Europe’s energy giants set to overshoot Paris Agreement ‘carbon budget’

Europe's major utilities companies are "locked" into high emission projects, placing €14bn of earnings at risk unless they realign strategies with the goals of the Paris Agreement, a new CDP report has found.

CDP’s ‘Charged or static report, released today (3 April), analysed the €256bn market grouping of 14 of the largest European publicly-listed energy firms and found that they look set to collectively overshoot the required “carbon budget” to keep temperature rises below 2C by 14% – equating to 1.3bn tonnes of greenhouse gas emissions.

Companies listed in the report, including UK firms SSE and Centrica as well as France-based EDF and German firm RWE, were commended for “positive signs” of a low-carbon transition, denoted by the UK’s pledge to close all coal-fired plans by 2025 and RWE’s decision to split renewables and fossil fuel assets into separate companies.

However, 43% of the companies listed are producing more than 20% of their electric from coal and capacity for rapid transition away from fossil fuels is restricted by long-term capital investments into carbon intensive projects. This, the report notes, places €14bn of earnings at risk unless strategies are changed to match the long-term goals of the Paris Agreement.

CDP’s chief executive Paul Simpson said: “EU utilities are at a crossroads and must make some rapid decisions. The last year has seen a step change in support for, and engagement with, low carbon policies but the industry remains heavily reliant on fossil fuels to meet electricity needs. Market prices are showing that renewable energy sources like wind and solar power are more cost competitive than ever and utilities should look to capitalize on the strong growth that is forecast for these technologies.”

The electric utilities sector is accountable for around a quarter of global emissions, and CDP indicates that emissions must fall by two-thirds to allow the sector to meet the goals of the Paris Agreement. While 20% of electricity generated in 2016 came from renewables, more needs to be done in the sector to meet the EU’s target to source 45% of electricity from renewables by 2030.

In total, only three of the 14 listed firms have had sustainability targets externally validated to show that they are compatible with the 2C pathway. The most productive firm is Verbund, described as “leading the way in planning for the future” through its target of a 100% renewables portfolio by 2020.

The report also found that nuclear generation and carbon capture and storage (CCS) remain an option for utilities firms, but that these both have limited growth prospects. Just one company has introduced specific long-term rewards for its chief executive based on climate change targets.

Invest in change

Outside of emissions reduction, the European utilities sector has been warned that it is underprepared for what it feels is a “vital” energy storage shift in the next 10 years. A report released in December found that only a quarter of the industry felt ready and able to embrace the technology.

CDP has been tracking corporate progress on emissions and climate action for some time. Simpson told edie that a “story of risk and opportunity” was emerging for businesses that are yet to modify their operational plans to account for climate change.

Fortunately, CDP’s focus on this area is making investors take notice. In 2015, CDP teamed with investors with $22trn in assets to help reduce global corporate emissions by 641 million tonnes.

The investor focus on climate change has been magnified in recent months by Mark Carney’s Taskforce on Climate-related Financial Disclosure (TCFD). CDP noted that the Taskforce provided “another marker of increasing investor pressure for companies to not only disclose but manage their transition risk”.

Matt Mace

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