreach5.4terawatts(TW)in2030,lessthanhalfofwhatisrequiredtostayinlinewiththe1.5°Cpathway,whichis10.8TWby2030and27.8TWby2050(IRENA,2022a).Assuch,amajorincreaseinambitionwillbeneededtoputtheworldbackontrack.Asshowninsection4.3.2,countriesandregionshavealreadystartedraisingambitiontoincreasetheirenergysecurityandindependence.Atthesametime,thereisagrowingrealizationthattoachievethoseobjectives,policyinstrumentsneedtochangetheirfocusfromreducingpricetosustainingtheindustryandsupportinglocalsupplychains.Thisshiftinfocuswouldhelpachieveclimategoalswhilecreatingvalueandmaximizingsocio-economicbenefits.Finally,internationalcollaborationintermsoffinancingandtechnologyexchangewillbeessentialtomakethetransitionuniversal.Insomecountriesandregions,theenergytransitionwillonlymaterializeandachievesocio-economicbenefitsifthesupportandflowoffundsfromtheGlobalNorthincreasesubstantially.4.4OpportunitiesforDevelopingCountriestoLeapfrogGlobalSouthenergysystemsfacegreatchallengeswithintheemerginggreenglobaleconomy.Forinstance,ofthe770millionpeoplethatlivewithoutaccesstoelectricity,mostresideinAfricaandAsia.TheAfricancontinentfacesthemostacuteformsofenergypovertyintheworld.Approximately630millionpeopledonothavereliableaccesstoelectricity,andover890millionpeopleareforcedtorelyonsolidbiomassforcooking.CompoundingthesechallengesisAfrica’svulnerabilitytoclimatechange,whichmeansthattraditionalpathwaystoincreasingenergysupply,whichrelyonburningfossilfuels,arenotfeasibleandsustainable.ThereisagrowingneedfortheGlobalSouthtoco-createnewenergysystemsforthefuture.However,theabsenceofevidence-basedresearchandanalysisofthecausesoflowenergyaccessortherequirementsofanenergytransitionisunderminingkeypoliticalactionandinvestmentsneededtoachievethemuch-neededenergytransitionandenableenergyaccess,especiallyforthemillionsofpeoplethatlackaccess.Actionsinformedbyevidenceareneededtounderpintheenergysystemofthefuturethatwillhelpthedevelopingcountriesmeettheirenergychallenges.CountriesintheGlobalSouth,andinAfricainparticular,needtoleapfrogtowardrenewableenergyinanequitableandjustmannerthatabandonsfossilenergysuchasgas,oil,andcoal,andembracescleanenergythatisnotonlycompatiblewithtacklingtheongoingclimatecrisisbutalsocapableofunlockingAfrica’shiddenpotential.Africacontainsover39%oftheworld’srenewableenergypotential.Shiftingto100%renewableenergysources–thatis,onesthatarejust,affordable,andaccessibletomostAfricansandareinlineAfricanvalues,IISD.org52NavigatingEnergyTransitionswhileprovidingimprovedsocio-economicconditionsforpopulationslivinginenergypoverty–willhelpimprovelivelihoodswheresustainabilitythrivesandgrowsalongsideovercomingunderdevelopmentandenergyaccess.TheongoingclimateemergencyiscallingonAfricatourgentlyshiftawayfromitsdependenceonfossilfuel-basedenergygenerationandtransitiontowardarenewableenergyfuture(AfricanClimateRealityProject,2021).Thejusttransitiontorenewableenergyhasneverbeenmorecrucial,asAfricaneedstoimmediatelymoveawayfromfurtherinvestmentsthatcementenergypovertyonthecontinentandundermineitsprosperity,allwhileexacerbatingthecurrentclimateemergency.Thisisevenmorerelevantinthecurrentcontext,wherethedashforgasisspurringneworresumedfossilfuelprojectsinAfricancountries,asoutlinedinsection4.1.RenewableenergyprovidesAfricawithafinanciallycheaperoptionincomparisontofossilfuel-firedpoweroptions:62%ofaddedcapacityin2019hadlowercoststhanthecheapestnewfossilfuel-poweredoption(IRENA,2021),while56%ofthehydropowerprojectscommissionedin2020hadanLCOElowerthanthecheapestnewfossilfuel-firedcostoption(IRENA,2022c).Inaddition,reportsindicatethatfossilfuel-reliantcountriescouldseeadropinrevenueinthecomingyearsastheentireworldtransitionstolow-carbonrenewableenergysources.Leapfroggingtorenewableenergywouldbeasustainableandeco-friendlydevelopmentstrategythatmaybeachievedthroughadoptingafossil-freefuturethatbreaksawayfromthefossilenergyinfrastructurethathaslargelybeenextractive,exploitative,dominant,andunjust.ThesuccessofleapfroggingtowardrenewableenergycouldleadtoademocraticallyrunandsociallyownedenergysystemforAfricaandbyAfrica.Leapfrogginghasseveralforms,butGallagher(2006)discussesleapfroggingusingatermcommonlyreferredtoaspath-creating.Path-creatinghintstowardtheideaoflateadopters(inthisinstance,countriesintheGlobalSouth)exploringanewpathoftechnologythatdivorcesitselffromthepathofinitialadopters(GlobalNorth).“Forinstance,ifAfricacommitstoandsucceedsinfulfillinguniversalenergyaccessbyprovidingtheexcessmarketdemandwithrenewableenergy,thecontinentwouldbecometheleaderinrenewableenergyaccessbyshareoftotaldemand”(Gallagher,2006).ThiswouldfulfillGallagher’sdefinitionofleapfroggingthroughpath-creating.Keyopportunitiesandbarriersforleapfroggingarediscussedinmoredetailasfollows.4.4.1KeyOpportunitiesforLeapfroggingOver620millionpeoplelivinginAfricadonothaveaccesstoelectricity,andover900millionrelyontraditionalbiomassforcooking(IEA,2019).Thedemandformoreenergyhasbeenincreasingandwillcontinuetodoso,particularlywiththeever-increasingaspirationsofdevelopingcountriestodevelopandmeettheirsocio-economicneeds.However,manydevelopingcountrieshavethebenefitofbeinglatecomersinbuildingfoundationalinfrastructurefordevelopment.Thismakesiteasierforthemtoleapfrogtorenewableenergyinfrastructureandavoidthewastefulanddestructivestagesthatcharacterizedindustrializationinthepast.IISD.org53NavigatingEnergyTransitionsImprovingInnovationsinRenewableTechnologiesandDecliningCostsAdvancesinrenewableenergytechnologiesaremakingrenewableenergycompetitiveinpriceandmoreattractive.Thedecliningcostsofrenewableenergyandimprovingrenewableenergytechnologyandperformancepresentsdevelopingcountrieswithopportunitiestoleapfrogfossilfuels.(Deloitte,2018).Forinstance,regionssuchasAfricacontainabundantrenewableenergyresources,andso,withimprovingtechnologyandreducingprices,itisbothtechnicallyandeconomicallyfeasibleforAfricatoleapfrogto100%renewableenergyby2030andthusavoidthemistakesmadebyrichercountriesduringtheirdevelopmentprocesses.InternationalInterventions,PartnershipsandCooperationTheexistinginstrumentswithintheUnitedNationsFrameworkConventiononClimateChangeprovidetheavenuetohelpdevelopingcountriesleapfrogto100%renewableenergyifproperlyimplemented.Itsinternationalclimatefinanceprovidesanentrypointforincreasedinvestmentininitiativesthatwouldhelpdevelopingcountriestoenablerenewableenergyaccessformuchofthepopulationlivingwithoutaccesstoenergy.Forinstance,initiativessuchasJustEnergyTransitionPartnershipscouldhelpdevelopingcountriestoleapfrogiftheyconsidertheelementofavoidedemissionsratherthanfocusonreducingemissions(UNClimateChangeConferenceUK2021,2022).ClimateActionThegrowingconcernaroundclimatechange,whichisdisproportionatelyaffectingdevelopingcountries,providesanopportunitynotonlyfordevelopingcountriestoinvestinrenewableenergytoavoidemissions,butalsotoaccessaffordableandsustainableenergyforresiliencebuilding.Leapfroggingto100%renewableenergypresentsdevelopingcountrieswithanopportunitytoavoidcarbon-intensivedevelopmentpathwaysthatarecausingtheclimatecrisis,andalsoenablethemtobuildresiliencetotheexistingclimate-inducedchallenges.Thereisapotentialtoavoidupto626milliontonnesofCO2equivalentemissionsoverthenextdecade,approximatelyequivalenttotheannualemissionsof160coal-firedpowerplants(Catalyst,2021).Windpowerandsolarenergywillreduce97%ofwaterconsumptioninelectricitygeneration.Onedropofoilcancontaminate25litresofwaterandmakeitnon-potable(Scott,2016).Toproduce1megawattperhourofelectricity,windpoweruses1litreofwater,solarpoweruses15litres,andcoaluses1,476litres(Reve,2020).Energyisthebackboneofthesocio-economicdevelopmentofanycountry.Byleapfroggingfossilfuelstorenewableenergy,developingcountriesespeciallyinAfricawillfulfillenergydeficiencieswithoutdamagingnature.Africaneedsalternativeenergydevelopmentpathways.Arapidrolloutofrenewableenergythatisenvironmentallyandsociallyappropriateaswellaspeople-centredprovidesAfricancountrieswiththeopportunitytoaddressboththeclimatecrisisandenergyaccessaswellastoattaintheirdevelopmentaspirations.Leapfroggingto100%renewableenergywillbeimportantinenablingemploymentopportunities.JobCreationLeapfroggingto100%renewableenergyinstallation,operation,andmaintenanceoffersemploymentbenefitsoverfossilfuelsinAfrica.TherenewableenergysectorhasbeenshownIISD.org54NavigatingEnergyTransitionsgloballytogeneratemuchhigheremploymentthanthatoffossilfuels.Thefossilfuelindustrycreates2.7jobsperUSD1millioninvested,whereasthecleanenergysector(renewableenergyandenergyefficiency)createsbetween7.5and15jobsperUSD1millioninvested.Africa’sdistributedrenewableenergyindustrythereforehasthepotentialtocreatemillionsofjobsinthecontinent,wherejobcreationremainslow.FosteringEnergyAccessNearlyhalfofallAfricansstillhavenoaccesstoelectricityintheirhomes.LeapfroggingtorenewableenergyoffersopportunitiesforAfricancountriestoenableuniversalenergyaccess.Decentralizedrenewableenergysystemsofferafasterandmoreaffordableroutetoincreaseenergyaccess,therebyfurtheracceleratingAfrica’seconomicgrowth.Minigridsusingsolarandwindcannotonlypowerhomesbutalsolocalhospitals,schools,businesses,andothercriticalcommunityresources.4.4.2MainBarrierstoLeapfroggingPublicParticipationInadequatepublicawarenessandinformationbarriersmayhinderleapfrogging,especiallyindevelopingcountries.Theconcernssurroundingpublicunderstandingofleapfroggingprocesses,includinginformationonthebenefitsofleapfroggingandrenewableenergytechnologies,maydelayleapfrogging.Meaningfullyengagingthepublicisveryimportantinleapfroggingfossilfuel,especiallyindevelopingcountriessuchasAfrica(KarakayaandSriwannawit,2015).Weneedtobridgethegrowingknowledgegapsothatthepubliccanunderstandtheissuesaroundfossilfuelsandtheneedfordivestmentfromthem.ThemainnarrativethatmustbesharedincludesthedangersoftheclimateemergencyandhowthetransitionandleapfroggingtowardrenewableenergyinajustandequitablemannercansolveasignificantnumberofissuesthathaveplacedAfricainaprecariouspositionregardingsustainabledevelopment.Thereisastrongneedtobuildanunderstandingabouthowdevelopmentcanbeachievedinamannerthatdoesnotbringharmtotheenvironmentandasaresultunlocksajust,equitable,andsustainablefuture.Thepublic,includingmultistakeholderparticipation,iscloselylinkedtoenablingstakeholderabilities,buildingcapacity,tappingintolocalknowledge,andcreatingspacesforsharing,whichincludesenablingawareness.Aninadequatelyengagedpubliccreatesabarriertoeffectiveparticipationandhampersleapfrogging.Accesstoinformation,especiallyonissuessurroundingleapfrogging,iscrucialinenablingownershipoftheprocessandfosteringbenefitsfromleapfrogging(Seetharamanetal.,2019).Moreinstrumentally,socialacceptanceisimportantinleapfrogging,withoutwhichcostsanddisruptionwillincrease.However,akeychallengetoengagementisthatregionswherepublicparticipationismostneededindevelopingcountriesarealsowhereaccesstocivicspacetoparticipateinenergydecisionmaking,discussionofpossibletrade-offs,andinformationsharingisclosingdown.Thereisaworseninglackofmeaningfulengagementgroundedintransparencyandaccountabilitytoparticipateindecisions,particularlyinreferencetoenergydiscussions.IISD.org55NavigatingEnergyTransitionsCapacitywithinDevelopingCountriestoLeapfrogLeapfroggingfossilfuelsrequiresasolidfoundationofaskilledlabourforce,duetothelargedemandforskilledprofessionalstodesign,build,operate,andmaintainrenewableenergyprojects.Theshortageoftrainedworkerstoundertaketheseprojectspresentsamajorobstacletofast-trackingleapfroggingindevelopingcountries(KarakayaandSriwannawit,2015).Inadequateavailabilityoftechnicalprofessionalsandtraininginstitutesmayslowdownleapfrogging,especiallyinAfrica.RolesofGovernmentsinDevelopingCountriesGovernmentshaveamajorroletoplayinfacilitatingleapfrogging,whichincludesputtinginplacethenecessarypoliciesandenablingrequiredinvestmentsintheprocess,includingcapacitybuildingandinfrastructuredevelopment.Currently,hugeamountsofgovernmentsubsidiesgotowardfossilfuelprojects(Zhangetal.,2014).Thismayhindereffortstoleapfrogto100%renewableenergysystems.Studiesindicatethatsubsidiesprovidedbygovernmentstothefossilfuelindustryovershadowincentivesprovidedtodeveloprenewableenergysystems.Forexample,itisreportedcurrentlythatfossilfuelindustriesreceivedatleastUSD130billioninvestmentandothersectorssuchastransportreceivedUSD32.5billion.AtotalofonlyUSD100millionwastobeusedunderclimateadaptation(Guzmánetal.,2022).Internationalpartners,multilateraldevelopmentbanks(MDBs),anddevelopmentfinancialinstitutionsallhavearoletoplay.MDBsanddevelopmentfinancialinstitutionsmayfacilitateorforestallleapfroggingindevelopingcountriesbyexpressingskewedsupportforfossilfuels,includingthetechnologytheypromote,projectstheyfinance,andactionsintheircountries(OilChangeInternational,2019).MDBsmustprioritizethedevelopmentandimplementationofafossilfuelfinanceexclusionpolicythatstatesthattheMDBswillnotfundorprovidefinancialservicesorcapacitysupporttoanycoal,gas,oroilproject.ThiswillprovideauniqueopportunityforMDBstoinfluencenationalandinternationalframeworksthatsetambitioustargetswiththefinancialintermediaries(AfricanClimateRealityProject,2021).Thisisparticularlytrueforthedevelopmentofasupportiveandenablingregulatoryandpolicyenvironment,whichiscrucialtoattractingprivateclimatefinance.ClimateFinanceAfricaneedsarobustframeworktoprovidethefundingitneedstoleapfrogtowardrenewableenergy.Nationalgovernmentsshouldfosterandgalvanizefundingforabankablepipelineofinfrastructureprojectsthataresupportedthroughvariousactionsandsupportprivatesectorinvestmentinadaptation,includingblendedfinance,fiscalincentives,greenbonds,andsoon.Thisisimperativeas“CurrentlevelsofclimatefinanceinAfricafallfarshortofneeds.Africa’sUSD2.5trillionofclimatefinanceneededbetween2020and2030requires,onaverage,USD250billioneachyear”(Guzmánetal.,2022).IISD.org565.0FosteringEnablingEnvironmentstoAcceleratetheTransitiontoNet-ZeroNavigatingEnergyTransitionsKeyInsights•Enforcingoilandgasphase-outpathwaysconsistentwithlimitingwarmingto1.5°CcouldcostgovernmentsuptoUSD340billionfromcompensationclaimsfromcancelledprojectsunderdevelopmentbutnotyetproducing.Investmenttreatiescreatemoralhazardbyinsulatinginvestorsfromstrandedassetlossesandtheypushthecostsontothepublic,divertingresourcesfromtheenergytransition.•Regulativeapproachesbygovernmentsattheglobalandnationallevelholdanenormouspotentialtoensurehighlyambitiouscorporatelong-termtargets.SuchregulationcouldproviderobustlydefinedconceptsthataddsubstantivecriteriatoensureParisAgreementcompatibility,andmandatecomprehensiveandthird-partyverifieddisclosurepractices.•Investorscanhelpaccelerateglobaldecarbonizationbyensuringcompanies’capitalexpendituresalignwithclimategoals.Tothisend,investorsandadvocatesmustreinforcecurrentstandardsandframeworkstoensurebroaderuse,greateraccountability,andadecreasedriskofgreenwashing.5.1LegalandEconomicChallengestotheEnergyTransitionThetransitionawayfromfossilfuelproductionfacesseveralstructuralobstaclesbeyondthecurrentshort-termsupplycrunchanddisruptionsintheenergymarkets.Limitingwarmingto1.5°Cwhileavoidingstrandedassetsimpliesthatalargeshareofcurrentlylicensedoilandgasreserveswillhavetoremainunexploited.Aschapter3hasshown,thedevelopmentofnewfieldswouldgeneratemorecarbonemissionsthantheworldcanaffordtoachievetheParisAgreementtemperaturegoal.However,oilandgascompaniescontinuetoacquireadditionallicences,explorenewresources,anddevelopnewfields(RystadEnergy,2022b).Moreover,thereareamultitudeofinvestmenttreatiesthatprotecttheforecastedrevenuesthatoilandgascompaniesmightgeneratewiththeirlicensedreserves.Thiscreatessignificantadditionallegalandeconomicbarriersforgovernmentstoimplement1.5°C-consistentclimatepolicies.Theselegalprotectionscoulddivertsignificantsumstowardoilandgascompaniessuinggovernmentsforlostrevenues(Tienhaaraetal.,2022).Meanwhile,severaloilandgascompaniesarenowadoptingnet-zerotargetswhichtendtobevagueandnon-committallong-termclimateintentions.Asthischapterwillshow,corporate-setnet-zerostrategiesareoftendisconnectedfromclimatescience,withtheiremissionsdisclosuresnotsufficientlycomprehensiveortransparent.However,emissions-reportingmethodologiesandnet-zerostrategiesarecriticaltoinformfinancialinstitutions’assessmentofthecarbonintensityoftheirportfolios.Accordingly,thereisanurgentneedtobringmorecoherencetothecorporatenet-zerotargetmethodologies,toreorientcapitalflowstowardactorscontributingmosttotheIISD.org58NavigatingEnergyTransitionsenergytransition.Thischapterwillprovideinsightsonhowtoovercomeexistingbarrierstoimplementing1.5°C-compatiblepolicies,andwaysforgovernmentsandnon-stateactorstosupportandacceleratethetransitiontonet-zero.5.2InvestmentTreatiesandOilandGasPhase-out5.2.1AssetStrandingTheenergytransitioniscreatingstrandedassets,whichareparticularlysignificantintheoilandgassector.CarbonTracker(2022)estimatesthatoverUSD1trillionofoilandgasassetsriskbecomingstranded.Someassetsarestrandedasaresultofchangingmarketconditions(e.g.,dropincostofrenewableenergytechnologies)andtheintroductionofmarket-basedpoliciessuchascarbonpricing.Governmentscanalsoforceassetstrandingthroughregulatorymeasuressuchasbansonfossilfuelextraction,revocationofpermitsforthedevelopmentoffossilfuelinfrastructure(e.g.,oilandgaspipelines),andearlyretirementofinfrastructure(e.g.,coal-orgas-firedpowerplants).Anincreasingnumberofgovernmentsaretakingorconsideringthesetypesofmeasures(GaulinandLeBillon,2020).Researchindicatesthat,whengovernmentsforceoraccelerateassetstranding,manybusinessesexpecttobefinanciallycompensated(SenandvonSchickfus,2020).Whetherornottopaycompensationandhowmuchisappropriatearedifficultquestions,bestlefttodemocraticdecision-makingprocesses.However,inmanyinstancesfossilfuelinvestorscancommence(orthreatentocommence)arbitrationclaimsagainstgovernmentsthatdonotprovidewhattheyconsideradequatecompensation.5.2.2LegalProtectionsforInvestorsWhenaforeigninvestorengagesintheoilandgassector,itwillhaveuptothreelayersoflegalprotection:nationallaw,concession/statecontract,andoneormoreinternationalinvestmenttreaties.Eachofthesesourcesoflawmayprovidetheinvestorwithaccesstoinvestor–statedisputesettlement(ISDS),aformofarbitrationwhereadhocarbitraltribunals,usuallywiththreemembers(onechosenbyeachpartytothedisputeandthethirdagreedonorappointedbyanarbitralinstitution),takeafinalandbindingdecisionthatisinternationallyenforceable.Whilenationallawandcontractscanpresentobstaclestogovernments,thefocusofthisreportisontreaties.Therearecurrentlymorethan2,500investmenttreatiesinforce(UnitedNationsConferenceonTradeandDevelopment[UNCTAD],2022).Thevastmajorityarebilateralinvestmenttreaties(BITs),butadditionallythereseveralhundredtradeagreementswithchaptersoninvestment,andonesectoralinvestmenttreaty,theEnergyCharterTreaty(ECT).Thesetreatiescontainprovisionsthatcanbeinterpretedbroadlytorequirethatastatecompensatesinvestorswhentheyarenegativelyimpactedbychangesinpolicy.Theprovisionsmostlikelytobeemployedbyinvestorsincasesconcerningstrandedoilandgasassetsaretheprotectionagainst(indirect)expropriation,thefairandequitabletreatmentstandard,andstandardspreventingdiscriminatorytreatment(mostfavourednationandnationaltreatment)(seefurtherTienhaaraetal.,forthcoming).Additionally,manytreatiesIISD.org59NavigatingEnergyTransitionshaveasunsetclause(sometimesalsoreferredtoasasurvivalclause),thatprovidesforcontinuedtreatyprotectionforaperiod(typically10to20years)afteratreatyisterminatedforinvestmentsmadepriortotermination.Ifaninvestorconsidersthatastateaction(orinaction)negativelyimpactsitsinvestment,itcanlaunchanISDSclaimimmediately,withouthavingtoexhaustdomesticlegalremedies.Ifatribunalfindsthatastatehasbreachedthetreaty,itwilldetermine—withverylittleguidancefromthetextofthetreaty—howmuchcompensationshouldbeawardedtotheinvestor.Tribunalsincreasinglyawardfarmorethansunkcosts(i.e.,whatwasspentbytheinvestorontheprojectpriortothetreatybreach),preferringtoinsteadbasecompensationonprojectionsoflostfutureprofits.ArecentstudyfoundthattheaverageawardinacaseinvolvingafossilfuelprojectwasmorethanUSD600million(DiSalvatore,2021),andthat7outofthe10largestISDSawardsinhistoryinvolvedoilandgasinvestments(BonnitchaandBrewin,2020;TienhaaraandCotula,2020).Tribunalshavedemonstratedawillingnesstoawardverylargeamountsincompensationevenincaseswhentheinvestmentinquestionhasnotproceededpasttheearlystagesofplanning(BonnitchaandBrewin,2020).Intheoilandgassector,thismeansthatcompaniescanlaunchaclaimeveniftheyonlyhaveanexplorationpermitinhand,andpotentiallywinmanytimestheirinitialinvestment.AnexampleisUnitedKingdom-basedRockhopperExploration,whichacquiredMediterraneanOil&Gas,acompanywithapermittoexploreforoilofftheItaliancoast,forGBP29.3millionin2014.AftertheItaliangovernmentbannedoildrillingwithin12nauticalmilesofthecoastinresponsetopublicconcernsaboutthepotentialenvironmentalimpact,thecompanylaunchedanISDSclaimonthebasisoftheECT.InAugust2022,thecompanyannouncedthatthetribunalhadawardeditEUR190millionplusinterest.5.2.3TreatyProtectionofOilandGasAssetsInarecentstudy,Tienhaaraetal.(2022)calculatedthenetpresentvalueofupstreamoilandgasprojectsthatshouldbecancelledinlinewiththeInternationalEnergyAgency(IEA)NetZeroEmissionsby2050(NZE)scenario.TheyfoundthatatanoilpriceofUSD100/barrel,USD234billioncouldbeclaimedinISDSs.Ifgovernmentswentfurther,asthesciencenowindicatesisnecessarytostaybelow1.5°C(seeTroutetal.,2022)andadditionallycancelledprojectsindevelopmentbutnotyetproducing,thepotentialpricetagwouldrisetoatotalofUSD340billion.Asecondarticleusingthesamedatasetdemonstratedthatmorethantwothirdsofthenetpresentvalueof1.5°C-incompatibleandtreaty-protectedoilandgasassetsarefoundinlow-andmiddle-incomecountries,includingthosehighlyvulnerabletoclimatechange(Tienhaaraetal.,forthcoming).ThisdemonstratesthatthedistributionofISDSriskassociatedwithenergytransitionishighlyunjust.TheECTwasidentifiedasthetreatyprotectingthemost1.5°C-incompatibleupstreamoilandgasassets.IISD.org60NavigatingEnergyTransitions5.2.4SolutionsItisincreasinglyrecognizedthatitisundesirableforcountriestoprovidefossilfuelinvestorswithinvestmentprotectionduringaclimateemergency;itmayevenbeconsideredaviolationofart.2.1oftheParisAgreement(Gaukrodger,2022).Asaformoffreepoliticalriskinsurance,investmenttreatiescreatemoralhazardbyinsulatinginvestorsfromstrandedassetlosses.Theypushthecostsofassetstrandingontothepublic,divertingresourcesfromtheenergytransition.Mostconcerningly,thethreatofISDScasesmayhaveachillingeffectongovernments,particularlyincountrieswhereISDSriskishighbutgovernmentcapacitytorespondtoclaimsandpayawardsislow.Therearenumerouswaystoaddresstheproblemsposedbyinvestmenttreaties,someofwhichcanbeadoptedindividuallybygovernmentsandotherswhichrequireinternationalcoordination.Thefirstandmostimmediatetaskistostopmakingtheproblemworse.AmoratoriumonanyfurtherlicensingorissuingofexplorationpermitsforoilandgaswouldachievethisbyimmediatelyplacingacaponISDSliability,limitingclaimstothoseinvestorsthatalreadyhavepermitsandlicencesinplace.Suchamoratoriumiswhatenergymodelssuggestisconsistentwithlimitingwarmingto1.5°C,andyetmostfossilfuel-producingcountrieshaveyettocommittoone.ToreducetheriskofISDSclaimsfromexistinginvestors,governmentscanopttopaycompensationinreturnforawaiveroftreatyrights.Thisis,admittedly,averyproblematicsolution.Notably,theprospectofanISDSclaimincreasesthenegotiatingpoweroftheinvestor,whichmayresultinthegovernmenthavingtopayalargesum(Flues,2022;TienhaaraandCotula,2020).Assuch,governmentsshould,ifpossible,adoptregulatedcompensationschemesratherthannegotiatedones.However,regulatedschemesmaybechallengedinISDSiftheinvestorsbelievetheyhaveachanceofgettingabiggerpayoutinarbitration(seetheexampleoftheDutchcoalphase-outdescribedinVerbeek,2021).OneoptionoutlinedbyPellegrinietal.(2021)isareverseauctionsystemwhereinvestorsvoluntarilyforgotherighttoextractreservesinexchangeforcompensation.Insuchasystem,theinvestorswouldputforwardbidsfortheamountofcompensationtheywouldacceptinreturnforrelinquishingtheirlicencesorcurtailingproduction.Competitivebiddingwouldensurethelowestpossibleamountofpublicfundswouldbeexpendedtoachievethedesiredamountofassetstranding.AninternationalfundcouldsupportthesereverseauctionsincountriesintheGlobalSouth.Asparticipationinareverseauctionisvoluntary,itcannotbechallengedinISDS.However,thevoluntarynatureoftheschemeisalsoadownside—theremaynotbemuchinterestfrominvestorsinparticipatingifoilpricesarehighand/oriftheyareawarethattheyhaveachanceofobtaininggreatercompensationinarbitrationifthegovernmentswitchestoamandatedphase-out.Therefore,anadditionalthirdstrategy,terminatinginvestmenttreaties,iscritical.TherearenumerousproposalstoreforminvestmenttreatiestoalignthemwiththeParisAgreement(see,e.g.,OrganisationforEconomicCo-operationandDevelopment[OECD],2022).Whilemanyoftheseproposalshavemerit(thoseoncappingcompensationareparticularlyworthconsideration),itisworthnotingthatrecentexperienceswithpiecemealreformhavedemonstratedthatitisoflimitedeffectandtooslowfortheabovementionedscenariostobeIISD.org61NavigatingEnergyTransitionsmet.Arecentstudyconcludesthat“Changesininvestmenttreatydesignhavefailedtochangeinterpretiveoutcomesininvestmentarbitrationasnewtreatiesarebeinginterpretedlikeoldonesinpractice”(Alschner,2022).Investmenttreatiesdonothaveprovenpublicbenefits,suchasfacilitatingforeigninvestmentflowsinsectorslikerenewableenergy,thatwouldbelostthroughtermination(Bonnitcha,2017;Pohl,2018).Indeed,severalcountrieshaveunilaterallyterminatedinvestmenttreaties,withoutexperiencinganynegativeimpacts(PublicCitizen,2018).However,giventheprevalenceofsunsetclauses,andthelimitedtimeremainingforactiontoavertcatastrophicclimatechange,investmenttreatiesshouldbeterminatedbymutualagreement,whichallowsthesunsetclausestobeinvalidated,wheneverpossible.Europeancountrieshavealreadyaccomplishedthisforintra-EuropeanUnionBITs(EuropeanCommission,2020b).Consideringthis,aswellasinternationalcommitmentsonclimatefinance,Europeancountriesshouldimmediatelyaccept(andeveninitiate)anyBITterminationrequestfromadevelopingcountrythatisconcernedaboutpotentialinvestorclaimsarisingfrommeasurestoaddressclimatechange.EuropecouldalsotaketheleadindevelopinganinternationaltreatythatwouldterminateallBITsbetweentheparties(Johnsonetal.,2018).Asthissectionhasshown,theprotectionoffossilfuelcompanies’investmentsandtheirforegonerevenuesposesasignificantthreattotheenergytransition.WhilethesecompaniesaresuinggovernmentsfortheirplanstoreducefossilfuelproductionontheirterritoryinlinewiththeircommitmenttotheParisAgreement,someofthemarealsoadoptingnet-zerostrategiesinanattempttoshowcasetheirclimateambition.However,corporatenet-zerotargetsareoftendisconnectedfromclimatescience,whiletheiremissionsdisclosuresareeithernotsufficientlycomprehensiveortransparent.Accordingly,thenextsectionwillprovideanassessmentofthecurrentstateofthetarget-settingmethodologiesandsuggestwaysforwardtoimprovecorporateclimatereporting.5.3CorporateNet-zeroTargets:Aninadequatestateofplayenteringacrucialdecade5.3.1CorporateNet-zeroTargetSettingintheContextofMissingRegulationSincethelaunchoftheUnitedNationsFrameworkConventiononClimateChange(UNFCCC)’sRacetoZerocampaignatCOP25alongsideotherengagementinitiatives,theworldhasseenasurgeincorporatenet-zerotargets.Intherun-uptoCOP26in2021,thenumberofbusinessesthatannouncednet-zeroorcarbonneutralitytargets(hereafterreferredtoasnet-zerotargets)increasedatanever-acceleratingpace.Forinstance,over5,000businesseshadjoinedtheRacetoZerocampaignbyAugust2022(UNFCCC,2022).Thisunprecedentedwaveofcorporatenet-zerotargetsetting,however,hashappenedagainstabackdropofnon-standardizeddefinitionsandalackofindependentscrutinytoensurethistargetsettingisinlinewiththeParisAgreement.IISD.org62NavigatingEnergyTransitionsTherecurrentlyexistsnoclearandconsistentdefinitionofcorporatenet-zerotargets.Severalongoingregulatoryandvoluntaryinitiativesaimtobetterharmonizetheconceptandsetrobustcriteria.Forexample,theUnitedNationsSecretary-GeneralAntónioGuterresestablishedaHigh-LevelExpertGroupontheNet-ZeroEmissionsCommitmentsofNon-StateEntitiesto“developstrongerandclearerstandardsfornet-zeroemissionspledgesbynon-Stateentities—includingbusinesses,investors,citiesandregions”(UnitedNationsSecretary-General,2022).Otherregulatoryinitiatives,suchastheforthcomingEuropeanSustainableReportingStandardsinitiatedbytheEuropeanCommission(EuropeanFinancialReportingAdvisoryGroupProjectTaskForceonEuropeanSustainabilityReportingStandards,2022)ortheNet-zeroGuidingPrinciplesoftheInternationalOrganizationforStandardization(forthcoming),areintheprocessofdevelopingmorebindingprinciplesandregulationsoncorporatelong-termtargetsetting.VoluntaryinitiativessuchastheNet-zeroStandardbytheScienceBasedTargetsInitiative(SBTi)proposetheirowncriteriatoverifycorporatenet-zerotargets(SBTi,2021).Itremainstobeseenwhetherandhowtheseregulatoryandvoluntaryinitiativeswillaligntheirdefinitionsandcriteriaforcorporatenet-zerotargetsetting.5.3.2EvidenceofShortcomingsinNet-zeroTarget-settingPracticeExistingcorporatenet-zerotargetstypicallysufferfromalackofambitionandhaveothersevereshortcomings(Dayetal.,2022;Mooldijketal.,2022;NewClimateInstituteetal.,2022;Shugar,MyersandFugere,2022).Anemergingbodyofliteratureassessingarangeofdifferentcompanysamplesemphasizesfourcommonshortcomingsincorporatenet-zerotargetsettingatpresent(seeTable5.1fordetailedassessment,includinganoilandgassectordeepdive):1.Incompleteemissionsdisclosureandemissionscoverageacrossallscopes2.Inadequatespecificationofownemissionreductionsalongsidenet-zeropledges3.Insufficientimplementationofkeyemissionreductionmeasures4.Relianceoncontentiousoffsettingpracticestomeetnet-zeropledgesTheserecentfindingsindicatethatcorporatestendtousetheirnet-zerotargetsasvehiclesforvagueandnon-committallong-termclimateintentions,orevengreenwashing.Fewcorporatenet-zerotargetsatpresentreflecttrueclimateleadership.Ambitiouscompaniesandfrontrunnersincorporatedecarbonizationeffortsthusstruggletodifferentiatethemselvesfromthosetakinglimitedactionwhileannouncinguntransparentandnon-scrutinizednet-zeropledges.IISD.org63NavigatingEnergyTransitionsTable5.1Shortcomingsofexistingnet-zeropledgesacrosssectorsidentifiedinrecentlypublishedliterature,andofnet-zeropledgesandrelatedtransitionplansintheoilandgassectorIncompleteemissionsdisclosureandemissionscoverageacrossallscopesCorporatenet-zerotargetsoftenexcludecertainemissionssourceswithintheirvaluechain,especiallyupstreamanddownstreamscope3emissionsalongtheirvaluechain.Recentanalysesonglobalcompanysamples,andcountry-specificanalysesfortheUnitedStatesandtheNetherlands,findthatmanycorporatesdonotdiscloselargesharesoftheirvaluechainemissionsfromtheirnet-zerotargets(Dayetal.,2022;Mooldijketal.,2022;NewClimateInstituteetal.,2022;Shugar,MyersandFugere,2022).Corporatesmightonlycovercertainemissionsscopesundertheirnet-zerotarget,forexampleexclusivelyfocusingonemissionsoftheiroperationsandfrompurchasedenergy(scope1andscope2emissions),orsimplynotcommunicateatallwhichemissionsarecoveredbytheirnet-zerotargets.Theincompletedisclosureofemissionsoriginatingincompanies’upstreamanddownstreamsupplychains(scope3emissions)remainsparticularlyproblematic.Theseemissionsoftentimesrepresentthelargestsharesofacompany’semissionsprofile(Dayetal.,2022;Mooldijketal.,2022),goingwellabove80%to90%forsome.Companiesintheaviationandshippingindustriesgenerallyfailtoadequatelyreportonnon-greenhousegas(GHG)climateimpacts,suchastheformationofcontrailcirrusclouds(Mooldijketal.,2022).Theexclusionoflargeemissionscopes—eitherthroughincompletedisclosureorexplicitexclusionfromthetarget’scoverage—underminestheambitionandintegrityofnet-zeropledges.OilandgassectordeepdiveCompaniesintheoilandgassectortypicallycommittonet-zerotargetsthatexcludelargesharesofemissionsintheirvaluechain.Thisbecomesparticularlyproblematicifoilandgascompaniesdeliberatelyexcludeupstreamscope3emissions(e.g.,emissionsfromtheextractionofoilandgaspurchasedfromotherproducers)anddownstreamscope3emissions(e.g.,emissionfromtheuseofoilandgasbyendconsumers).Forexample,ExxonMobilexplicitlyexcludesallofitsscope3emissionsunderitsnet-zerotarget(Mooldijketal.,2022).Forthisreason,ExxonMobil’stargetonlycoversaround20%oftheir2019emissionsdisclosure,andlikelyamuchsmallershareofExxonMobil’sentireemissionsfootprint.IISD.org64NavigatingEnergyTransitionsInadequatespecificationofownemissionreductionsalongsidenet-zeropledgesManyexistingtargetslackaspecificcommitmenttoreduceacorporation’sownemissionsacrossitsentirevaluechainalongsidenet-zeropledges.Forexample,12outof25assessedmultinationalcorporationsdonotprovideanydetailsonwhattheirheadlinepledgemeansintermsofownemissionsreductions(Dayetal.,2022).Evenifcompaniesspecifyintendedemissionsreductionsacrosstheirvaluechain,theseoftendonotreflectdeepdecarbonizationinlinewithParisAgreementobjectives.Theother13companiesofthissampleof25committoreducetheirfullvaluechainemissionsfrom2019byonly40%onaverageinthenet-zerotargetyear(Dayetal.,2022).Targetsaimingfordeepdecarbonizationwould,forexample,reflectcommitmentstoreduce90%to95%ofallGHGemissionsacrosstheentirevaluechain(Dayetal.,2022;SBTi,2022).WithoutexplicitandtransparentcommitmentsfordeepemissionsreductionsinlinewiththeParisAgreement,theconceptofcorporatenet-zerobecomemeaninglessandcanleadtogreenwashingandunambitiouscorporateplans.Net-zeropledgesareinadequatelysubstantiatedbytransparent,credible,andambitiousinterimtargetstoward2030inlinewiththeParisAgreement.Forexample,onlyaroundhalfofthe702companiesintheForbesGlobal2000withnet-zerotargetshaveanytypeofinterimGHGemissionreductiontarget(NewClimateInstituteetal.,2022).EvenifcorporatessetinterimGHGreductiontargets,asforexample19companiesdoinanassessmentof20Dutchcorporates,theseonlyrepresentanaverageemissionreductioncommitmentof19%by2030acrossthefullvaluechain(Mooldijketal.,2022).Theseinterimtargetsthusoftendonotreflecttheurgencytodecarbonizebusinessactivitiesinthecontextofglobalandsector-specificdecarbonizationmilestonesinlinewithlimitingglobalwarmingto1.5°C.AccordingtorecentfindingsoftheIntergovernmentalPanelonClimateChange(IPCC)’sSixthAssessmentReport,globalCO2emissionsmustbereducedbynet48%by2030comparedto2019levels(rangeof36%to69%)tolimitglobalwarmingto1.5°C(IPCC,2022).TheIPCCfurtherconcludesthatglobalGHGemissionsmustdecreaseby43%(rangeof34%to60%).IISD.org65NavigatingEnergyTransitionsOilandgassectordeepdiveOilandgascompaniesoftenavoidunderpinningtheirnet-zeropledgesbyspecificcommitmentsonhowmuchtheyplantoreducetheirownemissionsacrosstheirentirevaluechainalongsidethenet-zeropledge.Forexample,neitherExxonMobilnorBPcommunicateanemissionsreductiontargetalongsidetheirnet-zeropledgesby2050(Mooldijketal.,2022).Itremainsentirelyunclearwhatshareoftheirownemissionsalongthevaluewillbereducedbythetargetyear,leavingthedooropenforcontentiousneutralizationmeasurestoachievethetargets.Oilandgascompanies’long-termtargets—regardlessofbeinganet-zeropledgeoranothertargettype—collectivelydonotmeetdecarbonizationmilestonesinlinewith1.5°Cor2°Cofglobalwarmingatpresent.Outof58oilandgascompanies’2050targetsassessedbytheTransitionPathwaysInitiative(TPI)asofAugust2022,forexample,onlythreecompaniesmetTPI’sdefinitionofa1.5°Cbenchmark,andonlyonemetTPI’sdefinitionofabelow2°Cbenchmark(TPI,2022).Theuseofinterimtargetsfocusingonthereductionofemissionsintensity(intensitytargets)ratherthanemissionsreductionsinabsoluteterms(absolutetargets)mightfurtherenablecompaniestoprolongtheuseofoilandgasintheforeseeablefuture,insteadofeffectivelyreducingtheexplorationanduseoffossilfuels.Forthisreason,intensitytargetsinherentlyfacetheriskofbeingdecoupledfromfinitelimitsofthecarbonbudget(O’ConnorandCoffin,2022).Oilandgascompaniesgenerallyfailtoexplainhowtheirintendedemissionreductionsintheinterimrelatetodecarbonizationbenchmarksandpathwaysidentifiedintheliterature.Forexample,theIEA(2021)concludesthatgovernmentsshouldnotapproveanynewoilandgasfieldsfordevelopmentfrom2021onwardsfortheglobalenergysectortoalignwiththe1.5°Ctemperaturelimit.UNFCCC(2021)specifiesthatglobaloilandgasproductionlevelsmustdecreaseby40%below2019levelsby2030.Inthiscontext,TheHagueDistrictCourtconsideredShell’sintensitytargetsby2030atthetimeofthecourtrulingin2021asnotsufficientlyambitioustoreduceitsemissionsinabsoluteterms.ThecourtmandatedShelltoreduceCO2emissionsacrossallemissionscopesinabsolutetermsbynet45%belowa2019baselineby2030,informedbyIPCC’sSpecialReport:GlobalWarmingof1.5°C(TheHagueDistrictCourt,2021).IISD.org66NavigatingEnergyTransitionsInsufficientimplementationofkeyemissionreductionmeasuresWhileafewcompaniesalreadyimplementambitiousanddeepemissionsreductionmeasurestoachievetheirnet-zeropledgeandinterimtargets,mostothersdonotpubliclyannouncesuchmeasuresacrossallemissionscopesortransparentlyexplaintheirestimatedimpactandimplementationtimeline.Theimplementationofcredibleandfar-reachingmeasuresconstitutesthebackboneofambitiouscorporatenet-zeropledgesandfosterstransformativechange.However,forexample,anassessmentof20Dutchcompaniesshowsthatnoneofthenet-zerotargetsincludedpubliclycommunicatedreductionplansconsideredsufficienttoplacethemonaParis-compatibletrajectory(Mooldijketal.,2022).OilandgassectordeepdiveOilandgassectorcompaniesshowlittleprogressinreducingtheiremissionsalongtheentirevaluechainandtransitioningtheirbusinessmodelsawayfromfossilfuels.Forexample,recentanalysesofBP,Chevron,ExxonMobil,Shell,EquinorandTotalEnergiesconcludethatexistingdecarbonizationstrategiesarenotunderpinnedbyconcreteactionswhilethecompanies’businessmodelscontinuetorelyonfossilfuels(Li,TrencherandAsuka,2022;Liauwetal.,2022a).Thelackofprogressindecarbonizingtheiremissionsalongthevaluechaincastsseveredoubtonthecompanies’prospectstoachievedeepdecarbonizationassuggestedbytheirnet-zerotargets.Forexample,bothExxonMobil’sandBP’spubliclycommunicatedemissionreductionmeasuresunderpinningtheirnet-zeropledgeshavebeenevaluatedtohave“verylowintegrity”astheyareinsufficienttoplacethemonaParis-compatibletrajectory(Mooldijketal.,2022).Despiteitsnet-zerotargetfor2050,Shellstatesthatitsoperatingplan,plannedportfoliochangesandpricingassumptionsdonotreflectits2050commitment(Shell,2021).Shellinsteadarguesthatanyfundamentalchangesofitsunderlyingbusinessoperatingplansremainconditionalonsocietalprogresstowardanet-zerosociety(Shell,2021;ClientEarth,2022b).RecentestimatesindicatethatShellmightonlyreduce38%ofitsemissionsbelow2019levelsinabsolutetermsby2050(Liauwetal.,2022b).IISD.org67NavigatingEnergyTransitionsRelianceoncontentiousoffsettingpracticestomeetnet-zeropledgesManycorporatesintendtorelyoncontentiousoffsettingpracticestoachievetheirnet-zerotargets,emphasizingthenetmorethanthezerointheircorporatepledges.Inthemostproblematiccases,businessesclaimtosimplyoffsetlargepartsoftheiremissionsinthenet-zerotargetyearinsteadofreducingtheirownemissionsalongthevaluechain.Thisoffsettingpracticeimpliesthattheclimateimpactisthesameasiftheseemissionswereneverreleasedinthefirstplace.Forexample,19ofthe25multinationalcorporationswillrelyonoffsettingfortheirfuturepledges,withsomecorporatesoffsettingmorethan80%ofallemissionsinthetargetyear(Dayetal.,2022).Theseoffsettingclaimsareparticularlyproblematicwhenrelyingoncarbondioxideremovalsfromforestryandotherbiological-relatedcarbonsequestration.Thesecarbondioxideremovalsaregenerallyneitherpermanentnoradditional,whichmakethemunsuitableforanycompensationclaim.Forexample,nature-basedsolutionscaneasilybereversedthroughexternaleventssuchasforestfiresreleasingthecapturedcarbonbackintheatmosphere.Onlyafewcompanieswithnet-zeropledgesintendtoonlyusehigher-qualityoffsetsforalimitednumberofresidualemissionsorruleouttheuseofoffsetsentirely(Dayetal.,2022;Mooldijketal.,2022).Althoughmanycorporatesrelyonoffsetcredits,businessesprovidelittleinformationontheseoffsetstoallowforindependentreview.Only11outof55U.S.corporationswithnet-zerotargets,forexample,providebasicinformationaboutthetype,volume,andthird-partyverificationofoffsetcredits(Shugar,MyersandFugere,2022).Insteadofrelyingonoffsetstoachievenet-zeroemissions,companiescouldcommittodeepandambitiousemissionreductiontargetsacrosstheirfullvaluechain.Thiswouldbemoretransparentandconstructive,asithighlightsthefeasibleprospect—orthelackthereof—offulldecarbonizationinarespectiveindustry.Thesemoretransparentreductiontargetscanbecombinedwithclimatecontributionsbeyondthecompany’sownvaluechain(NewClimateInstitute,2020,2022;Schallertetal.,2020).Suchclimatecontributionswouldnotclaimtoneutralizeacompany’sownemissionswhilereflectingresponsibilityforitsunabatedemissionstodayandinthefuture.IISD.org68NavigatingEnergyTransitionsOilandgassectordeepdiveTheuseofcontentiousoffsettingpracticesenablesoilandgascompaniestoclaimso-calledneutralizationofcontinuousemissionsfromtheuseoftheirmarketedfossilfuels.Theuseoflow-qualityoffsetcreditscarriestheriskofenablingoilandgascompaniestocontinue—orevenexpand—highlyemission-intensiveactivitywhilewrongfullycoveringuphowpollutingtheiractivitiesare.Thiscandriveattentionawayfromthefactthatoilandgascompaniesneedtorapidlydecarbonizetoward2030andbeyond.Thepracticeofoffsettingremainsparticularlydubiousifoilandgassectorcompaniesneitherlimitoffsetstoarestrictedamountofresidualemissions(e.g.,amaximumof5%ofemissionsacrosstheentirevaluechainbelowagivenbaseyear),norprovidetransparencyonthevolume,type,andqualityofoffsetsusedtodayandinthefuture.Forexample,existingnet-zerotargetsbyBPandShellheavilyrelyoncarbonoffsets,whileneitherofthemhavecommittedtoabsoluteemissionsreductiontargetsfortheirscope3emissions(Shugar,MyersandFugere,2022).Sources:Dayetal.(2022);Li,TrencherandAsuka(2022);Liauw,etal.(2022);Mooldijketal.(2022);NetZeroTracker(2022);O’ConnorandCoffin(2022);Shugar,MyersandFugere(2022);TongandTrout(2022)5.3.3TheRiskofMisleadingPromisesinNet-zeroTargetsintheOilandGasSectorEmergingevidenceindicatesthatlarger-scaleandpubliclyvisiblecompanieswithsubstantiveemissionfootprintsarelikelytosetnet-zerotargets(NewClimateInstituteetal.,2022).AsofMay2022,forexample,fossilfuelindustrycompanieshadthesecondhighestpercentageofnet-zerotargets(49%)amongthoseindustrieswithmorethan10companiesintheForbesGlobal2000.Amongcompaniesoperatinginthefossilfuelsector,severalpubliclylistedoilandgascompanieshaveannouncednet-zerotargetsoverthelastfewyears.In-depthassessmentsoftheirnet-zeropledgesandtransitionplansidentifyseveralshortcomings,summarizedinTable5.1,suchastheexclusionofemissionsfromtheenduseofmarketedfossilfuels.Theabovefindingshighlightakeyriskofrecentlyannouncednet-zerotargetsintheoilandgassector:unsubstantiatedpromiseswithahighpotentialtomisleadconsumers,investors,andregulators.Net-zerotargetsofoilandgascompaniespredominantlyfocusondecarbonizingtheproductionoffossilfuels,thusneglectingtheiractualusebyendconsumersandassociatedemissionsthatconstitutethevastamountofemissionsacrosstheirvaluechain(Shugar,MyersandFugere,2022).Net-zeropledgesofsuchinherentlylowintegritymaygiveexternalstakeholdersaninaccurateandunjustifiedimpressionontheprospectsfordecarbonizinganemission-intensiveindustrysuchastheoilandgassectorfromproductiontofinaluse(Mooldijketal.,2022,p.25).ThismisleadingpracticecanIISD.org69NavigatingEnergyTransitionsdirectlyleadtocontinuedinvestmentsinenergyinfrastructurenotcompatiblewiththeParisAgreement.Unsubstantiatednet-zerotargetsholdthepotentialtonullifydriversofclimateaction,forexample,asregulatorswouldbemoreactiveinintroducingregulationthatleadstocorporatedecarbonization,andshareholderswouldbemoreactiveinrequiringcompaniestodecarbonize,withoutthem.Regulativeapproachesbygovernmentsatglobalandnationallevelsholdanenormouspotentialtoensurehighlyambitiouscorporatelong-termtargets.SuchregulationcouldproviderobustlydefinedconceptsthataddsubstantivecriteriatoensureParisAgreementcompatibility,andmandatecomprehensiveandthird-partyverifieddisclosurepractices.5.3.4LegalActiononNet-zeroClaimsConsumers,investors,andcivilsocietyincreasinglyemphasizetheurgentneedforindependentscrutinyofexistingcorporatenet-zeropledgesandtheirimplementation,andhavepursuedlegalactioninpursuitofthis.Businessesfaceanincreasingnumberoflegalcourtcasesfocusingoninadequatecorporateclimatetargetsandmisleadingproductclaims.Forexample,chargeshavenbroughtforwardagainstShellintheNetherlandsovertheirinsufficient2030climatetargets(TheHagueDistrictCourt,2021),SantosinAustraliaovertheirmisleadingnet-zerotargetby2040(AustralasianCentreforCorporateResponsibility,2022),automobilemanufacturesBMWandVolkswageninGermanyonmandatoryphase-outdatesforinternalcombustionenginesinnewlysoldvehicles(DeutscheUmwelthilfe,2022;GreenpeaceGermany,2022),andonproductline-specificnet-zeroclaimssuchasagainstArlainSwedenontheir“net-zeroclimatefootprint”claim,andKLMRoyalDutchAirlinesintheNetherlandsontheir“Flyresponsible”campaign(ClientEarth,2022a,Konsumentverket,2021).Thistrendmightevenacceleratefurthergiventhatmorebusinessesaremakingnet-zeroclaims,especiallyifmoreandmorecourtsagreewiththeplaintiffs’concerns.5.4InstitutionalInvestorToolsandStrategies:Agrowingmovement,withaneedforreliableinformationTothriveintheglobalenergytransition,businessesandfinancialinstitutionsmustaligntheirstrategieswithanequitable,decarbonizedeconomy.Astableclimateenableseffectiveriskmanagementandvaluecreation,andinstitutionalinvestorsareincreasinglysettingclimatetargetsfortheirownportfoliosorassetsundermanagementwhilepushingcompaniestodiscloseandmitigateemissions.Institutionalinvestors’increasedinterestincorporateclimateactionispartiallyattributabletoasubstantialandgrowingshareofglobalequitiesheldbylargeinstitutionsandinindexfunds,particularlyfollowingthe2008financialcrisis.Suchfundsholdinvestmentsinvirtuallyallmajorcompaniesand,inthecaseofpassiveinvestors,arerequiredtoholdthemaslongastheyremainintherelevantindex.Thismeansthatengagement,ratherthandivestment,istheonlytoolsuchinvestorshavetomanagecompany-specificrisk.Italsonaturallyresultsininvestorsbecominglessconcernedwithindividualcorporateperformanceandmoreattentivetosystemicrisks,suchasclimatechange,thatthreatenfullportfoliovalue(Condon,2020).Motivatedassetmanagers,assetowners,andotherfinancialinstitutionshavesubstantialIISD.org70NavigatingEnergyTransitionspowertoholdcompaniestheyownaccountabletomeaningfulclimatetargets,butneedrobustinformationtoengageeffectively.Investorsaresupportedbyagrowingrangeofclimate-focusedcoalitions,initiatives,ambitiouscorporateclients,andreportingframeworks.Scenarioanalysis,acoreelementofmanyframeworks,isofparticularusetoinvestorsseekingtoanalyzehowportfoliocompaniesarepositionedtorespondtotherisksandopportunitiesofvariousclimateandenergysystemfutures.Investorsneedstandardizeddisclosurestomakedirectcompanycomparisons,andareincreasinglycallingforscenariosdiscussedinnarrativeelementsofacompany’sannualreporttobeintegratedintotheauditedfinancialstatements(Ross,2021).Noneofthecurrentframeworksaloneissufficienttofullyenableinvestorstoassesscorporateclimateperformance,andalackofmandatorynationalandinternationalstandardslimitscomparisons(Dayetal.,2022).Somecountries,includingFrance,NewZealand,andtheUnitedKingdom,haveledinmandatingcorporateclimatedisclosures,butitwilltakethebroadadoptionofnational-levelregulationstoensurethatinvestorshaveconsistent,necessaryaccesstocorporatedisclosuresthataddressthefullrangeofmaterialimpactsfromclimatechange.Thediversifiedportfoliosofinstitutionalinvestors,andpassivefundsinparticular,increasinglyresembleoneanother.Whilethisprovidesinvestorswithcommonincentivestoact,itcanalsoallowinactiveassetownersandmanagerstofreerideinthepushforcorporateemissionsreductions.However,collaborativeinvestorinitiativesareviewedasatoppromisingtrendforimprovedshareholderengagement(Ringe,2021).Inthiscontext,itisencouragingthatinvestorparticipationinClimateAction100+,nowtheworld’slargestinvestorinitiativeonclimate,rose170%overthefirstfouryearsaftertheinitiative’s2017launch(ClimateAction100+,2022a).Inthesametimeframe,theNetworkforGreeningtheFinancialSystem(NGFS),avoluntaryforumofcentralbanksandsupervisorswhereauthoritiesexchangeinformationrelatedtotherisksandopportunitiesofclimateforthefinancialsector,expandeditsfoundingmembershipofeightto116(NGFS,2022a).OneofsixdedicatedworkstreamsatNGFSisdedicatedtorefiningandpromotingtheuseofscenarioanalysiswithinthefinancialsystem.Still,thesecollaborativeeffortsareultimatelyonlysignificantiftheyleadtorealchangesincorporatebehaviour,andsotherewillcontinuetobescrutinybothoftheoverallimpactoftheseprogramsandofwhetherallsignatoriesaremeaningfullycontributingtotheoverallgoals(MajorityAction,2022).Otherinitiativeshavearisensupportinginvestors’portfoliogoals.TheInvestorAgendawasfoundedtoaccelerateandencourageinvestoractiononcorporateengagement,investmentinlow-carbonassets,policyadvocacy,andinvestordisclosure.Assetmanagerswithtargetsalignedto1.5°CcametogetherundertheNetZeroAssetManagersinitiative,whiletheParisAlignedAssetOwnersinitiativeandtheNetZeroAssetOwnersAllianceemergedtosupportassetowners.In2021,theseunitedwithotherspecializedfinancialgroupsintoaloosecoalitionknownastheGlasgowFinancialAllianceforNetZero,undertheumbrellaoftheUNRacetoZerocampaign.IISD.org71NavigatingEnergyTransitionsFigure5.1Climateinitiativesforfinancialinstitutions:AlandscapeUNEPFIPRIAIGCCCDPCeresIIGCCIGCCClimateActionGFANZ2021100+2017InitiativeFounding/supportingorganizationTheInvestorAgenda2018ParisAlignedInvestmentInitiative2019NZAOANetZeroAssetOwnersAlliance2019NZAMNetZeroAssetManagers2020NZBANetZeroBankingAlliance2021NZIANetZeroInsuranceAlliance2021GlasgowFinancialAllianceforNetZero.Asacoalition,GFANZincludesNZAM,NZAOA,NZBA,andNZIA.Notes:AIGCC:AsiaInvestorGrouponClimateChange;IGCC:InvestorGrouponClimateChange;IIGCC:InstitutionalInvestorsGrouponClimateChange.Source:Author’scalculations.5.4.1TheLandscapeofReportingFrameworksInvestorsinfluencecompaniesusingaspectrumoftoolsincludingengagements,shareholderproposals,andboardvotes,eitheragainstcurrentdirectorsorforalternativeslates,alongsidecampaignstopressurecompaniesusingtoolssuchaspubliclettersorjointinvestorstatements.Companiesdorespond—one2020analysisfoundcompaniesfullymettherequestsof94%ofshareholderproposalsthatreceivedamajorityvote(Blackrock,2020),IISD.org72NavigatingEnergyTransitionsthoughmajorityvotesarestillnotthenormandarehighlydependentontheperceivedambitionoftheproposalask.Analysisshowsthatastheambitionofshareholderresolutionsevolvesyeartoyear,thenumberofmajorityvoteschanges(Ceres,2022).Insomecases,acompany’spersistentfailuretorespondwillresultindivestment,inlinewithstandardsdevelopedbyinvestors(OfficeoftheNewYorkStateComptroller,2022).Theclimatedisclosuresrequestedbyinvestorsrelyuponanevolvingandgrowingseriesofreportingframeworks—thenumberofESGreportinginstrumentshasgloballyacceleratedoverthepastdecade(Woodsetal.,2022).In2021,theInternationalFinancialReportingStandardsFoundationlaunchedtheInternationalSustainabilityStandardsBoard(ISSB)withthegoalofestablishingglobalsustainabilityreportingstandards.ISSBnowencompassesseveralpre-existinginitiatives,includingtheClimateDisclosureStandardsBoardandtheValueReportingFoundation.ItreleaseditsfirststandardsforconsultationinMarch2022.Investorssupportthedevelopmentofstronginternationalstandards.In2021,investorsrepresentingmorethanUSD52trillioncalledongloballeaderstosetmandatoryclimateriskdisclosurerequirements(InvestorAgenda,2021).Fornow,reportinglargelyremainsvoluntary,andnotallstandardsincludecomprehensivemetricsanalyzingalignmentwith1.5°C,althoughmostrecommendsomeformofscenarioanalysis.ManyoftheseresourcesandframeworksareconnectedtoorrelyupononeanotherinawebofrelationshipsdetailedinFigure5.2.Someofthemostinfluentialinclude:•GlobalReportingInitiative(GRI):Establishedin1997,GRIprovidesbroadglobaldisclosurestandardsdesignedtopresentacomprehensiveunderstandingofeconomic,environmental,andsocietalimpacts.•CDP:CDPquestionnairesareintendedtohelpinvestors,companies,andregulatorsmeasurecorporateimpactsandrisksrelatedtoclimatechange,deforestation,andwatersecurity,withquestionsthatfacilitateassessmentofalignmentwiththe1.5°Cscenario.CDPhasreleasedspecificguidanceaimedatenhancingscenarioanalysisdisclosures(Tucker,2021).ThefirstroundofCDPdisclosuresin2002garnered245companyresponses.By2020,morethan10,000companies,cities,states,andregionshaddisclosedthroughCDP(CDP,2022).•SustainabilityAccountingStandardsBoard(SASB):SpecializedstandardsfromSASB,establishedin2011,specificallyfocusonthefinanciallymaterialimpactsofsustainability-relatedrisksandopportunities,with77sector-specificsetsofguidelines.SASBstandardsrecommendscenarioanalysisdisclosuresforcertainindustriesinwhichclimateimpactsaremostlikelytobematerial.In2021,SASBmergedwiththeInternationalIntegratedReportingCouncil,formingtheValueReportingFoundation.•TaskForceonClimate-relatedFinancialDisclosures(TCFD):Avoluntaryframeworkdevelopedin2017bytheFinancialStabilityBoardtostandardizecorporateclimatedisclosuresandhelpinvestorsassesswhetherclimateriskispricedintovaluations.ScenarioanalysisisakeyrecommendationofTCFD,generallyreferencingdisclosuresinlinewitha2°Cscenario,thoughupdatedimplementationguidelinesdirectorganizationsto“consider”analysisalignedwith1.5°C(TCFD,2021).IISD.org73NavigatingEnergyTransitions•SBTi:SBTidefinesbestpracticesforcorporateclimatetarget-setting,offersresourcesandguidance,andindependentlycertifiestargetsagainstspecific,science-basedcriteria.SBTiprovidesstakeholderswithindependentanalysisofwhethercorporatetargetsarealignedwitha1.5°Cor2°Cpathways.In2021,SBTilauncheditsnet-zerostandard,initiatingaphase-outofverificationforcommitmentsnotalignedwith1.5°Cscenarios.•ClimateAction100+NetZeroCompanyBenchmark:TheBenchmarkassessescompaniesagainsttheinitiative’shigh-levelgoalsonindicatorsmaterialtofinancialperformance,equity,andemissionsreductions.Indicator10assessescommitmentstoaligndisclosureswithTCFDrecommendations.TofulfillallIndicator10criteria,companiesmustexplicitlyincludea1.5°Cscenarioanalysis(ClimateAction100+,2022b).5.4.2AGrowingNeedforStrongerToolsInvestorscanhelpaccelerateglobaldecarbonizationbyensuringcompanies’capitalexpendituresalignwithclimategoals.In2021,IEAfoundthatcleanenergyinvestmentsmusttriplebytheendofthedecadeinordertoattainnet-zeroby2050(IEA,2021a).Clearcorporatealignmentofclimatecommitmentswithcapitalexpenditurescangiveinvestorsconfidencethattargetswillbeachievedandrisksmitigated.Tothisend,investorsandadvocatesseektoreinforcecurrentstandardsandframeworkstoensurebroaderuse,greateraccountability,andadecreasedriskofgreenwashing.Onestrategyaimstoensurethatcompanies’narrativeclimatedisclosuresareconsistentwiththeirfinancialreports,withafocusonthird-partyauditandexpandedassurance(IIGCC,2020;PrinciplesforResponsibleInvestment[PRI],2020).Assumptions,suchasfuturecommodityprices,areembeddedincashflowestimatesandmustbepresentinfinancialstatementsforinvestorstoaccuratelyassessrisksandopportunities.Althoughglobalstandardsstatethatmaterialclimate-relatedrisksshouldnotbeignoredinaccountsoraudits,a2021reportfoundthat70%ofcorporateemittersanalyzeddidnotdisclosetheimpactsofclimateriskintheirfinancialstatements(DavidsonandSchuwerk,2021).Supportforthisstrategyisaccelerating.In2022,ashareholderproposalatExxonMobil,filedbyChristianBrothersInvestmentServices,Inc.,callingfordetailedreportsonhowapplyingtheassumptionsoftheIEANZEscenariowouldimpactcompanyfinancialstatementsandpositions,earnedmajoritysupport,injustthesecondyearsuchaproposalwasintroduced.Sector-specificanalysisandguidanceonthisissueisalsoemerging(Ross,2021).ExxonMobilhadalreadybeenthesubjectofasignificantsuccessfulcampaignin2021byimpacthedgefundEngineNo.1,inpartnershipwiththeUnitedStates’second-largestpensionfund,CaliforniaStateTeachers’RetirementSystem,thatsuccessfullyreplacedthreemembersofthecompany’s12-memberdirectorboardwithcandidateswithclimateandcleanenergyexperience.Thiscampaigniscitedasanexampleofthecriticalrolethathedgefundscanplayinmonitoringcompaniesandinitiatingcampaignsthatmotivatethepivotalsupportoftheincreasinglydominant“BigThree”assetmanagers,BlackRock,StateStreetandVanguard.ThecampaignatExxonMobilwaswelltimed,occurringasthosefundswereincreasinglymakingpubliccommitmentstosustainableinvesting,includingpledgestovoteagainstdirectorswhofailtoadequatelyaddressclimatechange(Christie,2021).IISD.org74NavigatingEnergyTransitionsFigure5.2MapofclimatereportingframeworksandresourcesGRIGRIandSASBreleasedguidanceSASBin2021onhowthestandardsworktogether.GRIservesasageneraldisclosureguideline;SASBTheValueReportingGRIandCDPhaveprovidesdata-driveninformationFoundation,parentorganizationcollaboratedtoensureaimedatﬁnancialinstitutions.ofSASB,wasconsolidatedintoalignmentbetweenISSBinJune2022.GRIstandardsandCDP’sframework.TheinitialISSBdraftswereintended,accordingtoIFRS,tobuilduponTCFDSBTI’ssectorrecommendationsandSASBstandards.CDPclassiﬁcationsGRIandISSBISSBarebasedonthebeganworkinOneClimateBusinessActivityMay2022toharmonizeTheinitialISSBdraftsAction100+Groupsclassiﬁcationsworkprogramsandwereintended,accordingNetZeroCompanydevelopedbyGRI.standard-settingactivities.toIFRS,tobuilduponBenchmarkdrawsonTCFDrecommendationsinformationfromCDPiscommittedtofullyaligningitsandSASBstandards.existingdisclosureplatformwithTCFDrecommendationsplatforms,suchasCDP.andreleasedaTCFD-alignedquestionnairefollowedbyaseriesofalignedsector-speciﬁcSBTiquestionnaires.ClimateAction100+BenchmarkOneClimateAction100+NetZeroTCFDIn2022,SBTireleasedaCompanyBenchmarkindicatorassessesrequestforproposalsaimedcompanies’TCFDdisclosures.atprovidingguidanceonhowSBTiandTCFDcanbeusedtogether.Source:Author’scalculations.IISD.org75NavigatingEnergyTransitionsInstitutionalinvestorsarealsoadvocatingforgreaterinsightintobusinessstrategybydemandingtime-boundtransitionplansthatdetailhowclimatetargetswillbeachieved.Transitionplanrecommendationsvaryacrossframeworks,andarangeofanalyticalguidanceisavailabletoinvestors(PinkoandPastor,2022).Forcompanies,theClimateAction100+decarbonizationstrategyemphasizesthatcompaniesshouldassessandquantifythecontributionofeachaction.However,mosttransitionplansfallshortofstandard-setterrecommendations:in2021,just1%ofmorethan13,000companieswithCDPdisclosuresmetall24oftheorganization’skeytransitionplanindicators(Bartlettetal.,2022).Forinvestors,theInvestorAgendaestablishedtheInvestorClimateActionPlanself-assessmenttool,designedtobothhelpusersmapoutparticipationinthenet-zerotransitionandprovideaccountabilitytostakeholders,governments,andthepublic.TheInvestorClimateActionPlan’sExpectationLaddermeetsinvestorsattheirstartingpointofclimateambition,andhighlightsspecificactionsthatwillstrengthentheirapproachandensureprogresstowardshort-andmedium-termgoals.5.4.3ThePowerofNational-levelMandatoryDisclosureInvestorscaneffectivelywieldtheirinfluence,throughengagementsandshareholdervotes,tomovecompaniestowardimprovedmanagementofclimaterisk.Thiscantaketheformofsettingreliabletargets,suchasthoseverifiedbySBTi,andprovidingdetailedscenarioanalysis,asrecommendedbyTCFD.Theresultingdisclosurescanhelpensurethatinvestorsareabletomakeinformeddecisionsandmaximizevalue,andthatcompaniesareheldaccountabletotheirclimatecommitments.Yetduetothelargelyvoluntarystatusoftoday’sreportingframeworks,dataisnotalwaysreleasedpubliclyandcanbetreatedasproprietary,whiledisclosurescannotbeeasilyanalyzedorcompared.Withoutnational-levelregulation,eventheimpendingISSBstandards,aimedatcreatingaunifyingframework,willfaceslowadoption.Rigorousmandatorystandardswouldhelpensurematerialinformationisconsistentlydisclosedwithinandacrosscountries.Someregulationsareemerging,manyrestingonthestrengthoftheTCFDframework.Francemovedearly:art.173ofthe2016FrenchEnergyTransitionLawwasthefirsttoenshrinesuchclimate-relatedrulesforinvestorsonacomply-or-explainbasis.A2021replacementlawaddedrequirementsforinvestors,banks,andinsurerstoreportnotonlyonclimate-relatedbutalsobiodiversity-relatedrisks.TheEuropeanUnion’sSustainableFinanceDisclosureRegulationwaslaunchedinspring2021.Inearly2022,theU.S.SecuritiesandExchangeCommission(SEC)releasedadraftrulethatwouldrequirepubliccompaniestoreleaseclimateriskdisclosures.Foroveradecade,theU.S.NationalAssociationofInsuranceCommissionershasrequiredclimateriskdisclosurefrommostinsurers,andrecentlyhasmovedtoalignitsrequirementswithTCFD(NationalAssociationofInsuranceCommissioners,2022).Nonetheless,theSEC’sproposedruleshavefacedsomecontroversy,includingsuggestionsoflegalactionbyRepublicanPartyleadersandtradeassociationsliketheAmericanPetroleumInstitute,whilesupportersmaintainthattheproposedrulesfallwithintheSEC’sstatutoryauthority.Letterssubmittedwhenthepublicwasinvitedtocommentwerebroadlysupportiveofthedraftrules,thoughananalysisfromKPMGindicatedthatgeneralapprovalshouldnotbeinterpretedaswholesalesupportforthespecificproposalelements(KPMG,2022).IISD.org76NavigatingEnergyTransitionsAregulatoryapproachcanaccelerateaction.In2022,theUnitedKingdombecamethefirstG20countrytomandatecorporatereportingofclimate-relatedrisksandopportunitiesinlinewithTCFDrecommendations;asubsequentanalysisfoundasignificantincreaseinthenumberofpremium-listedcompaniesmakingdisclosuresthatwereeitherpartiallyormostlyTCFD-consistent(FinancialConductAuthority,2022).Inturn,investorscanspeedadoptionofregulationsthroughadvocacy.5.4.4AFocusonOilandGasForinvestors,lackofambitionbymanyoilandgascompaniesthreatensglobalprogresstoreduceemissions,increasestheriskofstrandedassets,andunderminestheindustry’ssociallicencetooperate.Theindustrywillneedtotransform,anddosorapidly—nonewoilandgasfieldsareapprovedforexplorationinanet-zeroby2050scenarioaccordingtotheIEA,afindingconfirmedinchapter3ofthisreport(IEA,2021a).Thisreportfollowsthe2019publicationoftheOneEarthClimateModel(OECM),a1.5°C-alignedscenariomodelwithoutovershoot.AnupdatedversionoftheOECMcommissionedbytheNetZeroAssetOwnersAlliancewasreleasedin2022withdetailedsectoraldecarbonizationpathways(Teskeetal.,2022).TheMarch2022ClimateAction100+NetZeroCompanyBenchmarkshowshowfaroilandgascompaniesarefromachievingthattransformation.Onlythreeof39oilandgascompaniesassessedhadtransitionpathwaysalignedwith1.5°C,andonlyonewasassessedtohavecapitalexpendituresinlinewithsuchascenario.Attaininganet-zerogoalrequiresacomprehensivebusinessmodeltransformationforoilandgascompanies.Analyzingtheirtransitionplansiscomplex,andtheoptimalpathwillbedifferentforeachcompany(Gardiner,2021).TheIEA’sunequivocalfindingschallengefinancialinstitutionstoevaluatetheirpoliciesandstrategiesfortheoilandgasindustry.In2022,SBTireleasedguidanceonnet-zerotargetsettingforfinancialinstitutions,with19initialcertifiedtargets,includingfromLaBanquePostale,whichcommittedtoacompletewithdrawalfromoilandgasupstreamandmidstreamactivitiesby2030(SBTi,2022).ShareholdersandassetownersarenowusingtheIEANetZeroandOECMpathwaysasanalignmentmetric,inengagementsandresolutions(Ceres,2022).“Itisessentialthatoilandgascompanyboardsknowthatthosewithcredibleindependentlyverifiednetzerostrategieswillbesupportedbytheirinvestors”,notestheIIGCCNetZeroStandardforOilandGasCompanies.“Equallyimportantisthatthosewithoutwillbechallenged”(Gardiner,2021).Chapter5hasdemonstratedtheneedtobringmorecoherencetothelandscapecompanies’climatedisclosures.Corporateclimatereportingisinstrumentaltothefinancialsector’sabilitytochannelcapitalwhereitismostneededtoacceleratetheenergytransition.Rigorousmandatorystandardswouldenabletheproductionofstandardizedinformation,disclosedconsistentlywithinandacrosscountries.Governmentshaveanimportantroletoplayinsettingupmandatoryrequirementsforreportingmethodologies.However,untilaunifiedframeworkemerges,companiescancontributetopositivelybridgingtheinformationgasbyadoptingsomeofthevoluntaryreportingmethodologiesavailable.IISD.org776.0ConclusionsandKeyPolicyRecommendationsNavigatingEnergyTransitionsInthisreport,wehaveforthefirsttimeanalyzedandcomparedthefindingsofenergyscenarioscompatiblewiththe1.5°Cgoal,acrossthefullbodyofpublishedglobalmodelledpathways.WeselectedscenarioswhichdonotexceedIPCCjudgementsoffeasibleandsustainablelevelsofcarboncaptureandstoragedeployment.Thereportfocusedonpathwaysforthephase-outofoilandgas,andfortheexpansionofwindandsolar,requiredforglobaltemperaturestohaveagoodchanceofstayingwithinthe1.5°Climit.Forboth,wefoundahighdegreeofalignmentbetweenscenarios,suggestingthatacommonsetofactionsisrequired.Basedonthesefindings,andonananalysisofthecurrentopportunitiesandbarrierstopolicychange,wehavederivedanumberofpolicyrecommendations,forgovernments,investors,andfinancialinstitutions,toenableconcertedeffortsalignedwiththegoalsoftheParisAgreement.1.Governmentsshouldpreventthedevelopmentandlicensingofanynewoilandgasfields.Developinganyfieldsbeyondthosealreadyinoperationorunderdevelopmentwouldposesubstantialrisksofeithernotmeetingthe1.5°Ctargetorcreatingstrandedassets,becausethosefieldswouldhavetobedecommissionedbeforetheendoftheirlifespan,unlesscurrentlyproducingfields’operationsaresignificantlycurtailed.2.Governmentsmustprovidemoreandbettersupporttowindandsolardeployment.Theyneedtoimprovecurrentpoliciesandputinplacenewones,toincreasesolarandwindcapacityworldwide.Theseshouldincludepolicyframeworksaimedatreducingpermittingandlicensingdelaysforrenewables’installation,aswellaslocalizingrenewableenergyvaluechainstomakethemmoreresilienttotradewars,politicalconflicts,andpricevolatility.3.Governmentsshouldcreateenablingenvironmentsforredirectingbothpublicandprivatecapitalflowstowardthecleanenergytransitionincludingthedeploymentofadditionalsolarandwindcapacity.Theforecastedinvestmentsintheexplorationanddevelopmentofnewoilandgasfields–incompatiblewiththe1.5°Cpathways–arehigherthantheinvestmentgapforwindandsolardeployment.4.Thecurrentenergycrisis,experiencedbyEuropeinparticular,shouldnotbetackledbyincreasingthecontinent’srelianceongas.Doingsowouldriskputtingthe1.5°Cgoalevenfurtheroutofreach,orcreatingstrandedassetsfornewlybuiltinfrastructurebothinEuropeandingas-exportingcountries,whilenotsolvingtheshort-termcrunch.GovernmentsandinvestorsshouldinsteadviewthecrisisasanopportunitytofurtherstepupEurope’scleanenergyambition,bystrengtheningexistingframeworkssuchastheEUFitfor55packageandtheEuropeanGreenDeal.5.Investmenttreatiesneedtobeurgentlyandradicallyreformedorrepealedtoallowgovernmentstoenforce1.5°C-compatibleoilandgasphase-outpathways.Governmentscantacklethisissuebypursuingoneoracombinationofexistingsolutions,namelyamoratoriumonanyfurtherlicensingorissuingofexplorationpermitsforoilandgas,settingupsystemstopayoutcompensationinreturnforawaiveroftreatyrights,andeventuallyreformingandterminatinginvestmenttreaties.IISD.org79NavigatingEnergyTransitions6.Governmentsshouldbetterregulatethelong-termtargetsofthecorporatesector,atboththeglobalandnationallevels,toensurethattheysupportthegoalsoftheParisAgreement.Regulativeapproachesbygovernmentsholdcriticalpotentialtoensurehighlyambitiouscorporatelong-termtargets.SuchregulationcouldproviderobustlydefinedconceptsthataddsubstantivecriteriatoensureParisAgreementcompatibility,andmandatecomprehensiveandthird-partyverifieddisclosurepractices.7.Governmentsshouldsetupmandatoryrequirementsforcompanies’reportingmethodologies.Untilthen,investorscanfillthegapbyadoptingvoluntaryreportingmethodologies.Corporateclimatereportingisinstrumentaltotheabilityofthefinancialsectortochannelcapitalwhereitismostneededtoacceleratetheenergytransition.Rigorousmandatorystandardswouldenabletheproductionofstandardizedmaterialinformation,consistentlydisclosedwithinandacrosscountries.IISD.org80NavigatingEnergyTransitionsResourcesAbnett,K.(2022).Analysis:EUgassolidaritycomplicatedbylackoffuelsharingdeals.Reuters.https://www.reuters.com/business/energy/eu-gas-solidarity-complicated-by-lack-fuel-sharing-deals-2022-07-29/Adomaitis,N.(2022).Equinor,partnerstodevelop$940mlnNorwaygasandcondensateproject.Reuters.https://www.reuters.com/business/energy/equinor-partners-develop-940-mln-norway-gas-condensate-project-2022-05-25/AfricaNews.(2022).NigeriaapprovesproposalforgaspipelineprojecttoMorocco.https://www.africanews.com/2022/06/02/nigeria-approves-proposal-for-gas-pipeline-project-to-morocco/AfricanClimateRealityProject.(2021).FinancingajusttransitioninAfrica:ApositionstatementfromtheZeroEmissionsOmissionscoalitiontotheAfricanDevelopmentBank.https://citinewsroom.com/wp-content/uploads/2022/01/AfDB_PositionPaper_English.pdfAitken,G.,Langenbrunner,B.,&Zimmerman,S.(2022).Europegastrackerreport2022.GlobalEnergyMonitor.https://globalenergymonitor.org/report/europe-gas-tracker-2022/Aizawa,M.,&Mann,H.(2021).Environmental,socialandeconomicdevelopmentprovisionsininvestmentcontracts:Aresourceforgovernmentlawyersinthecommonwealth.CommonwealthSecretariat.https://www.thecommonwealth-ilibrary.org/index.php/comsec/catalog/view/11/1/46Alschner,W.(2022).Investmentarbitrationandstate-drivenreform:Newtreaties,oldoutcomes.OxfordUniversityPress.Alvarez,R.A.,Zavala-Araiza,D.,Lyon,D.R.,Allen,D.T.,Barkley,Z.R.,Brandt,A.R.,Davis,K.J.,Herndon,S.C.,Jacob,D.J.,Karion,A.,Kort,E.A.,Lamb,B.K.,Lauvaux,T.,Maasakkers,J.D.,Marchese,A.J.,Omara,M.,Pacala,S.W.,Peischl,J.,Robinson,A.L.,Shepson,P.B.,Sweeney,C.,Townsend-Small,A.,Wofsy,S.C.,&Hamburg,S.P.(2018).AssessmentofmethaneemissionsfromtheU.S.oilandgassupplychain.Science,361(6398),186–188.https://doi.org/10.1126/science.aar7204Anderson,K.,&Peters,G.(2016).Thetroublewithnegativeemissions:Relianceonnegativeemissionconceptslocksinhumankind’scarbonaddiction.Science,354(6309),182–183.https://doi.org/10.1126/science.aah4567Artelys.(2022).Doesphasing-outRussiangasrequirenewgasinfrastructure?Briefingnote.https://www.artelys.com/wp-content/uploads/2022/05/Artelys-Russian-gas-phase-out-Briefing-note.pdfAsmelash,E.,&Prakash,G.(2019a).Futureofsolarphotovoltaic:Deployment,investment,technology,gridintegrationandsocio-economicaspects.InternationalRenewableEnergyAgency.https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2019/Nov/IRENA_Future_of_Solar_PV_2019.pdfIISD.org81NavigatingEnergyTransitionsAustralasianCentreforCorporateResponsibility.(2022).AustralasianCentreforCorporateResponsibilityexpandslandmarkFederalCourtcaseagainstSantos.https://www.accr.org.au/news/australasian-centre-for-corporate-responsibility-expands-landmark-federal-court-case-against-santos/BaldonAvocats.(2022).Summarynoteonregulatorychill.https://www.exitect.org/sites/default/files/2022-06/Summary_Note_on_Regulatory_Chill.pdfBartlett,N.,Jenkins,E.,Bamkole,S.,Twigg,S.,&Coleman,T.(2022).Arecompaniesbeingtransparentintheirtransition?CDP.https://www.cdp.net/en/guidance/guidance-for-companies/climate-transition-plansBBCNews(2022).Whatisthewindfalltaxonoilandgascompaniesandhowdoesitwork?https://www.bbc.com/news/business-60295177Blackrock.(2020).Our2021stewardshipexpectations:Globalprinciplesandmarket-levelvotingguidelines.https://www.blackrock.com/corporate/literature/publication/our-2021-stewardship-expectations.pdfBlake,M.(2022).Poland’sPGNiGsecuresLNGsupplyfromU.S.firmSempra.Reuters.https://www.reuters.com/business/energy/sempra-energy-strikes-lng-supply-deal-with-polish-oil-gas-2022-05-16/Blas,J.(2022).Germany’sswitchtodieselfromgascomesatacost.WashingtonPost.https://www.washingtonpost.com/business/energy/germanys-switch-to-diesel-from-gas-comes-at-a-cost/2022/08/04/1ea21844-13b3-11ed-8482-06c1c84ce8f2_story.htmlBloombergNewEnergyFinance.(2021).Newenergyoutlook2021.https://about.bnef.com/new-energy-outlook/BloombergNewEnergyFinance.(2022).Dataproducts.https://about.bnef.com/product/Bonnitcha,J.(2017).Assessingtheimpactsofinvestmenttreaties:Overviewoftheevidence.InternationalInstituteforSustainableDevelopment.https://www.iisd.org/system/files/publications/assessing-impacts-investment-treaties.pdfBonnitcha,J.,&Brewin,S.(2020).Compensationunderinvestmenttreaties.InternationalInstituteforSustainableDevelopment.https://www.iisd.org/sites/default/files/publications/compensation-treaties-best-practicies-en.pdfBP.(2022a).BPenergyoutlook2022edition.https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/energy-outlook/bp-energy-outlook-2022.pdfBP.(2022b).BPstatisticalreviewofworldenergy:2022,71stedition.https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2022-full-report.pdfBrewin,S.,&Schaugg,L.(2022).Modestmodernizationormassivesetback?AnanalysisoftheEnergyCharterTreatyagreementinprinciple.InternationalInstituteforSustainableDevelopment.https://www.iisd.org/publications/report/energy-charter-treaty-agreement-analysisIISD.org82NavigatingEnergyTransitionsBridle,R.,Sharma,S.,Mostafa,M.,&Geddes,A.(2019).Fossilfueltocleanenergysubsidyswaps:Howtopayforanenergyrevolution.GlobalSubsidiesInitiative.https://www.iisd.org/system/files/publications/fossil-fuel-clean-energy-subsidy-swap.pdfBrown,S.(2022).EUcanstopRussiangasimportsby2025.Ember,E3G,RegulatoryAssistanceProject,&Bellona.https://ember-climate.org/insights/research/eu-can-stop-russian-gas-imports-by-2025/Brutschin,E.,Pianta,S.,Tavoni,M.,Riahi,K.,Bosetti,V.,Marangoni,G.,&vanRuijven,B.J.(2021).Amultidimensionalfeasibilityevaluationoflow-carbonscenarios.EnvironmentalResearchLetters,16(6),064069.https://doi.org/10.1088/1748-9326/ABF0CEBudinis,S.,Krevor,S.,Dowell,N.M.,Brandon,N.,&Hawkes,A.(2018).AnassessmentofCCScosts,barriersandpotential.EnergyStrategyReviews,22,61–81.https://doi.org/10.1016/j.esr.2018.08.003Byers,E.,Krey,V.,Kriegler,E.,Riahi,K.,Schaeffer,R.,Kikstra,J.,Lamboll,R.,Nicholls,Z.,Sandstad,M.,Smith,C.,derWijst,K.,Lecocq,F.,Portugal-Pereira,J.,Saheb,Y.,Stromann,A.,Winkler,H.,Auer,C.,Brutschin,E.,Lepault,C.,Müller-Casseres,E.,Gidden,M.,Huppmann,D.,Kolp,P.,Marangoni,G.,Werning,M.,Calvin,K.,Guivarch,C.,Hasegawa,T.,Peters,G.,Steinberger,J.,Tavoni,M.,vanVuuren,D.,Al-Khourdajie,A.,Forster,P.,Lewis,J.,Meinshausen,M.,Rogelj,J.,Samset,B.,&Skeie,R.(2022).AR6scenariosdatabase.Zenodo.https://doi.org/10.5281/zenodo.5886912Caldecott,B.,Howarth,N.,&McSharry,P.(2013).Strandedassetsinagriculture:Protectingvaluefromenvironment-relatedrisks.SmithSchoolofEnterpriseandtheEnvironment,UniversityofOxford.www.smithschool.ox.ac.uk/publications/reports/stranded-assets-agriculture-report-final.pdfCalverley,D.,&Anderson,K.(2022).PhaseoutpathwaysforfossilfuelproductionwithinParis-compliantcarbonbudgets.TyndallCentreforClimateChangeResearch,UniversityofManchester.https://www.research.manchester.ac.uk/portal/files/213256008/Tyndall_Production_Phaseout_Report_final_text_3_.pdfCarbonTracker.(2022).Unburnablecarbon:Tenyearson.https://carbontracker.org/reports/unburnable-carbon-ten-years-on/.Catalyst.(2021).UnlockingclimatefinancetoaccelerateenergyaccessinAfrica.ShellFoundationandTheRockefellerFoundation.https://shellfoundation.org/app/uploads/2021/04/Unlocking-Climate-Finance-for-SDG7-Report-For-RF-web-04-21-2021.pdfCDP.(n.d.).Celebrating20yearsofCDP.https://www.cdp.net/en/info/about-us/20th-anniversaryCDP.(2022).Justathirdofcompanies(4002/13,000+)thatdisclosedthroughCDPin2021haveclimatetransitionplans.https://www.cdp.net/en/articles/companies/just-a-third-of-companies-4002-13-100-that-disclosed-through-cdp-in-2021-have-climate-transition-plansCenterforStrategic&InternationalStudies.(2020).Theneedforaleapfrogstrategy.https://www.csis.org/analysis/need-leapfrog-strategyIISD.org83NavigatingEnergyTransitionsCeres.(2022).Recordnumberofnegotiatedagreementsbetweeninvestorsandcompaniesin2022proxyseason:Agreementsbringscoresofstrongerclimatecommitments.Pressrelease.https://www.ceres.org/news-center/press-releases/record-number-negotiated-agreements-between-investors-and-companies-2022Cherp,A.,Vinichenko,V.,Jewell,J.,Brutschin,E.,&Sovacool,B.(2018).Integratingtechno-economic,socio-technicalandpoliticalperspectivesonnationalenergytransitions:Ameta-theoreticalframework.EnergyResearch&SocialScience,37,175–190.https://doi.org/10.1016/j.erss.2017.09.015Christie,A.(2021).Theagencycostsofsustainablecapitalism.UCDavisLawReview,55(2),875–954.https://ssrn.com/abstract=3766478ClientEarth.(2022a).ClaimfiledagainstKLMovergreenwashingallegations.https://www.clientearth.org/latest/press-office/press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cialfocusonthedevelopmentoftheenergysectoranditsimplicationsforglobalclimate.ItisdevelopedandmaintainedbythePotsdamInstituteforClimateImpactResearch.3.WITCHmodel,aglobaldynamicmodelintegratingtheinteractionsbetweentheeconomy,technologicaloptions,andclimatechange.ItwasdevelopedattheRFF-CMCCEuropeanInstituteonEconomicsandtheEnvironment.TableA.2Listofthe26IPCC1.5°CpathwayslimitingCDRandCCSdeploymentModelScenarioMESSAGEix-GLOBIOM1.0LowEnergyDemand_1.3_IPCCMESSAGEix-GLOBIOM_1.1EN_NPi2020_450MESSAGEix-GLOBIOM_1.1EN_NPi2020_500MESSAGEix-GLOBIOM_1.1EN_NPi2020_600_COVMESSAGEix-GLOBIOM_1.1EN_NPi2020_600_DR1pMESSAGEix-GLOBIOM_1.1EN_NPi2020_600_DR2pMESSAGEix-GLOBIOM_1.1EN_NPi2020_600_DR3pMESSAGEix-GLOBIOM_1.1EN_NPi2020_600_DR4pMESSAGEix-GLOBIOM_1.1NGFS2_DivergentNetZeroPoliciesMESSAGEix-GLOBIOM_1.1NGFS2_Net-Zero2050MESSAGEix-GLOBIOM_1.2COV_GreenPush_550MESSAGEix-GLOBIOM_1.2COV_NoPolicyNoCOVID_550MESSAGEix-GLOBIOM_1.2COV_Restore_550MESSAGEix-GLOBIOM_1.2COV_SelfReliance_550MESSAGEix-GLOBIOM_1.2COV_SmartUse_550REMIND2.1LeastTotalCost_LTC_brkLR15_SSP1_P50IISD.org103NavigatingEnergyTransitionsModelScenarioREMIND-MAgPIE2.1-4.2CEMICS_SSP1-1p5C-minCDRREMIND-MAgPIE2.1-4.2CEMICS_SSP2-1p5C-minCDRREMIND-MAgPIE2.1-4.2EN_NPi2020_600f_COVREMIND-MAgPIE2.1-4.2SusDev_SDP-PkBudg1000REMIND-MAgPIE2.1-4.3DeepElec_SSP2_HighRE_Budg900WITCH5.0EN_NPi2020_400fWITCH5.0EN_NPi2020_450WITCH5.0EN_NPi2020_450fWITCH5.0EN_NPi2020_500WITCH5.0EN_NPi2020_500fRegionalDisaggregationRegionaldataonwindandsolarannualcapacityadditionswereextractedusingtheselectedIPCC1.5°CscenariosshowninTableA.2.However,fromthissubsetof26selectedscenarios,only11includedregionallydisaggregateddata.TheanalysisoftheregionaldeploymentofwindandsolarcapacityisbasedonthedataprovidedbytheREMINDandWITCHmodels.AstheMESSAGEixmodeldoesnotincluderegionallydisaggregateddataforwindandsolarcapacityadditionfortheregionselected,itwasexcludedfromthispartoftheanalysis.ItshouldbenotedthattheestimatesfromwindandsolardeploymentintheREMINDandWITCHmodelsaresmallerthanthoseintheMESSAGEixmodel.Thisskewstheregionalestimates,suchthatthesumofallthecapacitydeploymentfortheregionallydisaggregateddataissmallerthanthetotalestimatespresentedinsection3.3ofchapter3.Forthisreason,theregionalestimatesrepresentmorereliableassessmentwhenitcomestotherelativesizeofthefuturecapacityneedsbetweenregionsandtheindicativescaleofthegapincapacityneedsovertheforthcomingdecade,butarelikelytobeanunderestimateofwindandsolarcapacitydeploymentneedsinabsoluteterms.WindandSolarCapacityAdditionalInvestmentCostsTheinvestmentcostsshowninchapter3forwindcapacityadditionareestimatedbasedontheInternationalRenewableEnergyAgency(IRENA)’sforecastsoftheevolutionoftotalcapitalcostsofawindpowerplantoverthecomingdecade(IRENA,2019b).Theseestimateswerethenmultipliedbytheannualcapacityadditionforwindenergy.Thecapitalcostgeneratingagigawattofwindpowerincludesanassessmentofthecostoffourmaincategories:IISD.org104NavigatingEnergyTransitions1.Windturbinecost:rotorblades,gearbox,generator,powerconverter,nacelle,tower,andtransformer2.Civilworks:constructionworksforsitepreparationandfoundationsfortower3.Gridconnectioncosts:transformers,substations,andconnectiontothelocaldistributionortransmissionnetwork4.Planningandprojectcosts:developmentcostandfees,licences,financialclosingcosts,feasibilityanddevelopmentstudies,legalfees,owners’insurance,debtservicereserveandconstructionmanagementTheinvestmentcostsshowninsection3forsolarcapacityadditionareestimatedbasedonIRENA’sforecastsofthetotalcapitalcostsofagigawattofsolargenerationcapacity(IRENA,2019a).Itincludesanassessmentof:1.Costofnon-modulehardware:cabling,racking,andmounting;safetyandsecurity;gridconnection,monitoring,andcontrol2.Installation:mechanicalandelectricalinstallation,inspection3.Softcosts:incentiveapplication,systemdesign,permitting,customeracquisition,financingcosts,andmarginThesecostsforwindandsolarcapacityadditionreflectalargerangeofconsiderationsandreflectarealisticestimateofthefulldeploymentcostsassociatedwiththesetechnologies.However,thereareseveraladditionalcostsassociatedwiththefullintegrationofrenewablesintotheenergysystems.Transmissionlinesandstorageunitsarealsonecessarytobalancetheintermittenciesofrenewableenergies.Theselatercostsarenotconsideredinthisreport,astheygobeyondthescopeofouranalysis.IISD.org105NavigatingEnergyTransitionsIISD.org106©2022TheInternationalInstituteforSustainableDevelopmentPublishedbytheInternationalInstituteforSustainableDevelopmentHeadOfficeTel:+1(204)958-7700Website:www.iisd.org111LombardAvenue,Suite325Twitter:@IISD_newsWinnipeg,ManitobaCanadaR3B0T4iisd.org

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