In many cases, US coal companies relied upon the EIA Reference Case, which is a scenario projection of current business-as-usual trends over a 20-30 year period, assuming no new policies, regulatory interventions, or disruptive technological developments. The EIA makes clear that the Reference Case is not a forecast, but instead a projection of current trends. This distinction seems to have been lost in many corporate reports.
On occasion, the EIA has also modelled proposed climate policies and regulations, including the American Power Act of 2009 (APA), American Clean Energy and Security Act of 2009 (ACESA), and the Clean Power Plan. In each instance, the EIA modelled the proposed policy changes, and imposed constraints in the modelling consistent with the emissions reduction targets in the law or regulation. The inclusion of such constraints allowed the model to consider how emissions reduction targets (which were largely consistent with President Obama’s Copenhagen pledges) might result in fuel switching. In other respects, the APA/ACESA modelling was similar to what EIA does to build its Reference Case.
Surprisingly, the APA/ACESA modelling has been a far better predictor of the actual course of emissions reductions and the drastic draw down of coal usage than the EIA’s Reference Case, which companies continued to emphasize in public reports—even though those bills were never enacted.
EIA projections of coal’s share of power generation cited in coal company 10-Ks Sources: CLD = Cloud Peak Energy; ANR = Alpha Natural Resources; ACI = Arch Coal; HNRG = Hallador Energy; JRCC = James River Coal; BTU = Peabody Energy; CNX = CONSOL Energy; ARMS = Armstrong Energy; AEO = EIA Annual Energy Outlook; ACESA = American Clean Energy and Security Act
This suggests that, regardless of how they are achieved, emissions reduction goals may provide a useful proxy for quantifying the impact of climate mitigation efforts on future fossil fuel demand. Carbon Tracker’s view is that climate targets – whether achieved by policy, technological progress, or other means – offer a clear statement of the direction of travel and level of global ambition and therefore a useful proxy for quantifying the extent of the risk.
The FSB taskforce is currently considering the use of scenarios to understand the implications of the energy transition for business models.
Investors are clearly demanding better disclosures; regulators should examine how companies present those risks—not just explicitly in their risk factor disclosures, but also implicitly in their scenario analysis which, like the US coal markets, may prove to disappoint for reasons that were entirely foreseeable.
This year saw record shareholder support for climate resolutions at oil majors’ annual general meetings. But are the companies changing course? And could they be worth more by producing less?
James Leaton, Head of research at Carbon Tracker, spoke to BBC World News.
News:93 Percent Of Public Companies Face Climate Risk; Only 12 Percent Have Disclosed It ‘The Sustainability Accounting Standards Board (SASB) chaired by Michael Bloomberg reported in December that 93 percent of American public companies face some degree of climate risk, and only 12 percent have disclosed it.’ 13th July 2016Meet Apple Energy – the new face of an old business
‘The inhabitants of the old energy world (think of the AustroHungarian empire on the eve of the first world war) cannot afford to be passive and indecisive in the face of the challenge. The temptation to resist change and double-down on the old business model has to be overcome.’ 4th July 2016State of The Transition, June 2016: A long list of advances, a short list of setbacks – including Brexit.
Will Brexit impede climate progress? As the UK approves a world-leading carbon emissions target just a week after the referendum, read the comments of Carbon Tracker’s chairman Jeremy Leggett. 1st July 2016Big Oil: From black to green
‘Paul Spedding of the Carbon Tracker Initiative says investors can face large losses when companies invest in “stranded assets” that cannot be developed at a profit. “That is the real risk climate change poses for the industry: over-investment, followed by oversupply, followed by value destruction via price,” he says.’ 28th June 2016
On 21st July, LAPFF and Carbon Tracker are launching the report ‘Engaging for a Low Carbon Transition’
which sets out why a 2?C business model can be less risky than ‘business-as-usual’ for oil and gas companies.
The event will take place in the auditorium at Aberdeen Asset Management,
Bow Bells House, 1 Bread St, London EC4M 9HH.
Find out more and register here.
