To date, environmental assessments evaluate the impact of new projects in a business as usual or “reference case” energy scenario. Commonly used energy projections such as the U.S. Energy Information Administration’s Reference Case, the International Energy Agency’s Current or New Policies Scenario, the Canadian National Energy Board energy supply and demand projections, or energy outlooks produced annually by oil companies such as Exxon or BP, assume global future energy markets that are consistent with 4˚C to 6˚C of warming.
This means that our most important national energy supply and demand projections are assuming continued failure to achieve internationally agreed climate goals. However, because Canada and the United States have committed to achieve these goals, they must measure policies and investment opportunities against a path that leads to climate safety.
Late last year, the United Nations climate change summit in Paris produced a global framework (supported by all signatories to the UN Framework Convention on Climate Change, representing 195 countries) that expressly supports a global peak and decline of greenhouse gas emissions by mid-century. The Paris Agreement set an ambition to limit global warming to well below 2˚C and to pursue efforts to limit the temperature increase to 1.5˚C.¹ United Nations Secretary-General, Ban Ki-moon, has tabled the Paris Agreement for ratification at the UN headquarters in New York City on April 22, 2016. The United States and Canada are expected to sign the Agreement at that time.
Despite rapidly changing global policy context, decision-makers in North America do not currently have the information or analytical tools to properly evaluate whether a given project or policy is needed in a global market that is transitioning to lower carbon emissions consistent with the Paris Agreement. The low-carbon transition affirmed in the Paris Agreement will dramatically shift both national and global energy markets away from business as usual scenarios. The implications of that transition will be of great relevance to Canadian and U.S. policymakers conducting economic and environmental reviews to inform decisions on long-term energy projects and permits.
In an international market consistent with the Paris climate commitments, demand for fossil fuels will peak in the near future and decline, resulting in progressively weaker prices for coal, oil and natural gas.² Incorporating an assessment of global energy markets in a climate safe scenario will allow policymakers to consider project and permit decisions in scenarios consistent with success in meeting international climate objectives, and help them avoid public and private assets being economically threatened by the global transition away from fossil fuels.
A credible, robust climate test will provide United States and Canadian decision-makers with the tools necessary to ensure they are able to position their economies to thrive in a global market that is transiting to clean energy and a climate safe future.