Utilities Optimism unfounded? Energy transition will come, but too slowly. Warming is likely to exceed 1.5°C.

Net Zero 2050 looks close to impossible, despite COVID-related carbon savings. The sliver of a silver lining is that outlook for the clean energy sector remains exceptionally supportive

14 Sep 2020

This chart shows global energy sector emissions (Gigatonnes of CO2 equivalent, pa)

We have published our new "State of the Energy Transition (2020)" report

To coincide with our Global Energy Transition conference we published a new commissioned research report assessing The State of the Global Energy Transition in 2020. The report asks: how much "energy transition" did we achieve in the last year, and are we on track to reach Net Zero emissions by 2050 – as scientists say is needed to limit global temperature increases to 1.5°C. The conclusions leave little room for optimism and support our published view that it is probably too late to prevent dangerous global warming. We summarise the key findings as follows:

Net Zero 2050 looks close to impossible, despite COVID-related carbon savings

Our report estimates that global carbon emissions in the last year (H119+H220) will have fallen by ~5%, mostly driven by lower energy demand during the COVID-19 crisis. While this leaves our energy transition scorecard looking unusually positive, we expect about half of the CO2 saving to reverse next year and the remaining emissions budget (to stay under 1.5°C warming) to be used up in about 10 years. Overall, reaching Net Zero 2050 would require a new, COVID-19-scale carbon saving every year for 30 years.

Implications for clean energy remain structurally positive; improved vs 2019

Our conclusions on climate change are deeply pessimistic, yet the outlook for clean energy is even better than last year. Globally we estimate wind power grew >10% and solar >20% in the last 12 months and in our central scenario for 2050 (which still falls far short of Net Zero) the installed renewable fleet now grows >6x, to around 8.4 terawatts. The EBITDA value pool grows 15-20x in real terms. An enhanced policy scenario could see this rise by another 40-50% (although still falling short of Net Zero).

In summary: three important takeaways for investors from this report

  1. The outlook for the clean energy sector remains exceptionally supportive, indeed we raise our 2050 value pool forecasts vs last year
  2. The outlook for climate mitigation still looks deeply challenging, with additional headwinds from outside the energy sector (wildfires; permafrost; albedo effects); 
  3. This bearish outlook will likely bring new topics into play in the next year (carbon capture; land mgmt; public administration) and drive higher investment in adaptation measures, currently c5% of annual climate finance.

Authorized clients of UBS Investment Bank can log in to UBS Neo to read the full report.