Decarbonisation rates must far outstrip anything seen before to limit warming to 1.5°C, finds PwC’s Net Zero Economy Index

Jakarta, 31 October 2022 -  No country in the G20 is decarbonising quickly enough to maintain a safe climate, according to a new analysis by PwC.

This year’s Net Zero Economy Index shows progress on decarbonisation is falling alarmingly short of what is required to limit global warming to 1.5°C above pre-industrial levels, with nine of 20 major economies showing increases in carbon intensity over the last year.

Last year’s Index stated that going forward, a global decarbonisation rate of 12.9% was required to limit warming to 1.5°C, however in 2021, the global rate was just 0.5%, while the average in the G20 – who collectively account for around 80% of global energy-related emissions – was just 0.2%, its lowest level for two decades.

This has pushed the global rate of decarbonisation now needed to 15.2% year-on-year to meet the climate goals adopted in the Paris Agreement and endorsed at COP26 last year – in spite of any future shocks, such as the ongoing energy crisis.

This ambitious rate, which is 11 times faster than the global average achieved over the past two decades, is further complicated by the current geopolitical and economic context, leading to real risk on future progress towards emissions reduction.

PwC’s Net Zero Economy Index tracks the progress G20 countries have made to reduce energy-related CO2 emissions and decarbonise their economies. This is done by measuring levels of energy consumption relative to GDP, and the carbon content of that energy.

Looking closer at some of the world’s leading economies, China achieved a 2.8% reduction in carbon intensity, while the US (+0.1%), India (+2.9%), Japan (+0.6%), Germany (+1.7%) and France (+1.4%) all saw increases, in part due to the recovery from the pandemic.

The best performing country was South Africa (-4.6%), ahead of Australia (-3.3%), China (-2.8%), Turkey (-2.7%), Canada (-2.2%), Saudi Arabia (-1.8%), South Korea (-1.6%) and the UK (-1.5%).

Indonesia, in particular saw a decrease in the level of carbon intensity (-1.0%) in 2021, but the decrease has slowed compared with 2020 (-6.2%) , which saw the impact of the pandemic.

The report notes that there is no single pathway to net zero with each country moving at a different pace by different means. Ultimately however, all nations must accelerate action, with a pressing need to reduce global carbon intensity by 77% by 2030.

Encouragingly, there is growing worldwide consensus by governments, investors, and businesses on the need for large-scale decarbonisation and an acceleration in the switch to renewable forms of energy.

Businesses are continuing to drive forward the climate agenda through the decarbonisation of their own organisations, improving the performance and resilience of their supply chains, and exerting their influence over others - for example more than 3,000 businesses and financial institutions are working with the Science Based Targets initiative (SBTi) to reduce their emissions by setting science-based targets.

While policy makers are under pressure to ensure a secure and affordable energy supply, there is an opportunity to use disruptors to strengthen the business case for net zero investment.

The rise in energy prices and threats to supply have created a rush to fossil fuels in the short term; but strengthen the case for investment in renewable energy capacity for the long term.

Similarly, the financial case for energy efficiency has strengthened, especially in high energy-consuming and hard to abate sectors. Businesses will be looking at ways to consume less, while using energy more effectively, signalling a possible turning point in how we think about energy.

Emma Cox, PwC UK Global Climate Leader, comments: “The message from our Net Zero Economy Index is clear: we need to significantly accelerate the rate of decarbonisation at pace and at scale if we are to stand any chance of limiting global warming to 1.5°C. We've seen a strong appetite for change, but this is set against a fragile geopolitical and economic backdrop. Soaring energy prices, and the need to stimulate economic growth following the pandemic, have hampered recent progress.”

Julian Smith, PwC Indonesia ESG, Government & Infrastructure Advisor, adds, “Over the last two decades, countries starting with the highest energy intensities have typically seen the biggest initial drop in energy intensity. This is coupled with minimal improvement in the decarbonisation of their fuel mix.”

“This is likely to be a result of a range of factors, such as shifts in economic activity, policies and standards to promote efficiency, capital equipment upgrades and modernisation. In more recent years, as a result of renewable energy sources becoming more affordable, the focus of these nations has included a shift in their fuel mix to renewable energy sources.”