Climate Scenario Analysis
With Emmi's Carbon Diagnostics, you can run multiple sets of transition risk analysis against your portfolio’s financed emissions. Each scenario represents a different forecast for the future, presenting variations in global carbon budgets and allocations, as well as other global economic factors.
We have 10 templated scenarios available, covering 3 IPCC scenarios, the 6 NGFS scenarios, and the inevitable policy response scenario.
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Explore multiple potential futures
With climate scenario analysis for Carbon Diagnostics, it’s possible to explore multiple perspectives on the future of carbon budgeting and constraints. By selecting from one of our well known climate scenario templates, you can see how your portfolio will fare through that scenario.
What scenario analysis enables
With our scenario analysis, you can see how different decarbonisation pathways, and different sector-based carbon budget allocations can affect your portfolio, and specific assets in your portfolio. By arriving at a house-view on which scenario your institution wants to adhere to, risk and opportunity can be pursued with more confidence.
TCFD regulations require scenario analysis as part of the annual reporting requirements, and Emmi’s scenario analysis provides the best in class ability to conduct that analysis for your TCFD report.
What's in a climate scenario?
Climate Scenarios describe annual carbon budgets, and an annual carbon price point, over the years leading up to and beyond 2050.
Emmi's interpretation of climate scenarios makes them ready-to-use with real economic data and mappings.
Emmi has developed scenarios that include IPCC, NGFS, and PRI climate scenarios.
IPCC Climate Scenarios
The 1.5°C scenario SSP1 RCP1.9 is the aspirational goal of the Paris Agreement. It is the most optimistic, low carbon pathway with a 66% chance of limiting warming to 1.5°C. It assumes a rapid decarbonisation of our global systems and economy to achieve net global emissions by mid century.
The 2.0°C scenario SSP2 RCP2.6 is the less aspirational, upper limit of the 2015 Paris aligned pathway and our central scenario, with a 66% chance of limiting warming to 2°C. It is representative for scenarios leading to low greenhouse gas concentration levels. It is a so-called “peak” scenario, where greenhouse gas emissions (and indirectly emissions of air pollutants) are reduced substantially over time.
The 4.0°C scenario SSP2 RCP6.0 is indicative of a 3-4 C global average temperature rise. Known as the no policy SSP2 scenario, the world follows a path in which social, economic and technological trends do not shift markedly from the historical. It assumes no specific emissions reduction policies are implemented and is a ‘Business As Usual’ scenario.
Net Zero 2050 is an ambitious scenario that limits global warming to 1.5 °C through stringent climate policies and innovation, reaching net zero CO₂ emissions around 2050. Some jurisdictions such as the US, EU and Japan reach net zero for all greenhouse gases by this point.
This scenario assumes that ambitious climate policies are introduced immediately. CDR is used to accelerate the decarbonisation but kept to the minimum possible and broadly in line with sustainable levels of bioenergy production. Net CO₂ emissions reach zero around 2050, giving at least a 50 % chance of limiting global warming to below 1.5 °C by the end of the century, with no or low overshoot (< 0.1 °C) of 1.5 °C in earlier years. Physical risks are relatively low but transition risks are high.
Below 2 °C gradually increases the stringency of climate policies, giving a 67 % chance of limiting global warming to below 2 °C.
This scenario assumes that climate policies are introduced immediately and become gradually more stringent though not as high as in Net Zero 2050. CDR is deployment is relatively low. Net-zero CO₂ emissions are achieved after 2070. Physical and transition risks are both relatively low.
Divergent Net Zero reaches net-zero by 2050 but with higher costs due to divergent policies introduced across sectors and a quicker phase out of fossil fuels.
This scenario differentiates itself from the Net Zero 2050 by assuming that climate policies are more stringent in the transportation and buildings sectors. This mimics a situation where the failure to coordinate policy stringency across sectors results in a high burden on consumers, while decarbonisation of energy supply and industry is less stringent.
Furthermore, the availability of CDR technologies is assumed to be lower than in Net Zero 2050. Emissions are in line with a climate goal giving at least a 50 % chance of limiting global warming to below 1.5 °C by the end of the century, with no or low overshoot (<0.1 °C) of 1.5 °C in earlier years. This leads to considerably higher transition risks than Net Zero 2050 but overall the lowest physical risks of the 6 NGFS scenarios.
Delayed Transition assumes global annual emissions do not decrease until 2030. Strong policies are then needed to limit warming to below 2 °C. Negative emissions are limited.
This scenario assumes new climate policies are not introduced until 2030 and the level of action differs across countries and regions based on currently implemented policies, leading to a “fossil recovery” out of the economic crisis brought about by COVID-19. The availability of CDR technologies is assumed to be low pushing carbon prices higher than in Net Zero 2050. As a result, emissions exceed the carbon budget temporarily and decline more rapidly than in Well-below 2 °C after 2030 to ensure a 67 % chance of limiting global warming to below 2 °C. This leads to both higher transition and physical risks than the Net Zero 2050 and Below 2 °C scenarios.
Nationally Determined Contributions (NDCs) includes all pledged policies even if not yet implemented.
This scenario assumes that the moderate and heterogeneous climate ambition reflected in the conditional NDCs at the beginning of 2021 continues over the 21st century (low transition risks). Emissions decline but lead nonetheless to 2.6 °C of warming associated with moderate to severe physical risks. Transition risks are relatively low.
Current Policies assumes that only currently implemented policies are preserved, leading to high physical risks.
Emissions grow until 2080 leading to about 3 °C of warming and severe physical risks. This includes irreversible changes like higher sea level rise. This scenario can help central banks and supervisors consider the long-term physical risks to the economy and financial system if we continue on our current path to a “hot house world”.
NGFS Climate Scenarios
IPR Climate Scenarios
IPR forecasts a continued acceleration in climate policy to 2025, driven, in part, by the 2023 Paris Stocktake and the 2025 Ratchet. IPR assesses that those policy responses will be increasingly forceful, abrupt, and disorderly and produces in-depth scenarios to assist investors in navigating the financial, market and real economy uncertainties inherent in climate transition.
