Presentation at RWE seminar on "New Energy Systems", May 2013

1. The End
of Business-As-Usual?
Dr. Johannes Meier
European Climate Foundation

2. The end of BAU?
4 Perspectives
1. Climate Science 2. Asset Valuation
3. Political Will4. Transition Management

3. The end of BAU?
4 Perspectives
1. Climate Science 2. Asset Valuation
3. Political Will4. Transition Management

4. The
Skep(cs

5. 4
Types
of
Skep(cs
1. Climate
change
is
not
happening
2. Humanity’s
contribu(on
to
climate
change
is
not
significant
3. We
cannot
mi(gate
climate
change
effec(vely
4. It
is
too
costly
to
mi(gate
climate
change

6. Image credit: James Lawrence Powell, MIT
Climate
Science
Firming
Up

7. Source: climateactiontracker.org
PaHern
ShiI:
Global
Warming,
Rising
Risks

8. HIGH-CARBON ECONOMY
“On track to 6 degrees” (IEA)
CHANGING RISK PATTERNS
- Weather
- Oceans
- Food
- Security
- Health
Mitigation
LOW-­‐CARBON
ECONOMY
-­‐
Decarbonizing
power
-­‐
Resource
efficiency
-­‐
Smart
ci(es
-­‐
Forests/land
use
Adaptation
PAYING
FOR
CONSEQUENCES
-­‐
High
costs
of
delay
of
mi(ga(on
-­‐
Stranded
assets
-­‐
Tipping
points
PaHern
ShiI:
Global
Warming,
Rising
Risks

9. Source:
Swiss
Re
Source:
Swiss
Re
Insured
Losses
from
Climate-­‐Related
Disasters,
1970-­‐2011

10. If
“Frankenstorm”
is
happening
at
0.8°C
warming,
what
might
3°C,
4°C,
or
6°C
warming
bring?
10

11. The end of BAU?
4 Perspectives
1. Climate Science 2. Asset Valuation
3. Political Will4. Transition Management

12. Emissions
Underlying
Financial
Flows
Source: Carbon Tracker report: Unburnable Carbon 2013

13. Fossil
fuel
carbon
budget
2013
–
2050
(GTCO2)
Scenario
Maximum
temperature
rise
50%
probability
80%
probability
Pessimis(c
2°C
886
500
Op(mis(c
1.5°C
525
-­‐
2°C
1075
900
2.5°C
1275
1125
3°C
1425
1275
13
Stress
Tes(ng
with
Carbon
Budgets
Source: Carbon Tracker report: Unburnable Carbon 2013

14. Listed
reserves
are
a
quarter
of
all
known
fossil
fuel
reserves
Current
listed
reserves
(762GtCO2)
far
exceed
a
quarter
of
the
total
carbon
budgets
but
could
double
(1541GtCO2)
If
we
break
the
2°C
budget,
we
very
quickly
hit
2.5°C
and
3°C
14
Poten(al
listed
reserves
Current
listed
reserves
Carbon
Budget
Deficits
for
Listed
Companies
Source: Carbon Tracker report: Unburnable Carbon 2013

15. Stranded
Assets?

16. The end of BAU?
4 Perspectives
1. Climate Science 2. Asset Valuation
3. Political Will4. Transition Management

17. Key
Uncertainty:
Poli(cal
Will

18. Poli(cal
Will
Think
Tanks
Environmental
Advocates
Na(onal
Interests
Elec(on
Cycles
Governance
Capabili(es
Media
Dynamics
Cultural
Memes
Ideologies
Economic
Factors
Global
Factors
BAU
Lobbies
Progressive
Industry

19. Policy
Frameworks
-­‐
20/20/20
Targets
-­‐
EU
2050
Energy
Roadmap
-­‐
EU
Climate
Roadmap
-­‐
EU
ETS
Direc(ve
-­‐
EU
EE
Direc(ve
-­‐
UK
Green
Deal
-­‐
GER
Energiewende
etc.
Think
Tanks
Environmental
Advocates
Na(onal
Interests
Elec(on
Cycles
Governance
Capabili(es
Media
Dynamics
Cultural
Memes
Ideologies
Economic
Factors
Global
Factors
BAU
Lobbies
Progressive
Industry

20.
ECF/Mercator
Addressing
Convergence
and
Coherence
Challenge
with
Agora
Energiewende
2
goals:
• Prepare
ground
to
ensure
that
policymakers
take
decisions
needed
to
set
the
course
toward
full
decarbonisa(on
• Enhance
understanding
of
the
Energiewende
and
help
stakeholders
views
to
converge,
thereby
minimising
space
for
vested
interests

21. The
Council
of
Agora
28 Members
Martin Iffert
CEO
Trimet Aluminium
Stefan Kapferer
State Secretary
Ministry of Economics
Mechthild Wörsdörfer
Head of Unit
EC DG Energy
Jochen Hohmann
President
Bundesnetzagentur
Vera Brenzel
Vice President Electricity
E.ON
Lucia Putrich (CDU)
Minister for Environ-
ment Hesse
Matthias Machnig (SPD)
Minister for Economy
Thuringia
Boris Schucht
CEO
50Hertz
3 meetings so far
05-09-2012
21-11-2012
20-02-2013
Ottmar Edenhofen
PIK

22. The end of BAU?
4 Perspectives
1. Climate Science 2. Asset Valuation
3. Political Will4. Transition Management

23. Key
Challenges
for
Transi(on
Management
Level
and
quality
of
market
integraMon
• Na(onal,
EU,
global
• Gas,
electricity
markets
• Flexibility/capacity
markets
Feedstock
price
development
• Shale
gas,
LNG
• Unconven(onal
oil
Technology
development
• Cost
curves
• Centralized
decentralized
architectures
• Convergence
energy
IT
systems
Public
acceptance
• Technologies
• Infrastructure
• Markets
• Retail
energy
prices
Economics
• Market
designs
and
subsidies
• Internalisa(on
of
externali(es
(carbon
taxes/carbon
price)
• Capital
flow
constraints

24. A
Framework
for
Transi(on
Management
Backcasting
Desirable future
• Competitiveness
• Sustainability
• EU2050
international role
Constraints
• Installed base
• Contracts
• Business models
• Mindsets
Forecasting
Balancing
• Resilience
• Optionality
• Intelligence

25. Where
do
we
want/need
to
be
in
2050,
in
2030?

26. New
Metrics
for
Dynamic,
Complex,
Unpredictable,
and
Risky
Environments
1. Resilience
2. OpMonality
3. Intelligence
• Energy
systems
to
withstand
shocks
(including
worst-­‐case
scenarios
in
calculus)
• Future
proofing
design
and
loca(on
of
assets
• Bias
towards
diversity
• Adding
assets
in
smaller
increments
• Avoiding
lock-­‐in
• Hedging
outcomes
• Reducing
capital
intensity
• Staying
on
top
of
cost
curves
• Harnessing
of
big
data
(Industrial
Internet)
• Learning
plaoorms
Based on M. Liebreich: The new energy ROI

27. Finding
Orienta(on
in
a
Principled
Approach
1. EU
global
leader
in
transiMon
to
low-­‐carbon
economy
2. Energy
system
led
by
RES
3. Industrial
policies
to
address
compeMMveness
challenge
• Ambi(ous
and
binding
2030
targets
• Integrated
EU
market
and
financial
union
• Investments
in
flexibility
and
energy
efficiency
• Avoiding
fossil-­‐fuel
lock-­‐in
• Sectoral
differen(a(on
• Innova(on
incen(ves
• Easing
transi(on
costs

28. The end of BAU!
1. Climate Science 2. Asset Valuation
3. Political Will4. Transition Management

29. Further
Links
Interpre(ng
climate
science
and
media
reac(ons
hHp://klimafakten.de/
hHp://www.carbonbrief.org/
Carbon
bubble
hHp://www.carbontracker.org/carbonbubble
hHp://www.carbontracker.org/wp-­‐content/uploads/downloads/2013/03/SnPCT-­‐report-­‐on-­‐oil-­‐
sector-­‐carbon-­‐constraints_Mar0420133.pdf
Poli(cal
will
hHp://ec.europa.eu/energy/index_en.htm
hHp://www.agora-­‐energiewende.de/
Transi(on
management
hHp://about.bnef.com/blog/liebreich-­‐the-­‐new-­‐energy-­‐roi-­‐resilience-­‐op(onality-­‐intelligence/
hHp://roadmap2050.eu/