2020 is still set to be another record breaking year for global temperature increases, despite an expected pandemic-related fall in global emissions. It is clear that the 2020s will be pivotal in determining if we can bend the emissions curve fast enough, turning the COVID-related anomaly into a rapidly-falling emissions trajectory to limit warming to 1.5°C, the goal set out in the Paris Climate Agreement.
It is in that context that this year’s report, the Net Zero Economy Index replaces the Low Carbon Economy Index. It is a recognition of the ultimate goal business and society needs to achieve, and the growing focus and momentum behind commitments from business, governments, and investors to net zero. While our analysis here focuses on energy-related CO2 emissions, we will broaden that coverage when feasible.
The global picture in 2019
Figure 1: Net Zero Economy Index 2020
As COVID-19 continues to shape and influence our lives, the pressing challenge of climate change remains. With a view out beyond the current crisis, arguably the greatest transformation challenge humankind has faced is staring at us: we have just over two business cycles to transform every sector of the global economy to halve global emissions. Put simply, we are in the pivotal decade.
In 2019, prior to the emergence of COVID-19, the rate of global decarbonisation was 2.4% — this is the reduction in carbon intensity or energy-related CO2 emissions per dollar of GDP. This rate has increased slightly since the previous year, against a backdrop of rising overall global emissions. Consistent with analyses by PwC and other agencies, it is far below the rate needed to deliver the Paris Agreement’s goal to limit warming to well below 2°C above pre-industrial levels, and to pursue efforts to limit the temperature increase even further to 1.5°C. Keeping warming to 1.5°C will now require a global rate of decarbonisation nearly five times greater than was seen in 2019.
As the impacts of the COVID-19 pandemic persist globally, we cannot overlook the urgency and magnitude of the decarbonisation challenge. The 2020s are the pivotal decade for climate action. While the global response to the pandemic has brought an abrupt decrease in global emissions in 2020, the data is showing a fast rebound in emissions as economies and societies begin to open up. A return to 'business as usual' emissions post pandemic, however, is not an option if we are to achieve the emissions reductions required to limit global warming. This anomaly needs to be an inflection point that provides the opportunity for businesses and governments to reset and invest for the long-term. Achieving the necessary 11.7% per year global decarbonisation rate this decade will require wholescale transformation of every sector of the global economy, unprecedented innovation, and committed leadership.
Breaking the wrong records
Global atmospheric carbon dioxide reached 409.8 ± 0.1 ppm in 2019, a new record high, tipping global temperatures 1.1°C above pre-industrial levels. In the same year, global GDP grew by 2.9%. The highest rates of GDP growth were seen across China, India and Indonesia. However, these emerging economies also saw some of the highest rates of energy-related emissions growth. Whilst it is necessary that the economies that have contributed most to historical emissions take more ambitious action, it is clear that these emerging economies play a critical role in the energy transition and efforts to address climate change. Progress in decoupling emissions growth from economic growth has remained slow, as global energy-related carbon emissions increased by 0.5% in 2019.
Fossil fuels continue to dominate the energy mix
The growth in energy-related carbon emissions was driven by an increase in global energy consumption of 1.3% in 2019, linked to greater consumer and industrial energy consumption. With the biggest GDP growth of the G20 – 6.1% – China accounted for the largest share. Across the world, fossil fuels continue to dominate. 57% of the global increase in energy consumption was met by natural gas and oil alone, both of which experienced steady growth from the year before. Our analysis indicates that coal consumption declined for the first time since 2016, largely the result of coal-to-gas switching across OECD countries. However, this was partially offset by an expansion of coal in China and India, which together accounted for 64% of global coal consumption. Despite record growth rates in wind (12.1%) and solar (23.8%), renewables overall accounted for just 11% of global energy consumption.
The scale of the challenge is increasing exponentially
According to our analysis, the carbon intensity of the global economy fell by 2.4% in 2019. Although this is above the long-term historical average decarbonisation rate (1.5%), it falls short of the progress required to meet existing climate targets. The average global rate required to limit warming to 1.5°C is now 11.7% per annum, while a rate of 7.7% per annum is needed to keep warming to 2°C. These required rates have hitherto never been reached, but are now urgently required, year-after-year, to avoid accelerating global warming.
Countries across the G20 have different historical emissions profiles and are at different stages of their energy transition and decarbonisation journey. It will be incumbent upon those countries that have contributed most to historic emissions to decarbonise faster and harder; and for emerging economies with rapidly rising emissions to seize opportunities to transition as quickly as is economically and technologically feasible.
G20 Performance
Table 1: Net Zero Economy Index 2020 – G20 Performance Summary
Our Net Zero Economy Index tracks the rate of the net zero economy transition in each of the G20 economies across energy-related CO2 emissions.
Within the G20, Germany, Korea, the US and the UK achieved the highest rates of emissions reductions relative to their economic growth. However, these rates of decarbonisation fall far behind what is required to limit warming to 1.5°C.
Germany recorded the highest rate of decarbonisation in 2019 but that rate would still need to nearly double to be consistent with a 1.5°C trajectory. At the other end of the spectrum, South Africa and Indonesia recorded an increase in carbon intensity for the second consecutive year.
Across the board, progress is not enough. Even the countries with the highest rate of change in 2019 need to accelerate their efforts to 2x current decarbonisation rates, and those with the lowest rate of change may need up to a 10x improvement.
Looking forward to 2021
The world knocked back by COVID-19
Many were billing 2020 to be the year for supercharging climate ambition, with a pivotal COP26 in the UK scheduled to accelerate the “race to net zero” by countries, cities, companies and investors alike. Unforeseeably, the COVID-19 crisis put the brakes on this pivotal political milestone (now set for November 2021) and has created immense social and economic disruption. Economies and societies continue to feel the impacts caused by the evolving COVID-19 crisis and it will take time for countries to readjust to a new economic and social equilibrium. Moreover, the crisis has served as a harsh reminder of the fragile systems upon which our economies and societies are built, and exposed our vulnerabilities to not only global pandemics but other systemic global shocks including climate change.
Can climate action emerge stronger from the crisis?
In response to the events of 2020, and the ongoing climate crises, there has been a resurgence of action on climate across the public and private sectors. Many countries have come forward with new climate pledges and vowed to make climate and the environment key pillars of their COVID-19 stimulus packages. Indeed some of largest emitters and those with the fastest growing emissions have enhanced their commitments and made net zero pledges. This could be an historic tipping point. With President-elect Biden in office, the US, China, EU, Japan and South Korea - representing two-thirds of the world economy and over 50 per cent of global greenhouse gas emissions - have pledged to go net zero by mid-century, or by 2060 in the case of China. Hundreds of global companies have set the ambition to go net zero too.
Turning momentum on climate ambition to tangible and widespread action
If this decade is to be the pivotal decade on climate change, ambition needs to turn to action, and rapidly. Governments need to turn their net zero aspirations and targets into clear roadmaps with supportive enabling environments to realise wholescale structural change across all sectors of the economy. It is clear that with countries, states and cities amounting to more than 50% of global GDP setting net zero targets, the pressure to act will grow quickly across the economy. Businesses will need to react quickly, transforming their strategies, operations and supply chains to a net zero trajectory as soon as possible, and investors will need to embed net zero into their risk management and portfolio allocation. The collective level of action that emerges at the start of this decade will determine if this is the pivotal decade of action that marks the turning point on the road to net zero.
* Global carbon budgets refer to the global estimated budget of fossil fuel emissions taken from the IPCC Special Report on Global Warming of 1.5°C. A series of assumptions underpin these carbon budgets, including the likelihood and uncertainties of staying within the temperature limits, and the use of carbon dioxide removal (CDR) technologies.
Sources - BP, World Bank, IMF, UNFCCC, PwC data and analytics
Notes - GDP is measured on a purchasing power parity (PPP) basis.
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