4th Oct 2019 | 23:38
FORECASTING THE NEXT STEPS IN THE CLIMATE CRISIS
The need to tackle the climate crisis has already begun taking government policies by the scruff of the neck, and has not just encouraged, but demanded more proactive and pragmatic action to bring the promises of the Paris Agreement into fruition. As decisive action becomes inevitable, one move which we can be supportive of is the collaboration of the public and private sectors. Investors and companies regularly look to anticipate the next ’iceberg’ ahead, to understand the asset classes and sectors that are likely to see improvements or deteriorations. Corporate transparency and state initiative together can create faster and more detailed responses to concerns ranging from city development to electric vehicles.
This collaboration requires a framework that forecasts how certain targets are being met based upon the developments taking place within private industries. The New Policy Scenario (NPS) designed by the International Energy Agency (IEA) is the ‘de facto benchmark for making energy decisions'1, while the Sustainable Development Scenario (SDS) work under the same institution and model as the NPS, underlining the Sustainable Development Goals (SDGs) as the target level for policy development. In itself, there are inherent question marks in their measurements that present limitations in the IEA’s outlook, meaning business planning could potentially approach policy and industry developments in an undesired way.
In this scenario, it comes to little surprise to see other organisations offer alternative perspectives and models. Such is the case with the Inevitable Policy Response (IPR), firstly addressing what it describes as ‘the market’s default assumption’ in that ‘no further climate-related policies are coming in the near- term’2. It then uses its own theory and thinking to anticipate the policies implemented and its financial and economic implications. This article will discuss the main differences between the IEA’s and IPR’s models to providing investors, corporations and regulators with forecasts and advice, delving deeper into how each method can ensure they lead to valuable and constructive advice for businesses.
To begin with, the NPS uses the principles of supply and demand in its recommendations to businesses with regards to energy, often incompatible with the outlines of the Paris Agreement. One of the major reasons for this is its unrealistic assumptions in the future supply of renewable energies. Its predictions anticipate a linear increase in its productive capacity, which ignores the influence of target measures and technological innovations that could create exponential surges in supply. The argument regarding target measures is a contentious one, as it can promote a backwards-looking approach and puts them at the forefront of tackling environmental issues, or any other issues for that matter. The SDS behaves in such a way, using the SDGs as an aspiration to work towards, and ‘works back to set out what would be needed to deliver these goals in the most cost-effective way’3. Not to say working backwards from a target goal is feeble, as in many cases this can drive ambition and a greater sense of meaning behind decision making within companies. However, a key point that the SDS misses out on that the NPS does touch upon, is that technology and internal policies are the building blocks for which climate problems can be tackled. A combination of innovation as the driving force and the goals to measure it are almost a prerequisite to an effective policy forecast.
This requirement is measured through IPR, a report in its infancy that changes not only the statistical overview of business development but lends a focus on both a unique methodology and a wider array of impacts, including on market responses and subsequently on asset classes. Technology is the main engine and policy induces the forces required to drive forecasts through a roadmap ‘on a timeframe that is relevant to investors’4, predicting the value of assets in initial three to five-year plans before taking a broader outline further forward. The IPR ensures it matches these anticipations by predicting for themselves the future policies that may arise beyond the current climate policies that governments and investors have defined and pledged to.
It is at this point a crucial lesson should be taken from how we solve problems or provide constructive criticism, not just in the context of the climate crisis, but in general. The NPS and SDS look to the past and scrutinise policies already announced, essentially limiting its description to it as just feedback. For a topic as high-level as the climate crisis, feedback alone is a vivid picture of the past but a vague one for the future. As pre-defined targets anticipate the future, advice holds greater utility than feedback in aiding business planning for the future. The IPR prides itself in performing this function, particularly on its modelling for the energy and land-use systems. In its infancy, the key for the IPR, in its quest to replace the NPS as the benchmark for climate-related strategy, is to gain greater assurance from key corporations and continue its extension ‘from macro and sector level results to portfolio and company level financial impacts to show investors the cost and impacts of this delayed, forceful and disruptive policy response forecast’.5 Time will tell whether the IPR can provide the much-needed realistic and accurate forecast and advice that the IEA has, in certain aspects, struggled to achieve. As more results and forecasts arrive, I will be taking a deeper look at the IPR and its modelling systems, scrutinising both the methodology and the results in greater detail and at an alternative level of thinking.
1Lemphers, N. (2019) IEA ‘New Policy Scenario’ Promotes ‘Business As Usual’ In A Carbon- Constrained World, http://priceofoil.org/2019/06/06/iea-new-policy-scenario- promotes-business-as-usual-in-a-carbon-constrained-world/ (Acessed: 2nd October 2019).
2UNPRI (2019) What is the Inevitable Policy Response? https://www.unpri.org/inevitable-policy-response/what-is-the-inevitable-policy- response/4787.article (Acessed: 2nd October 2019).
3IEA (2019) Sustainable Development Scenario: A cleaner and more inclusive energy future, Available https://www.iea.org/weo/weomodel/sds/ (Acessed: 2nd October 2019).
4UNPRI (2019) What is the Inevitable Policy Response? Available at: https://www.unpri.org/inevitable-policy-response/what-is-the-inevitable-policy- response/4787.article (Acessed: 2nd October 2019).
5UNPRI (2019) The Inevitable Policy Response: Policy Forecasts, London: United Nations.
Problems cannot be solved at the same level of thinking at which they are created. I seek to publish content that dives into environmental, social and governance problems, and provide an insight into them through a unique lens and a deeper level, highlighting common misconceptions and assumptions.