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[en] Climate change dynamics are on a trajectory of intensification which may require the use of new and notable measures. The Paris Agreement recognized the urgency of directing financial flows toward low carbon activities and climate-resilient development. The climate-related risks continue to potentially endanger the stability of the financial sector. This situation gave rise to the discussion about using capital requirements to address both the climate investment gap and climate-related risks. The debate has gained more attention in Europe with the mandate given early 2019 by the Commission to the European Banking Authority (EBA) to report on the possibility of introducing a prudential treatment in accordance with environmental and social objectives. Stakeholders have taken part in this debate with strong and opposing views. To date, the debate has been often confused due to a mixing up of different possible objectives and conditions for implementing such regulatory measures. It is therefore key when looking at integrating climate-related risks into capital requirements to distinguish between two different approaches: - The risk approach, which seeks to increase banks' resilience to climate-related risks and thereby ensure financial stability. It is as well the approach that corresponds to primary objective of capital requirements; - The economic policy approach, which aims to use capital requirements as a policy tool to channel financial flows towards a low-carbon economy. There are very few examples of existing capital requirement adjustments to learn from in order to inform the debate. The most relevant one is the Small and Medium Enterprise (SME) supporting factor put in place in 2014 by the EU to support credit to SMEs; however, the outcomes of this measure are still unclear, inconclusive and debated. In order to integrate climate-risks into capital requirements, several mechanisms have been so far put forward: a Green Supporting Factor (GSF), a Brown Penalizing Factor (BPF), the combination of a GSF and a BPF, an Environment-Risk Weighted Asset (ERWA) and a Green Weighting Factor which is the only one already implemented on a voluntary basis by Natixis, a French commercial bank. All of them have their advantages and disadvantages which differ according to the approach chosen. All the reviewed instruments are not equally fit to meet each possible approach: - Under the risk approach, using a Green Supporting Factor or a Brown Penalizing Factor alone would face a major weakness: the risk approach would require re-calibrating the risk weight factors of all assets to fully integrate climate-risks in banks' balance sheet and not only part of them. In this respect, the combination of a GSF and a BPF - or any similar mechanism - would make a step in the right direction by covering all assets. However, it would still assume that the climate adjusted risk weight of green assets should be lower than their current risk weight whereas it is likely that they would remain constant at best. - On the contrary, under the economic policy perspective, none of the reviewed instruments can be disregarded ex ante. Moreover, specific challenges would need to be addressed before implementing any of these measures at a national level: - Under the risk approach, the objective is to integrate climate-related risks to maintain financial stability. Therefore, it is key to accurately measure the level of climate-risks associated to each asset. This is still a major challenge because of the deep uncertainty nature of climate change and socio-economic measures associated- and as a result the lacking usefulness of historical data -and the short-term horizon of standard credit risk models compared to the medium-long term horizon of climate-related risks. In the absence of a sufficiently robust risk measure, there is no point in taking the risk approach. - Under the economic policy approach, the objective is to channel more flows toward the low-carbon economy. The issue of accurately measuring climate-risks is no longer essential. The question is rather to find a metric which allows to differentiate among activities based on their contribution to developing a low-carbon economy. In this situation, however, other challenges would still exist. The first one relates to the effectiveness of adjusting banks' capital requirements to increase or reduce specific categories of credits. Indeed, there is no clear empirical evidence supporting such effectiveness. The second challenge is to ensure this policy instrument would not endanger financial stability. To do so, it would be key to maintain banks' capital base in line with prudential requirements as measured today based on the lessons drawn from the recent global financial crisis. This raises the question of how capital neutrality should be ensured at the starting point, possibly through a micro adaptation of the mechanism, and whether it should be maintained over time which would entail rather complex mechanisms. The paper stresses that pursuing the risk and the economic policy objectives together can create tensions in the design of the capital requirement adjustment for certain types of financing. It may be necessary to give preference to one objective, probably to the detriment of the other. In addition, a common taxonomy would be helpful for the risk approach to screen the assets vis-a-vis their transition impact and would be a pre-condition to follow the policy tool approach. Depending on the instrument chosen, this taxonomy could be 'green' - as the European Union's (EU) taxonomy - or 'green and brown' as requested by regulators of the NGFS. Finally, there are issues which will require further discussions. It would be important to clarify points such as the bias of methodologies, the capital neutrality in the long run and the lack of empirical evidence
[en] The transition to a low-carbon economy represents risks and opportunities for companies. Indeed, far-reaching changes are expected in socio-economic systems, with uncertainties about their timing and magnitude, and their economic and financial consequences. In this context, forward looking methods - in particular scenario analysis - are very useful to companies to inform strategic thinking and planning processes. In 2017, the TCFD (Task Force on Climate-related Financial Disclosures) published its recommendations on the integration of climate-related risks and opportunities: it recommends in particular that companies should use scenario analysis for strategic purposes, and disclose elements of these analyses in order to facilitate the incorporation of climate-related issues by the financial system. Although some companies have been using forward-looking scenario analysis for decades in their strategic thinking, the widespread application of such methods to climate-related issues presents difficulties. Moreover, precision is expected on the information required by financial companies, and this disclosure raises confidentiality issues. The goal of this guide is therefore to support non-financial companies in the forward-looking analysis of the strategic issues of the low-carbon transition, and in their disclosure to financial stakeholders, in reference to the TCFD framework
[en] 4 key trends for 2020: 1. As of April 1, 2020, 44 countries and 31 provinces or cities are operating a carbon pricing scheme, through a carbon tax and/or an Emissions Trading System (ETS). Together, these jurisdictions account for around 60% of global GDP. 3 new countries have implemented an explicit price on carbon over the past year: Canada, South Africa and Singapore. 2. Depending on the authority enacting the initiative, the explicit carbon prices as of March 1, 2020, range from less than USD 1 (approximately EUR 1) to USD 123 (EUR 114) per ton of CO2e. However, more than 75% of emissions regulated by carbon pricing are still covered by a price below USD 10 (EUR 8). To stay on the 2 deg. C trajectory while sustaining economic growth, the High-Level Commission on carbon prices led by economists Stern and Stiglitz recommends carbon prices between USD 40 and USD 80 per ton of CO2e by 2020, and between USD 50 and USD 100 per ton of CO2e by 2030. 3. Carbon pricing schemes generated USD 48 billion (EUR 42 billion) in 2019, a slight increase compared with 2018 (USD 45 billion). 53% of the 2019 revenue stems from carbon taxes while the other 47% are generated by carbon quotas. These carbon revenues are mostly directed to the general budget or earmarked for specific environmental or broader development projects. 4. The global economic crisis triggered by the Covid-19 resulted in a drop of carbon emissions. In 2008, the financial crisis caused a price collapse on carbon markets, wiping out the financial incentive for industries to reduce their emissions. Since then, price stabilization measures have been implemented to address this fragility. The current health and economic crises will be a real test to the stabilization mechanisms in place (see opposite)
[en] The Covid-19 sanitary crisis is a systemic global crisis with multiple social, economic and financial ramifications. The sharp decrease in French greenhouse gases emissions resulting from confinement measures remains marginal and temporary. It is imperative that the Government's response to the Covid-19 crisis supports structural transformations that accelerates a just transition to a low-carbon economy, for it will strengthen our resilience to sanitary and climate risks. Early warning systems are to be strengthened within a strong international framework, and crisis surveillance and strategy management are to be informed by science. Resilience in view of multiple and simultaneous crises must be strengthened by coherent investments following priorities defined in the Sendai 2015-2030 action frame for reduction of catastrophe risks. The index of exposure to climate risks must be completed with specific indices of vulnerability. Addressing these vulnerabilities implies a reduction of underlying inequalities to reinforce the resilience of the population as a whole and its adaptive capacities. To address to the economic, social and financial impacts to come, post-crisis and stimulus plans must integrate the climate emergency: a reduction in greenhouse gases emissions and the adaptation to present and future inevitable climate changes. To further public debate, it is important to highlight advances made by the Citizen's Climate Convention (Convention citoyenne pour le climat). Crisis recovery measures must be included in the climate blueprint of each Ministry. The implementation of these measures must be followed and evaluated by the Council of ecological defence. For an efficient and transparent governance, the emergency plan must address the recommendations published by the HCC in 2019, in particular those relating to the Productive pact and to policy evaluation. A 'Stimulus plan' will need to consider the profound factors of the present situation, which will lead to profound transformations that respect climate issues. This 'recovery' must be green, not grey, maximise co-benefits for climate and ecosystems, and must not lock down on carbon-intensive trajectories. Synergies between climate, environment and health must be reinforced: fight against pollution and imported deforestation, healthy diets, evolution of modes of transportation. Granting of budgetary measures or fiscal incentives for private actors or local authorities should be clearly subordinated to the explicit adoption, by these actors, of investment plans and perspectives compatible with low-carbon trajectory and the multi-annual program for energy. Investments must be oriented towards social and technological innovation, energy efficiency, and resilient infrastructures that favour de-carbonized uses, and solutions based on the ecosystems' health. Structuring sectors providing jobs for a long-term transition must be prioritised. The low price of oil must facilitate the reconversion of fiscal exemptions and other fossil energy subventions, according to the principles of a just transition. Debt must be redirected towards investments that support a low-carbon transition. Reform of the European emissions trading system must be completed by the adoption of an increasing floor price. Within the framework of the Paris agreement, it is necessary to defend the articulation of European and international plans with the nationally-determined contributions that will be presented before the end of the year, to avoid being trapped in high emission trajectories. Important evolutions of the international context - fight against deforestation, the Montreal protocol - must remain priorities
[en] The national Access to Energy task force, initiated by the French Agency for Ecological Transition and the French Renewable Energy Trade Association in 2018, brings together more than a hundred public and private actors (public agencies, NGOs, private sector representatives, research institutes, French Regions...) to accelerate the achievement of the United Nations' Sustainable Development Goal no. 7: ensuring access to affordable, reliable, sustainable and modern energy for all. This document is one of the achievements of the task force. It aims at promoting the current French offer with regards to access to renewable energy, by listing relevant actors and showcasing their innovations. It will be regularly updated.
[en] The end of June saw the return of activity to close to pre-Covid 19 levels, except for the mining sites which remain shut down in Canada, and Kazakhstan operating at a slower pace, which are most strongly impacting the second half: - Revenue of Euro 1,782 million, up +7.8% on the first half of 2019; - EBITDA margin at 22.8%, despite operational performance adversely affected by the Covid-19 crisis. Net income attributable to owners of the parent impacted by the negative performance of the financial markets due to the health crisis: - Net income attributable to owners of the parent at -Euro 212 million, combining positive operating performance and a strongly negative return on assets earmarked for end-of-lifecycle commitments in the first half of 2020; - Adjusted net income attributable to owners of the parent at +Euro 17 million, compared with -Euro 111 million in the first half of 2019, reflecting the solid performance of operating businesses despite the crisis. Positive net cash-flow and solid liquidity position: - Net cash-flow of +Euro 46 million versus -Euro 59 million in the first half of 2019, the cash impacts of the Covid-19 crisis being mainly deferred until the second half; - Net debt stable during the period at Euro 2.2 billion, with Euro 1.8 billion in cash as of June 30. Adjustment to 2020 financial outlook: - Slight decrease in revenue; - EBITDA margin between 22% and 25%; - Continuation of positive net cash-flow
[en] The Institute for Climate Economics (I4CE) is a think tank with expertise in economics and finance whose mission is to support action against climate change. Through its applied research, the Institute contributes to the debate on climate-related policies. It also publicizes research to facilitate the analysis of financial institutions, businesses and territories and assists with the practical incorporation of climate issues into their activities. This annual report presents the following Themes: 1 - Investment: How to finance climate action; 2 - Budget: G20, 151 b$ for fossil fuels since the start of the crisis; Citizen proposals for the climate and economic recovery; 3 - Territories: There will be no 'green recovery' without the local authorities; 4 - Adaptation: Making the economic recovery contribute to climate resilience; 5 - Finance: Financial regulation has a role to play in the 'green recovery'; Public financial institutions can contribute to a 'climate-compatible' recovery; 6 - Carbon market: The European carbon market put to the test by Covid; 7 - Fiscality: The carbon tax is not the only solution; 8 - Agriculture: Let us not be afraid of obligation of result; 9 - Enterprises: Scenario analysis of the issues of the low-carbon transition; 10 - I4CE Publications, Clubs, Governance, Budget and Team.
[en] This report is an analysis and assessment of climate action led by banks, insurers and investors. It also presents the market dynamics with the evolution and offer of green financial products. The 2020 edition reflects the growing awareness among financial players of their major role in the low-carbon transition of the real economy, but also of the factors underlying its success: the protection of biodiversity and the social impact of investments and financial products. Many tools and methodologies are now in place or under construction for greening the financial sector. That this broad-based movement is not reflected in sufficient volumes of financing is notably because it is impossible to move quickly from financing the existing economy, especially in the midst of a crisis such as the world is currently experiencing, to financing exclusively assets and activities adapted to a carbon-neutral world. To date, the spotlight has been trained on assets at risk from transition, which initial investigations carried out in 2018 by a few European financial authorities have estimated at some 10% of banks' balance sheets. Emphasis has also been placed on green assets, which appear to constitute at best 20% of portfolios among even the most involved players. According to an EIOPA estimate, 1 they make up around 5% on average of European insurers' portfolios. However, not all assets between these two poles are neutral, and it is important that they too evolve. To this end, the concept of transition finance has recently emerged. This term was coined to describe financing for companies that are progressively reducing their carbon emissions. Criteria for debt instruments are currently being explored. The European taxonomy project also includes a category for businesses in transition. However, criteria capable of completely eliminating the risk of green washing have yet to be defined. To this end, release of the 'Framework for Financing a Whole-of-Economy Transition', promised for November by Mark Carney, now climate advisor to the UK Presidency of COP26, is a step awaited with great anticipation. The concept of Just Transition, born several years ago, is finding its first operational response in impact debt tools such as sustainable bonds and loans along with their various permutations. The European taxonomy attempts to take this into account as well, with the introduction of minimum social criteria for an activity to be considered sustainable. The challenge today is to generalise this notion within the financial sector to ensure that the low-carbon transition can be socially acceptable. This process also reflects a desire on the part of those providing financing to achieve greater impact by linking social and environmental issues, as proposed in the structure of the Sustainable Development Goals. Deploying strategies in line with the Paris Agreement and achieving net-zero emissions by 2050: For the past two years, this ambition has gained ground as the search for a suitable methodology continues. First made by public development banks, this commitment is being extended to the private financial sector. It is also taking root among companies, whether spontaneously or under pressure from investors, who are making it an increasingly explicit requirement. The publication of undisputed sector scenarios and national transition strategies worldwide would greatly facilitate these alignment strategies. Despite efforts to increase transparency on climate-related risks and opportunities, the financial community considers that companies still fail to provide them with the practical information needed to make informed financial decisions. Likewise, the climate, environmental and broader sustainability performance of financial products and services that claim such ambitions remains difficult to assess and compare. Any resolution of these issues will entail a generalisation and standardisation of mandatory disclosures, which is something regulators can impose. Europe is well on the way to achieving this already. The creation of open-access, verified databases would facilitate access to this information. Meanwhile, artificial intelligence tools are beginning to emerge to analyse this data and provide guidance for decision-making. Lastly, a further issue arises from the coronavirus pandemic and the massive public funding deployed to revive the world's economies. This situation calls for environmental and social considerations to be taken into account in choosing priorities for funding and measuring their impact. While emergency measures to date appear more conservative than transformative, it is important that the recovery plans currently being designed and deployed not be a missed opportunity for building a more sustainable, low-carbon economy.
[en] As the global electricity systems are shaped by decentralisation, digitalisation and decarbonization, the World Energy Council's Innovation Insights Briefs explore the new frontiers in energy transitions and the challenges of keeping pace with fast moving developments. We use leadership interviews to map the state of play and case studies across the whole energy landscape and build a broader and deeper picture of new developments within and beyond the new energy technology value chain and business ecosystem. The topic of this briefing is energy storage. We interviewed energy leaders from 17 countries, exploring recent progress in terms of technology, business models and enabling policies. We showcase these in 10 case studies. While the brief addresses energy storage as a whole, most insights are focused on electrical storage. Our research highlighted that today's mainstream storage technologies are unlikely to be sufficient to meet future flexibility requirements resulting from further decentralisation and decarbonization efforts. Furthermore, a restricted focus on lithium-ion batteries is putting the development of more cost-effective alternative technologies at risk. A detailed list of the interviews with innovators, energy users and producers can be found at the end of this brief. Annex 4 provides a list of acronyms and abreviations. With major decarbonizing efforts to remove thermal electric power generation and scale up renewable energies, the widespread adoption of energy storage continues to be described as the key game changer for electricity systems. Affordable storage systems are a critical missing link between intermittent renewable power and 24/7 reliability net-zero carbon scenario. Beyond solving this salient challenge, energy storage is being increasingly considered to meet other needs such as relieving congestion or smoothing out the variations in power that occur independently of renewable-energy generation. However, whilst there is plenty of visionary thinking, recent progress has focused on short-duration and battery-based energy storage for efficiency gains and ancillary services; there is limited progress in developing daily, weekly and even seasonal cost-effective solutions which are indispensable for a global reliance on intermittent renewable energy sources. The synthesis of thought leadership interviews and case studies with 37 companies and organizations from 17 countries helped derive the following key takeaways and also provide the impetus to the solution steps that we discuss in detail later in this brief: 1 - Shared road-maps: Energy storage is a well-researched flexibility solution. However, while the benefits of energy storage are clear to the energy community, there has been limited bridge-building with policy-makers and regulators to explore the behavioural and policy changes necessary to encourage implementation. 2 - Market design - Access and stacking: Market access and the ability to stack different services simultaneously will enable cost-effective deployment of energy storage, regardless of the technology. 3 - More than batteries: Energy storage is too often reduced to battery technologies. Future-proofing our energy systems means considering alternative solutions and ensuring technologies have equal market opportunities. Demonstration projects of such technologies are necessary to disprove bias towards specific technologies. 4 - Sector coupling: Energy storage presents a sector coupling opportunity between hard-to-abate sectors, such as mobility and industry and clean electricity. Different vectors of energy can be used, including heat, electricity and hydrogen. 5 - Investment: Relying on investments by adjacent sectors such as the automotive sector is not enough. The energy sector must adopt more aggressively technologies aligned with the end-goal: affordable clean energy for all.
[fr]L'adoption a grande echelle du stockage de l'energie est consideree comme un changement de paradigme majeur pour le systeme energetique. Le developpement d'une technologie de stockage accessible aux consommateurs constitue le chainon manquant pour rendre fiables les energies renouvelables variables. En depit de ce defi technique, le stockage de l'energie peut remplir un role au-dela des energies renouvelables, notamment dans le controle des congestions et les variations de puissance du reseau. Malgre ces perspectives encourageantes, les progres autour du stockage sont restes centres sur les services secondaires et les gains d'efficacite acquis par le stockage a court terme. En revanche, tres peu de progres a ete fait vers les solutions diurnes, hebdomadaires ou saisonnieres rentables, qui sont necessaires a la fiabilite des sources d'energies renouvelables. Conclusions principales: 1 - Feuille de route partagee: le stockage d'energie est une solution de flexibilite reconnue. Cependant, il existe tres peu de visions communes entre legislateurs et experts, bien que tous reconnaissent le potentiel du stockage. 2 - Structure du marche: obtenir un deploiement rentable du stockage se fera grace a un acces equitable au marche et un cumul de differents services, quelle que soit la technologie utilisee. 3 - Au-dela des batteries: le stockage energetique est trop souvent reduit aux batteries. Un systeme energetique a l'epreuve du temps doit s'appuyer sur des solutions diverses, encouragees par un acces equitable aux opportunites sur le marche. 4 - Couplage sectoriel: le stockage energetique represente une veritable opportunite de couplage entre les secteurs difficiles a decarboner et les energies renouvelables. Differents vecteurs d'energie peuvent etre utilises, y compris la chaleur, l'electricite et l'hydrogene. 5 - Investissements: il faut diversifier les investissements au-dela des secteurs adjacents, tel que le secteur automobile. Le secteur energetique doit adopter de maniere plus agressive les technologies alignees avec leur finalite: de l'energie propre pour tous.
[en] The crisis initiated by the coronavirus (SARS-CoV-2) has revived the well know chorus of the dangers of globalization and the interdependencies it induces. Recent months have once again highlighted China's major role in the value chains of energy transition industries. At the same time, the price war on the oil markets has reminded us of the tension between their exposure to a small number of state actors and their importance for our economies. Conversely, our analysis, which is necessarily imperfect, of the initial economic effects of this energy crisis appears to outline another conclusion: the need for geographical diversification of energy value chains and not their concentration in a given country or region (China, France, the United States or elsewhere). However, this diversification is by no means self-evident and other factors, economic but also environmental and social, could legitimately obstruct it. Although the oil sector is experiencing a demand shock of unprecedented magnitude since the 2008 crisis, the fall in the price of crude oil which now threatens the balance of players rather seems to be the consequence of the indirect conflict that Russia and Saudi Arabia have been engaged in since March 8. Indeed, the 1.8 million barrels per day (b/d) drop in world consumption over the first quarter induced by Chinese measures to counter the epidemic led to a fall from $60 to $50 per barrel in February - a sustainable price for the sector and the producing countries. The anticipated increase in production of more than 3 million b/d by Saudi Arabia (supported by its allies Kuwait, Iraq and the United Arab Emirates) led to a barrel at less than $251 - a much less sustainable level. Similar effects can be seen in gas markets. The market power of these ten players appears to be directly responsible, even if the demand shock provides a particularly favourable context for its exercise. In this context, renewable energies and electric mobility are in turn praised or seen as new sources of dependence. While some analysts see them as a response to our societies' exposure to geopolitical conflicts and their after effects on oil and gas markets, others stress the dependence of these sectors on China. However, the consequences on the energy transition sectors and their value chains are more complex to assess and do not only involve supply constraints. They result from the non-trivial interaction of the disruptions in each chain, the conditions for granting subsidies in each country, and pre-existing tensions on production. The situation is therefore different between wind and solar, but also between the market in China and outside China. The Chinese situation illustrates in particular that locally producing panels or battery is not enough to be immune to a crisis of this magnitude. Ultimately, the crisis is expected to be felt in the transition sectors mainly through macro-economic effects. Indeed, the situation could lead to greater financing difficulties, a drop in energy demand, or changes in policies on the part of states or companies. The battery and electric vehicle sector is a very good example. In this context, any national production would not be spared either. (author)