World now in race to the top in green transition

The EU and US are now primed for race to the top on clean technology as climate objectives take centre stage along with domestic economic and industrial needs according to the latest Inevitable Policy Response (IPR) climate report. This race is creating a new catalyst for climate action, paving the way for a clean energy acceleration as competition increases according to the climate transition forecasting consortium’s climate report.

‘Race to the top on clean energy – The US and EU response to China’s dominance’ assessed the global impact of the US IRA & the EU response, foreshadowing an unwinding of international reliance on China, subsidies for clean energy and additional bilateral and multi-lateral trade agreements. Overall, the impact heralds a further divergence from the WTO system but adds a functional path for decarbonisation alongside the UNFCCC and Paris Agreement process.

Mark Fulton, project director, Inevitable Policy Response explained: “The Race to the top in clean energy unleashed by the US IRA and being followed up by the EU Green Industrial Plan, combined with other positive policy announcements since COP27, point to an acceleration in clean energy deployment relative to recent expectations. IPR forecasts continuing pressure on policy makers via the COP stocktake and ratchet and increasing climate competition driving the acceleration and transition factors facing investors.”

Since 2021 COP26 in Glasgow, IPR said it has undertaken a comprehensive distillation of 331 climate based announcements, with 211 significant enough to be relevant to IPR. A total of 162 policy announcements supported or confirmed of IPR forecasts of a 1.8C temperature outcome, 35 indicating increased international climate ambition and 14 signalling a decrease. Quarter 4 2022 to January 2023 reflected in acceleration in ambition on the positive momentum observed since Glasgow.

Its latest Quarterly Forecast Tracker (QFT) period from October 2022 to January 2023 delivered the strongest quarterly result since IPR began tracking developments from COP26, confirming an increase in climate policy momentum, the organisation revealed.

Of 117 developments tracked, 89 had sufficient credibility to include in the QFT, with 68 supporting or confirming IPR 1.8C forecasts, 20 that indicated increased ambition and 2 signalling a decrease.

Launched by the PRI post Glasgow, the QFT provides investors and policy makers with an ongoing assessment of key climate energy, land use, transition policy and technology developments. Announcements are weighted on relevance, credibility and impact against landmark IPR forecast scenarios of 1.8C and 1.5C temperature outcomes.

Significant developments in the final three months of 2022 included EU, US, Canada and Australia showing evidence of acceleration in policy ambition across clean power, industry, transport and buildings. Policies tackling methane from oil & gas operations and agricultural sources are beginning to emerge.

Negotiations on EU ETS and CBAM as well as ICE bans have concluded, as have agreements to fast-track renewables projects and include shipping in the EU ETS. In January 2023, European Commission President Ursula von der Leyen proposed a ‘Net Zero Industry Act’ partially in response to the US IRA.

The U.S. floated a carbon border adjustment tariff on steel and aluminium via cooperative climate clubs alongside approving a program scaling voluntary carbon markets amongst rural farmers and proposals to target federal emissions.

In non-OECD countries, Just Energy Transition Partnerships (JETP) in South Africa, Indonesia and Vietnam could accelerate coal generation phaseout timelines if sufficient private capital can be deployed.

Daniel Gallagher, head of Climate Technical Guidance, Principles for Responsible Investment added: “Assessing the pace and impact of the energy transition is an ongoing challenge for institutional investors. The IPR analysis of how global progress is unfolding against long-term, high-conviction transition forecasts offers valuable insight for investors and is well placed support on their climate risk management and net zero investment strategies.”

Since 2021 COP26 in Glasgow, IPR said it has undertaken a comprehensive distillation of 331 climate based announcements, with 211 significant enough to be relevant to IPR. A total of 162 policy announcements supported or confirmed of IPR forecasts of a 1.8C temperature outcome, 35 indicating increased international climate ambition and 14 signalling a decrease. Quarter 4 2022 to January 2023 reflected in acceleration in ambition on the positive momentum observed since Glasgow.

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