Industry leads new initiative to revolutionize carbon pricing for investorsCDP
The world’s first industry-led initiative aimed at defining the carbon prices needed for the power sector to meet the Paris Agreement launched on the eve of the World Economic Forum’s annual meeting in Davos.
The global environmental non-profit CDP, on behalf of the We Mean Business coalition, is convening a panel of utilities and investment leaders from across the G20 under the Carbon Pricing Corridors initiative.
The industry experts will, over the next two years, shape realistic prognoses of the range of investment-grade carbon prices needed to decarbonize electricity generation through 2020, 2025 and 2030. During the course of 2017 the initiative will expand its scope beyond the power sector to include other high-emitting sectors.
The power sector must peak its greenhouse gas emissions by 2020, and subsequently bring these emissions down to zero by 2050 in most G20 countries if we are to limit global temperature rises to below 2°C (based on analysis from the International Energy Association’s Energy Technology Perspectives, 2016).
“Carbon pricing is too important to leave in the realm of economic debate,” says CDP’s chief executive officer Paul Simpson. “This is why CDP, on behalf of We Mean Business, is bringing industry leaders – the people who make the decisions day in and day out that shape our power sector – to the table to help embed carbon pricing in our real economy. Their work will give investors, companies and policymakers the clear, credible price signals that are needed to make large enough investments in clean energy and drive the required emissions reductions.”
This initiative comes at a critical moment where there is increasing focus from the financial community on the tangible links between climate risk and corporate balance sheets. The recently published recommendations from the Task Force on Climate-related Disclosure, established by Mark Carney and chaired by Michael Bloomberg, point to the clear need for investors to be able to stress test their portfolios against a below 2°C scenario.
“Investors have to rely on a wide range of complex carbon-related signals to stress-test their portfolios, making the job of meeting the Paris Agreement incredibly difficult. Current carbon-based price signals in the wider economy are also too low to attract the low-carbon investments needed,” comments Nikki Bartlett, CDP’s director of carbon pricing. “Our goal is to make the job as easy as possible for investors by giving them investment-grade price ranges. The added bonus is that it will help to strengthen and guide future carbon pricing policy.”
The initiative, which includes the chief executives and senior leaders from PGGM, Engie, Bank of America, Iberdrola, YesBank and Hermes Fund Managers among its first members, is due to report on its initial projections for credible carbon price ranges in Spring 2017.