Impact Blog
Climate change report details electrification, decarbonization investment needs

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      By John MillerVP and ESG Senior Research Analyst, Calvert Research and Management

      Washington - In its October 2018 report on the impacts of global warming, the Intergovernmental Panel on Climate Change (IPCC) included four illustrative model pathways outlining strategies to limit global warming to 1.5 degrees Celsius with no, or limited, overshoot.

      In each pathway, the connected trends of expanded electrification and the simultaneous rapid decarbonization of electric generation are critical performance elements. Under the proposed models, the IPCC sees electricity production rising from 98 exajoules (EJ) in 2020 to 215 EJ by 2050. To understand the scale of this growth, the largest generating facility in the United States is the Grand Coulee Dam, which produces 2,100 GWh of electricity per year. The IPCC's 2020 through 2050 growth projection requires capacity additions equivalent to the output of 1,500 Grand Coulee Dams. According to the IPCC pathway, this growth will need to be driven by renewable generation, which will rise to 77% of generation by 2050, up from less than 30% in 2020.

      The IPCC estimates that it will require low carbon, supply-side energy investments of $1.6 trillion to $3.8 trillion per year through 2050 to fund this energy transition. Supply-side investments include resource extraction, power generation, fuel conversion, midstream transportation and energy storage. This investment, driven by increasing economic demand and regulatory mandate, represents an expansive opportunity for private enterprise. With the interyear lead time required to move forward with large energy infrastructure projects, corporations across the energy complex must begin to right-size their capital expenditure programs now.

      Calvert's approach

      Calvert believes that electric utilities and independent generator owners will be key private players in the success or failure of this transition.

      Our research team identifies the financially material ESG risks and opportunities of decarbonization and decentralization for electric utilities. While investments in renewable generation are critical, investment in transmission, distribution, efficiency, demand-side management and storage are equally relevant in making expanded electrification financially manageable. Utility restructuring - through which consumers can exercise choice in selecting the electricity price, resource makeup and related behind-the-meter services - accelerates the transition timeline.

      Outside of electric utilities and generation owners, recent announcements from the integrated oil and gas sector have been encouraging, with corporate reorganizations establishing integrated gas, power and renewable business units. To date, however, these actions have been nascent, and representative of less than 1.5% of total sector investment in 2018.

      Bottom line: The risks of a world where global warming exceeds 1.5 degrees Celsius are outlined in detail by the IPCC. As mitigation efforts increase, Calvert sees potential rewards through the extensive investment opportunities respondent to expanded electrification and decarbonization of electric generation.