The Carbon Clean 200 are already capitalizing on the transition to a low-carbon future; BP’s latest scenarios support that strategy
BP Energy Outlook 2019: Renewables to become largest source of global power generation by 2040
The 2019 edition of BP’s Energy Outlook, released Thursday, explores the key uncertainties that could impact the shape of global energy markets out to 2040 — the greatest of which involve the dual challenges of the need for more energy to support continued global economic growth and rising prosperity, and the need for a more rapid transition to a lower-carbon future. The Outlook also considers a number of other issues, including the possible impact of an escalation in trade disputes and the implications of a significant tightening in the regulation of plastics.
Much of the narrative in the Outlook is based on its ‘evolving transition’ scenario. This scenario and the others considered in the Outlook are not predictions of what is likely to happen; instead, BP says they explore the possible implications of different judgements and assumptions.
In the evolving transition scenario — which assumes that government policies, technologies and societal preferences evolve in a manner and speed similar to the recent past:
Global energy demand increases by around a third by 2040, driven by improvements in living standards, particularly in India, China and across Asia.
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Energy consumed by industry and buildings accounts for around 75 percent of this increase in overall energy demand, while growth in energy demand from transport slows sharply relative to the past as gains in vehicle efficiency accelerate.
The power sector uses around 75 percent of the increase in primary energy.
85 percent of the growth in energy supply is generated through renewable energy and natural gas, with renewables becoming the largest source of global power generation by 2040.
The pace at which renewable energy penetrates the global energy system is faster than for any fuel in history.
Demand for oil grows in the first half of the Outlook period before gradually plateauing, while global coal consumption remains broadly flat. Across all the scenarios considered in the Outlook, significant levels of continued investment in new oil will be required to meet oil demand in 2040.
Global carbon emissions continue to rise, signalling the need for a comprehensive set of policy measures to achieve a substantial reduction in carbon emissions.
“The Outlook again brings into sharp focus just how fast the world’s energy systems are changing, and how the dual challenge of more energy with fewer emissions is framing the future. Meeting this challenge will undoubtedly require many forms of energy to play a role,” said Bob Dudley, group chief executive at BP. “Predicting how this energy transition will evolve is a vast, complex challenge. In BP, we know the outcome that’s needed, but we don’t know the exact path the transition will take. Our strategy offers us the flexibility and agility we need to meet this uncertainty head on.”
Beyond the evolving transition scenario, the Outlook considers a number of additional scenarios, including:
More energy will be needed to support growth and enable billions of people to move from low to middle incomes. The increase in energy required over and above the evolving transition scenario is roughly the equivalent of China’s entire energy consumption in 2017.
Along with this projection, the Outlook also highlights the need for further action to reduce carbon emissions.
The rapid transition scenario is the combination of analyses throughout the Outlook that brings together in a single scenario the policy measures in separate, lower-carbon scenarios for industry and buildings, transport and power. Doing so results in around a 45 percent decline in carbon emissions by 2040 relative to current levels — which is broadly in the middle of a sample of external projections that claim to be consistent with meeting the Paris climate goals.
This fall reflects a combination of gains in energy efficiency; a switch to lower-carbon fuels; material use of carbon capture, utilization and storage (CCUS); and, of particular importance in the power sector, a significant rise in the carbon price.
The power sector is the single largest source of carbon emissions from energy use;
reductions in carbon emissions from the transport industry in all scenarios to 2040 is relatively small in comparison.
“Polices aimed at the power sector are central to achieving a material reduction in carbon emissions over the next 20 years,” said Spencer Dale, group chief economist. “Most of the low-hanging fruit in terms of reducing carbon emissions is outside of the transport sector.”
Even in the rapid transition scenario, a significant level of carbon emissions remains in 2040. In order to meet the Paris climate goals, in the second half of the century these remaining emissions would need to be greatly reduced and offset with negative emissions. This year’s Outlook considers which technologies and developments may play a central role in this reduction beyond 2040.
A key development would be a near-complete decarbonization of the power sector — requiring greater use of renewables and CCUS in conjunction with natural gas — together with greater electrification of end-use activities (including transport). For those end-uses that cannot be electrified, other forms of low-carbon energy and energy carriers will be crucial, potentially including hydrogen and bioenergy. Additionally, the importance of the circular economy and greater adoption of carbon storage and removal techniques are highlighted.
International trade underpins economic growth and allows countries to diversify their source of energy. In the less globalization scenario, the Outlook explores the possible impact that escalating trade disputes could have on the global energy system.
“The message from history is that concerns about energy security can have persistent, scarring effects,” Dale said.
The scenario highlights how a reduction in openness and trade associated with an escalation in trade disputes could reduce worldwide GDP and therefore energy demand. Moreover, increasing concerns about energy security may cause countries to favour domestically produced energy, leading to a sharp reduction in energy trade. The greatest impact is on net energy exporters, who suffer a material slowdown in the growth of oil and gas exports.
Single-use plastics ban
The single-largest projected source of oil demand growth over the next 20 years is from the non- combusted use of liquid fuels in industry, particularly as a feedstock for petrochemicals, driven by the increasing production of plastics. Growth of non-combusted demand in the evolving transition scenario is, however, slower than in the past, reflecting the assumption that regulations governing the use and recycling of plastics tighten significantly over the next 20 years.
Given the heightening environmental concerns regarding single-use plastics, the Outlook also considers a single-use plastics ban scenario, culminating in a worldwide ban on the use of all single-use plastics from 2040 onwards. In this scenario, oil demand rises more slowly than in the evolving transition scenario. However, the Outlook cautions that the full impact on energy growth and the environment will depend on the alternative materials that may be used in place of single-use plastics. BP asserts that a ban on single-use plastics could result in an increase in energy demand and carbon emissions without further advances in alternative materials and infrastructure for collection and reuse.
Carbon Clean 200 outperformed the S&P Global 1200 Energy Index
Meanwhile, signs of the impending shift toward a clean energy future continue, as As You Sow and Corporate Knights today release their sixth update of the Carbon Clean 200™, which calls out the 200 publicly traded companies leading the way.
Key findings include:
The Clean200 outperformed the S&P Global 1200 Energy Index with a return of 1.29 percent; it lagged behind the broad-market benchmark for the S&P 1200, mostly due to the impact of the simmering trade war between China and the US.
If Chinese stocks are excluded from the Clean200, its return since implementation jumps to 20.4 percent.
The top 10 Clean200 companies — based on their amount of absolute revenue from low-carbon products and services for the second half of 2018, and using an updated methodology — are, in order:
Toyota Motor Corporation
Banco Do Brasil S.A.
Since its inception in July 2016, the Clean200™ has outperformed the S&P Global 1200 Energy Index with a return of 1.29 percent, compared to -2.49 percent. It currently lags behind the broad-market benchmark for the S&P 1200, which had a return of 19.67 percent, mostly due to the simmering trade war between China and the US.
If Chinese stocks are excluded from the Clean200, its return since implementation jumps to 20.4 percent, moving it ahead of the broad-market benchmark, as well (which has almost no exposure — 1.7 percent — to Chinese stocks). The Clean200 therefore continues to demonstrate that market forces are driving growth for low-carbon companies across all sectors of the economy.
It is not surprising that the low-carbon leaders from China faltered, as Chinese stocks had their worst year in a decade. While stock markets suffered losses across the board last year, the Shanghai composite (Mainland China's primary market indicator) lost 24.6 percent of its value, and the Shenzhen composite plummeted 33.25 percent.
“Normally, during periods of stock market decline, defensive stocks outperform and higher growth stocks underperform,” said Toby Heaps, CEO of Corporate Knights and co-author of the report. “The Clean200 is overweight on growth companies and underweight on defensive stocks, with no exposure to weapons, tobacco or healthcare. But it has still continued to outperform when the outlying Chinese stocks are excluded. This suggests markets are re-calibrating the value of stocks such as clean energy, that offer a superior and enduring value proposition in a low-carbon economy.”
The Clean200 methodology was updated this year — using the Corporate Knights Clean Revenue database — to capture portions of the clean economy extending beyond energy efficiency, green energy, and zero emission and hybrid vehicles. The companies assessed now include:
banks financing low-carbon solutions;
real estate companies focused on low-carbon buildings;
forestry companies protecting carbon sinks;
responsible miners of critical materials for the low-carbon economy;
food and apparel companies with products primarily made of raw materials with a significantly lower carbon footprint; and
Information and Communications Technology (ICT) companies that are leading the way on renewable energy while also being best-in-sector, according to currently accepted privacy benchmarks.
This resulted in a relatively high turnover, with 87 new companies added from the last update on July 1, 2018.
The company topping the 2019 Q1 Carbon Clean 200 list is from within this expanded sectoral coverage. Alphabet, the holding company for Google, has invested billions of dollars over the past few years to meet its 100 percent renewable energy target, and is ranked the cleanest-of-the-clean on this basis.
“It matters a lot what kind of energy ICT companies choose because they are projected to account for 20 percent of global electricity consumption by 2025,” said Andrew Behar, CEO of As You Sow and report co-author. “The carbon impact of Google going 100 percent renewable is equivalent to taking one million cars off the road, permanently. We challenge all ICT companies to do the same and to focus on the privacy issues which have become a threat to their business model.”