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Say hello to Acme Steel Inc.
They’re a 6,000 person company, based in Australia.
Acme is used throughout as a worked example.
Say hello to Acme Steel Inc.
They’re a 6,000 person company, based in Australia.
Acme is used throughout as a worked example.
Using climate scenarios including those developed by the Intergovernmental Panel on Climate Change (IPCC) and the Network for Greening the Financial System (NGFS) enables investors to forecast future risks, costs, and opportunities, during the transition to a low-carbon economy.
The Network for Greening the Financial System (NGFS) provide a set of six industry standard future climate pathway scenarios and carbon budgets for financiers, governments and universities to assess and manage the financial system's exposure to various levels of forward looking climate-related risk (and opportunity). These scenarios are created using three academically renowned global energy-economy-climate models known as integrated assessment models (IAMS), including: GCAM 3+, MESSAGEix-GLOBIOM and REMIND-MAgPIE which have been in development for over 30 years and have been used in several hundred peer-reviewed scientific studies on climate change mitigation and is documented thoroughly in the NGFS Climate Scenarios Database Technical Document.
Carbon Emissions footprint estimations
Scenario paramaters
Emmi uses the robust REMIND-MAGPIE by default, as the industry classifications match closest to the publicly listed universe. However all three NGFS models can be used when running analysis on any of the six scenarios, giving a total of 18 potential NGFS scenarios to run.
GCAM, MESSAGEix-GLOBIOM, and REMIND-MAgPIE are all integrated assessment models used to analyse the relationships between the economy, energy system, and climate. However, they differ in several ways, and have considerably different trajectories, especially for Current Policy pathway.
REMIND-MAgPIE stands out for its intricate representation of energy technologies and its inclusion of an endogenous representation of the technological learning curve, which enables it to assess the impacts of technological innovation on future energy systems and emissions. However, while it also incorporates land-use and agriculture through the MAgPIE model, it does not go into as much detail in these land-use and AFLOU as in the other models, which is lower priority for Emmi, since we are focused on company output rather than land-use changes.
All scenarios operate with two key parameters. Carbon Budget, and Carbon Price.
The budget allocation can be at a global level (this is the case for the IPCC scenarios), which are apportioned equally across the entire global economy, or at a sector level (this is the case for the NGFS scenarios). Carbon budgets are allocated on a yearly basis, and shift year to year into the future.
The Carbon Price is set by the scenario. Unlike carbon budgets, all scenarios operate with a global carbon price.
NGFS Scenario Models
NGFS Scenario Models
Due to differences between the industry standard GICS or equivalent classification systems and the sectors provided by the NGFS climate-energy-economics models, we need to create systematic mapping systems between them. We created multiple mapping systems between GICS Industry, Factset Industry, NGFS High level emissions categories, and UN sector GDP breakdowns via their respective IPCC codes.
There are several difficulties here, since public companies cover Scope 1, 2 and 3 emissions, whereas the NGFS categories focus on operational hierarchies based on Scope 1 emissions. From the mapping we created five EMMI-NGFS Sectors; Industry, Residential and Commercial Buildings,Transportation, Energy Supply and Services that we have provided EMMI-NGFS Sector Names for. We found that Industrial Processes mapped closer to a ‘Services’ category, so we made this new category.
Sector Specific CO2 Budgets
The NGFS models provide sector specific future CO2e pathways, also referrred to as budgets. An example of the REMIND-MAGMPIE Net Zero scenario sector specific carbon trajectories can be seen in the Figure below. In the REMIND-MAgPIE model, these align and max out at ~37GtCO2e in 2020.
However, due to Carbon Capture and Storage paramaterisations in the models, there is a disconnect between the global number and the sector pathways after 2050. Note that in both Figures 3 and 4, AFLOU (Agriculture, Forestry and Other Land-use) has been removed due to mapping inconsistencies with the public equity universe.
Criticisms of NGFS Climate Scenarios
We must note that even though NGFS is a standard for central banks and financial regulators, there have been numerous criticisms against the NGFS model system for being too lenient, and that assuming we can scale our CCS rapidly.
In general, these articles argue that the NGFS 1.5C scenarios are not aligned with the Paris Agreement and are not achievable or sustainable. Both of the NGFS’ low-emissions climate scenarios rely heavily on the removal of vast amounts of carbon dioxide from the atmosphere to balance the scientifically-determined carbon budgets necessary to stay within the 1.5C target of the Paris Agreement.
Seeing these scenarios in action with Emmi’s algorithms adds a lot of colour to this criticism, particularly when it is compared with IPCC scenarios. Reach out for a demo of our Carbon Diagnostics product with scenario analysis to get a demo with one of your funds.
For the GCAM model, the sectors don’t fully align to the NGFS ‘Industrial Processes’ category (Which we have called ‘Services’). However this diffential is minor, and due to the exclusion of AFLOU, these results still align closely with the global ~38GtC.
