ETA’s mission is to research and analyze energy markets in the context of the economic and policy trends that are driving one of the great transitions in history -- the transition away from fossil fuels towards more sustainable sources of energy. Analyzing the economic and policy risks increasingly embedded in the exploration, development, and extraction of fossil fuels will be a central focus of the group’s work, with ETA offering advisory and consulting services to the not-for-profit, public and commercial sectors.Read More
Not For Profit
Civil Society is a driving force in the Energy Transition towards more sustainable outcomes. ETA seeks to carry out research and advise the Not For Profit sector on key financial issues such as carbon risk, cleaner energy trends and policy.Read More
The Energy Transition will be one of the most significant economic and infrastructure trends in the next 50 years. Ranging from Mining , Utility, Manufacturing and Finance industries there will be major financial implications. ETA is positioned to carry out research and advise on these.Read More
Climate change poses a systemic risk to institutional investors. All portfolios are exposed to it, yet the impacts will be uneven across asset classes, sectors and geographies. Understanding how this could play out is of central importance to investors’ response to the climate challenge. A key approach is the use of scenario analysis to test the resilience of the portfolio to a number of future states. This can further be developed for financial analysis.
This paper primarily seeks to help investors, both Asset Owners and Asset Managers and their service providers to:
1. understand an end point ambition requires a scenario pathway to be of use in financial analysis;
2. understand the scenario pathway architecture (defined in this paper as key variables, metrics, attributes and drivers) determine the financial impact of any scenario. This can be used to compare and contrast scenarios;
3. understand how climate scenarios can then be used in risk analysis of their own portfolios and engagement with companies following the Paris Agreement and the IPCC SR1.5°C study;
4. understand how scenarios can then become base case forecasts to begin to inform actual business and portfolio planning and decisions using business level metrics such as production, capex and emissions, which leads to action.
Investors can use scenarios to inform engagement with companies and/or directly to inform their portfolio construction.
Whatever investors adopt will be of great interest to companies and should certainly be a key input to their own thinking and approach.
This is also of relevance in a TCFD disclosure/reporting context for investors, as well as the EU sustainable finance taxonomy, which takes a bottom up economic activity approach and has set thresholds following a trajectory consistent with the EU -55% by 2030 and Net Zero by 2050.
The NGFS and other regulatory bodies, such as EIOPA, are also working on scenarios for full blown stress testing for financial institutions which may have implications for investors too. The classifications of “orderly vs disorderly” and “met vs unmet” will become well used, as will scenarios fitting into that.
Government action to tackle climate change has so far been highly insufficient to achieve the commitments made under the Paris Agreement, and the market’s default assumption appears to be that no further climate-related policies are coming in the near-term. Yet as the realities of climate change become increasingly apparent, it is inevitable that governments will be forced to act more decisively than they have so far.
The question for investors now is not if governments will act, but when they will do so, what policies they will use and where the impact will be felt. The IPR project forecasts a response by 2025 that will be forceful, abrupt, and disorderly because of the delay.
In anticipation, PRI, Vivid Economics and Energy Transition Advisors are building a Forecast Policy Scenario which lays out the policies that are likely to be implemented up to 2050 and quantifies the impact of this response on the real economy and financial markets.
1. What is the Inevitable Policy Response?
2. The Inevitable Policy Response: Policy Forecasts
3. The Trillion Dollar Energy Windfall
4. Why a Just Transition is Crucial for Effective Climate Action
5. Business and Investor Public Support for Climate Transition Policy: Creating a Mandate for Action
Key findings of the report
“Thermal Coal in Asia – Stopping the Juggernaut” edited by Mark Fulton (ETA), pulls together key sources to show that both China (by 2020) and India (in the 2030s) will exceed their IEA ETP annual carbon budgets. Furthermore, without a massive scale-up in renewable energy and the development of Carbon Capture and Storage (CCS) in key geographic areas (particularly China), the total carbon budget up to 2050 will also be exceeded in the 2030s. These conclusions are based on existing and “under construction” thermal coal power plants, yet even if no additional power plants are constructed, the budget would still not be met. Consequently, the research report calls for action: (1) to reform electricity markets so that low cost renewables are dispatched first; (2) to extend robust moratoriums on new coal power plants; (3) to cap longer-term coal consumption and emissions in the power sector in the context of carbon markets.