Low Carbon Economy Index

Conscious uncoupling?
Low Carbon Economy Index – October 2015

In December, Governments meet in Paris to agree how to tackle climate change. The deal is expected to have far reaching implications, affecting energy, transport, industry, buildings and finance. It will change investment decisions made by companies and spending decisions made by consumers.

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October 2015

Australia will need to nearly double its historic rate of decarbonisation, to 4.4% annually, if it is to meet its goal of 26% decrease in carbon emissions on 2005 levels by 2030.

Our 7th annual Low Carbon Economy Index (LCEI) tracks the rate that G20 countries are decarbonising their economies by measuring decreases in their ‘carbon intensity,' or the ratio of carbon emissions relative to GDP growth. Breaking the link between growth and emissions is seen as essential in avoiding the worst impacts of climate change.

Australia is making progress on carbon, but there is more work to do

  • Since 2000, Australia's carbon intensity has fallen on average 2.4% annually, but this is still well below the 4.4% required to reach the target Australia will take to the UN Climate Change conference in Paris this December.
  • Australia's average decarbonisation rate actually puts it in in the top five best performers in the G20. In 2013 and 2014 the decarbonisation rate was 4.5% and 4.7% respectively, so maintaining that rate could mean hitting the Government's 26% target.
  • Across the G20, an average annual reduction of 6.3% out to 2030 is needed to meet the target. Based on how Australia has tracked historically, it could be argued that there is scope to be more ambitious.

What does it mean for business?

Three consistent themes have emerged from the Intended Nationally Determined Contributions (INDCs), that is, the publicly declared country commitments that will be taken to Paris:

  • A rapid investment in renewables and their share of the energy mix.
  • The engagement of the financial services sector in delivering this investment, as well as assessing the sector's exposure to instability as a result of climate change.
  • A focus on coal-fired power generation in countries' decarbonisation pathways.

Australia's energy mix will need to continue to evolve.

Australia's energy mix will need to continue to evolve to keep Australia on track to meet its 2030 emissions target. Energy producers that rely on coal, gas, and oil will be very much part of the solution. The key for these businesses will be taking a portfolio view, and looking for opportunities to diversify into wind, hydro, solar, and emerging technologies.