Fossil fuels : analysis of trajectories compatible with a 1.5°C scenario
Financing green and transition activities is essential to help build the low-carbon economy of tomorrow. At the same time, achieving climate objectives also means reducing the use of fossil fuels, which account for 80% of greenhouse gas emissions, according to a trajectory that allows for a gradual alignment towards carbon neutrality, which must combine carbon constraints with technical and economic feasibility.
In addition to the commitments already made on coal and unconventional oil and gas, there is now the matter of financing oil and gas in general. Many players in the Paris marketplace are already developing their own alignment methodologies compatible with the Paris objectives and a 1.5°C scenario. It should be noted that the success of the energy transition requires global action by all players: these commitments must not be limited to players in the Paris financial market if the objective is to reduce investments in fossil fuels at the global level.
The objective of this working group is thus to develop tools for understanding scenarios aligned with 1.5°C to make the use of these scenarios as simple as possible and as suited as possible to the needs of financial players in the development of an investment strategy compatible with the objectives of the Paris Agreement. In a context of strong focus on the strategies of companies and in particular financial institutions regarding fossil fuel financing, this project aims to build an analysis framework from which these institutions can individually build or develop their strategy.
The first stage of the work is to identify the main energy-climate scenarios aligned with a 1.5°C objective that are currently used by market players. The International Energy Agency (IEA), the Networking for Greening the Financial System (NGFS, based on scenarios produced by research institutes), the International Renewable Energy Agency (IRENA), BloombergNEF (BNEF) and many others1, are all institutions offering scenarios to model possible decarbonisation trajectories. Each of these scenarios has their specific modelling characteristics (scope of analysis, number of variables, optimisation method, etc.) and make different assumptions about the drivers of decarbonisation (maturity and cost of technologies, availability of land, etc.).
Differences in approach between scenarios can sometimes be difficult to grasp. Thus, in autumn 2023, the working group of the Sustainable Finance Institute conducted a series of hearings with climate experts and scientists. This work makes it possible to take stock of the science, compare methodologies and identify the main lessons to be learned for investors and financiers.
This analysis aims to align market players with their understanding of investment trajectories compatible with a 1.5°C scenario. Its objective is to identify the main lessons learned from the reference energy-climate scenarios currently available.