A newly updated climate scenario analysis framework released today underscores the need for the U.S. power sector to completely decarbonize before 2050 in order to limit global warming to below 1.5 degrees Celsius and stave off the worst impacts of climate change.
The framework, Climate Strategy Assessments for the U.S. Electric Power Industry: 2019 Update, developed by M.J. Bradley & Associates for Ceres, gives specific guidance for investors and companies to assess climate change-related risks and opportunities in the U.S. electric power sector. The 2019 update incorporates the Intergovernmental Panel on Climate Change’s (IPCC) call to limit global warming to 1.5 degrees Celsius, finding that nothing short of a complete decarbonization of the sector before 2050 is in order. The update builds off the framework released in 2018 that provided a framework for a well below 2-degree climate scenario analysis.
“The IPCC report issued a clarion call across the economy and set off alarm bells for many investors concerned with the long-term viability of their holdings in the power sector,” said Dan Bakal, senior director of electric power at Ceres. “Our updated climate scenario analysis framework responds to that call and makes clear that total decarbonization is the only path forward for electric power companies.”
Investors have grown increasingly concerned with the ways climate change and regulatory responses to it could impact their holdings in the electric power sector. Many are raising these concerns through direct engagement with power companies and through the shareholder resolution process.
"This important update to the framework reflects the growing urgency of the climate crisis,” said New York State Comptroller Tom DiNapoli. “We hope that companies will strive to keep their reporting up-to-date with the latest science so they can best prepare for the low-carbon transition and a 1.5-degree future. This report identifies information that is valuable to investors in assessing U.S. utilities' strategies for addressing climate risks and opportunities."
Since the climate scenario analysis framework in 2018, and often in response to investor engagements, more than ten significant companies in the electric power industry have published climate scenario assessment reports. Most notably, several companies made commitments to deliver 100% carbon-free electricity to their customers by 2050 or earlier — and released climate scenario analyses that evaluated the companies' goals alongside those necessary to keep global warming to well below 2-degrees Celsius.
Drawing on case studies from electric power companies, the newly updated framework shows how companies are assessing the business implications of climate change. The framework outlines climate-related risks such as revenue models that are not sufficient to accommodate greater deployment of distributed clean energy resources and energy efficiency. It also notes risks related to changing supply and demand profiles; higher insurance premiums; reduced access to capital due to recurring costs from extreme weather events; and costs associated with hardening the grid to physical impacts of climate change.
The framework also outlines business growth opportunities such as those presented by electrification, renewable energy and low-carbon services; the need for new transmission lines to connect renewable energy resources like wind energy facilities with areas of high electricity demand; reduced costs to consumers through efficiency gains; and improved consumer reputation benefits from clean and resilient grids.
About Ceres
Ceres is a sustainability nonprofit organization working with the most influential investors and companies to build leadership and drive solutions throughout the economy. For more information, visit www.ceres.org and follow @CeresNews.