Ceres commissioned this framework to provide guidance for automakers in conducting and utilizing climate scenario analysis in strategic planning and product development. It promotes transparent and consistent methodological approaches to facilitate comparisons with scenarios issued by independent scientific bodies and original equipment manufacturers (OEMs). Electric and fuel efficient vehicles, and the use models of autonomous and shared vehicles are examples of many factors to be considered in achieving climate scenario outcomes of well below 2°C, with an aspiration toward a 1.5ºC warming limit. All scenarios should be dynamic, challenge conventional wisdom, acknowledge uncertainties and support contingency plans for the most effective, durable and resilient responses to climate change.
Building an Automaker Roadmap for Climate Scenario Analysis
Meeting the goals set by the Paris Climate Agreement to avoid the most severe impacts of the climate crisis will require aggressive, near-term shifts in energy sources, production methods, business strategies and consumer behavior. Signed by more than 190 nations, the Paris Agreement forged a political consensus supporting limiting the increase in global average temperature to well below 2°C, with the ultimate aim of limiting it to 1.5°C.
Auto companies, like businesses in nearly every industry, face fundamental changes to their business models as they respond to this climate imperative. But with commitments from sector participants falling short, transportation is well off track for even 2°C scenario targets, according to research from the Science Based Targets Initiative. The World Benchmarking Alliance’s 2019 rankings of the world’s top 25 automakers highlights issues, including poor target setting and development of business model alternatives to passenger vehicles, that are contributing to this delay. Similarly, a 2020 analysis by the 2° Investing Initiative found that none of the 14 leading automakers’ production plans were aligned with the Paris Agreement’s goals.
Steering the sector back on course for a well below 2°C scenario will require at least 60% annual emissions reduction and cutting energy-based carbon intensity in half by 2050 versus 2010 levels, according to the IPCC. Pursuing a 1.5°C pathway would require deeper cuts in emissions by accelerating mitigation solutions.
The imperative for comprehensive and urgent action from auto companies to clear. The COVID-19 pandemic has shown what happens when we ignore a systemic risk that is known and predicted—how wide-ranging and compounding impacts can ripple with devastating effect throughout the economy and financial system. Robust and aggressive action is needed to prepare the industry for climate risks and to harness the opportunities created by the necessary transition to a net-zero carbon economy by 2050.
The window to act is rapidly shrinking. In the last 40 years, 1.1°C of warming has already occurred. At the current rate, global warming would eclipse the 1.5°C warming limit by the middle of this century and lead to at least 3° - 4°C of warming eventually. To limit warming to 1.5 °C, global emissions need to be cut by 45% below 2010 levels by 2030 to reach net-zero carbon emissions by 2050. This increases the urgency of peaking global carbon emissions in the near term, with the UN estimating that emissions need to drop by 7.6% per year between 2020-2030.
This report outlines how auto companies can use climate scenario analysis to assess climate change-related risks and opportunities in line with the latest science from the IPCC 1.5°C report.
This framework is intended to provide a basis for comparison among automakers, as well as scenario results from governmental and non-governmental organizations. The methodological approaches are consistent with other publicly available climate scenarios. They are also compatible with those of the Task Force on Climate-related Financial Disclosures (TCFD) and other initiatives for reporting climate-related risks and opportunities to investors.
The purpose of rigorous climate scenario analysis is to help inform and influence strategic planning, R&D policy priorities and other key aspects of corporate operations. The goal of this framework – and of climate scenario analysis generally – is to challenge the drivers and underlying assumptions used to develop such business plans.
Scenarios are not designed to predict the future based on past results, nor are they confined to adjusting indicators and conducting sensitivity analyses to support the case for an already-adopted business plan. Instead, the purpose of scenarios is to identify what could go wrong in making any forecast of the future and highlight the changes needed to build a more durable and resilient long-term strategy.
Scenario planning in this context recognizes that climate change poses unprecedented risks and opportunities for companies that require constant monitoring, as well as a willingness to adapt under constantly changing circumstances in a rapidly warming world. Through rigorous scenario analysis, auto companies gain insight to help them urgently make the transition to a zero-carbon economy.
To learn more, download the full report below.