The world is not on track to meet the target agreed by governments to limit the long-term rise in the average global temperature to 2 degrees Celsius (°C). Global greenhouse-gas emissions are increasing rapidly and, in May 2013, carbon-dioxide (CO2) levels in the atmosphere exceeded 400 parts per million for the first time in several hundred millennia. The weight of scientific analysis tells us that our climate is already changing. We should expect extreme weather events (such as storms, floods, and heat waves) to become more frequent and intense, as well as expect an increase in global temperatures and rising sea levels.

Policies that have been implemented, or are now being pursued, suggest that the long-term average temperature increase is more likely to be between 3.6 °C and 5.3 °C (compared with pre-industrial levels), with most of the increase occurring this century. While global action is not yet sufficient to limit the global temperature rise to 2 °C, this target still remains technically feasible, though extremely challenging. To keep open a realistic chance of meeting the 2 °C target, intensive action is required before 2020, the date by which a new international climate agreement is due to come into force.

Energy is at the heart of this challenge. The energy sector accounts for around two-thirds of greenhouse-gas emissions, as more than 80 percent of global energy consumption is based on fossil fuels. The International Energy Agency (IEA) has researched the role of energy and its potential to limit climate change. Key findings include:

The energy sector is key to limiting climate change

Despite positive developments in some countries, global energy-related CO2 emissions increased by 1.4 percent to reach 31.6 gigatonnes in 2012, a historic high. Non-OECD countries now account for 60 percent of global emissions, up from 45 percent in 2000. In 2012, China made the largest contribution to the increase in global CO2 emissions, but its growth was one of the lowest it has seen in a decade, driven largely by the deployment of renewables and a significant improvement in the energy intensity of its economy. In the United States, a switch from coal to gas in power generation helped reduce emissions by 200 million tonnes, bringing them back to the level of the mid-1990s.

However, the encouraging trends in China and the United States could well both be reversed. Even after allowing for policies now being pursued, global energy-related greenhouse-gas emissions in 2020 are projected to be nearly 4 gigatonnes CO2-equivalent higher than a level consistent with attaining the 2 °C target, highlighting the scale of the challenge still to be tackled just in this decade.

Four energy policies can keep the 2 °C target alive

The IEA’s 4-for-2 °C Scenario proposes the implementation of four policy measures that can help keep the door open to the 2 °C target through to 2020 at no net economic cost. The policies in the 4-for-2 °C Scenario have been selected because they meet key criteria: they can deliver significant reductions in energy-sector emissions by 2020 (as a bridge to further action); they rely only on existing technologies; they have already been adopted and proven in several countries; and, taken together, their widespread adoption would not harm economic growth in any country or region.

The four policies are:

  • Adopting specific energy efficiency measures (49 percent of the emissions savings).
  • Limiting the construction and use of the least-efficient coal-fired power plants (21 percent).
  • Minimizing methane emissions from upstream oil and gas production (18 percent).
  • Accelerating the (partial) phase-out of subsidies to fossil-fuel consumption (12 percent).

Adaptation to the effects of climate change is necessary

The energy sector is not immune from the physical impacts of climate change and must adapt. In mapping energy system vulnerabilities, we identify sudden and destructive impacts (caused by extreme weather events) that pose risks to power plants and grids, oil and gas installations, wind farms, and other infrastructure. Other impacts are more gradual, such as changes to heating and cooling demand, sea level rise on coastal infrastructure, shifting weather patterns on hydropower, and water scarcity on power plants.

Disruptions to the energy system can also have significant knock-on effects on other critical services. To improve the climate resilience of the energy system, governments need to design and implement frameworks that encourage prudent adaptation, while the private sector should assess the risks and impacts as part of its investment decisions.

Anticipating climate policy can be a source of competitive advantage

The financial implications of stronger climate policies are not uniform across the energy industry and corporate strategy will need to adjust accordingly. Under a 2 °C trajectory, net revenues for existing nuclear and renewables-based power plants would be boosted by $1.8 trillion (in year-2011 dollars) through to 2035, while the revenues from existing coal-fired plants would decline by a similar level. Of new fossil-fuelled plants, 8 percent are retired before their investment is fully recovered. Almost 30 percent of new fossil-fuelled plants are fitted (or retro-fitted) with carbon capture and storage (CCS), which acts as an asset protection strategy and enables more fossil fuel to be commercialized.

A delay in CCS deployment would increase the cost of power sector decarbonization by $1 trillion and result in lost revenues for fossil fuel producers, particularly coal operators. Even under a 2 °C trajectory, no oil or gas field currently in production would need to shut down prematurely.

The price of inaction

Delaying stronger climate action to 2020 would come at a cost: $1.5 trillion in low-carbon investments are avoided before 2020, but $5 trillion in additional investments would be required thereafter to get back on track. Delaying further action, even to the end of the current decade, would therefore result in substantial additional costs in the energy sector and increase the risk that the use of energy assets is halted before the end of their economic life.

The strong growth in energy demand expected in developing countries means that they stand to gain the most from investing early in low-carbon and more efficient infrastructure, as it reduces the risk of premature retirements or retrofits of carbon-intensive assets later on.

Excerpted from the forthcoming report “Redrawing the Energy-Climate Map” © OECD/IEA, 2013, pp. 9-12, modified by the authors. Read more in Redrawing the Energy-Climate Map.