Technical Supplement

The Use of Scenario
Analysis in Disclosureof Climate-Related Risks
and Opportunities
December 14, 2016

Contents

A Introduction

1

B Scenario Analysis

2

1. Why is Scenario Analysis Useful?

2

2. What is a Scenario?

2

C Applying Scenario Analysis

4

1. Considerations for Building Climate Change into Scenario Analysis

4

2. Analytical Choices in Scenario Analysis

7

3. Challenges

9

D Publicly-Available Climate-Related Scenarios
1. Transition Risk Scenarios

10
13

		

a. Publicly-available IEA Transition Risk Scenarios

14		

b. 2°C Transition Risk Scenarios

14		c. Nationally Determined Contributions and the Importance of 2°C Scenarios

16		d. Comparison of Relevant Parameters and Signposts17		e. Outputs from Transition Risk Scenarios

21

2. Physical Risk Scenarios

21		a. Publicly-Available Physical Scenarios

21		b. Comparison of Relevant Signposts23

		

c. Available Assessment Tools & Resources

25

E Glossary27

F References and Further Reading

30

The Task Force gratefully acknowledges the research, work and assistance of Charles Allison, James Stacey,
Lee Solsbery and Adam Peirce of the consultancy ERM (www.erm.com) in the preparation of this Supplement.

Recommendations of the Task Force on Climate-related Financial Disclosures

BA Introduction
Scenario analysis is a well-established method for developing strategic plans that are more
flexible or robust to a range of future states. The use of scenario analysis for assessing climaterelated risks and opportunities and their potential implications, however, is relatively recent.
Given the importance of forward-looking assessments of climate-related risk, the Task Forcebelieves that scenario analysis is an important and useful tool for an organization to use, bothfor understanding strategic implications of climate-related risks and opportunities and for
informing stakeholders about how the organization is positioning itself in light of these risks
and opportunities. It also can provide useful forward-looking information to investors, lenders,and insurance underwriters.
To assist organizations in undertaking and using climate-related scenario analysis, thistechnical supplement sets out and discusses:
Using scenario analysis■■

Considerations for applying scenario analysis■■

Analytical choices involved in scenario analysis

A■■

Introduction

Types of climate-related scenarios■■

B

Publicly-available climate-related scenarios from the International Energy Agency (IEA),

Scenario Analysis■■

the Intergovernmental Panel on Climate Change (IPCC), and others 1

C
Applying Scenario
Analysis

The technical supplement is organized as follows. Section B discusses why scenario analysis
is useful and what a scenario is. Section C discusses the application of scenario analysis; keyDparameters, assumptions, and analytical choices organizations should consider when they

Publicly-Available
Climate-Related
Scenarios

undertake scenario analysis; and some of the key application challenges. Section D discusses
the two main categories of scenarios—transition and physical—and the publicly-available
climate scenarios in each category. The supplement concludes with a glossary of key terms andE
Glossarysuggested further reading.

F

Given both the limited use of scenario analysis for climate-related risks and opportunities

References andFurther Reading

currently and the challenges involved in implementing a rigorous climate-related scenario
analysis process, it is important that organizations begin to use scenario analysis and develop
supporting capabilities, with the expectation that their capabilities will improve over time.

1

For more information on the IEA, see www.iea.org; and for more information on the IPCC, see www.ipcc.ch.

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B Scenario Analysis
1. Why is Scenario Analysis Useful?
The purpose of scenario analysis is to consider and better understand how a business might
perform under different future states (i.e., its robustness). 2 In the case of climate change,
climate-related scenarios allow an organization to explore and develop an understanding of
how the physical and transition risks and opportunities of climate change might impact thebusiness over time. Scenario analysis, therefore, evaluates a range of potential outcomes byconsidering a variety of alternative plausible future states (scenarios) under a given set ofassumptions and constraints.
A critical aspect of scenario analysis is the selection of a set of scenarios that cover areasonable variety of future outcomes, both favorable and unfavorable. While there is analmost infinite number of possible scenarios, organizations can use a limited number ofscenarios to provide the desired variety. In this regard, the Task Force is recommendingthat organizations use, at a minimum, a 2° Celsius (2°C) scenario and consider using otherscenarios most relevant to the organization’s circumstances, such as scenarios related toA

Nationally Determined Contributions (NDCs), business-as-usual (greater than 2°C) scenarios, orIntroduction

other challenging scenarios. 3,4

B
Scenario Analysis

2. What Is a Scenario?

C
Applying Scenario
Analysis

A scenario describes a path of development leading to a particular outcome. Scenarios are notD

a possible future and to draw attention to the key factors that will drive future developments. It

intended to represent a full description of the future, but rather to highlight central elements of

Publicly-Available
Climate-Related
Scenarios

is important to remember that scenarios are hypothetical constructs; they are not forecasts or
predictions nor are they sensitivity analyses.5

E

A key feature of scenarios is that they should challenge conventional wisdom about the future.

Glossary

In a world of uncertainty, scenarios are intended to explore alternatives that may significantlyF

alter the basis for “business-as-usual” assumptions.

References andFurther Reading

In this context, robustness refers to the resilience or ability of an organization’s business strategy to tolerate disruptions or adapt tochanges or uncertainties in the business environment that might affect the organization’s performance and to remain effective under
all or most situations and conditions.
3
A 2°C scenario lays out a pathway and an emissions trajectory consistent with limiting the average global temperature increase to 2°C
in accordance with the stated goal of the UNFCCC Paris Agreement in 2015 that entered into force on November 4, 2016.
4
NDC is a term used under the United Nations Framework Convention on Climate Change (UNFCCC) for reductions in greenhouse gas
emissions that all countries that ratified the Paris Agreement have committed to achieve. Prior to ratification, NDCs were referred to as
INDCs (Intended National Determined Contributions); following ratification, the “Intended” has been dropped. See section D.1.c for a
discussion of NDC scenarios.
5
Scenario analysis differs from techniques such as sensitivity analysis, forecasting or value at risk (VaR). Sensitivity analysis is theprocess of recalculating outcomes under alternative assumptions to determine the impact of a particular variable. Forecasting isbased on past and present data and analysis of trends. Often it takes the form of predicting a single, most probable trend for and into
the future. Value at risk measures the size of financial loss a given portfolio might experience within a given time horizon and for aparticular probability. Climate VaR has a long time horizon (many years) compared with the shorter time horizon of standard financial
VaR.
2

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2

Scenarios should have the following characteristics: 6
1. Plausible. The events in the scenario should be possible and the narrative credible(i.e., the descriptions of what happened, and why and how it happened, should be believable).
2. Distinctive. Each scenario should focus on a different combination of the key factors.
Scenarios should be clearly differentiated in structure and in message, not variations on asingle theme. Multiple scenarios should be used to explore how different permutations and/or
temporal developments of the same key factors can yield very different outcomes.
3. Consistent. Each scenario should have strong internal logic. The goal of scenario analysis is
to explore the way that factors interact, and each action should have a reaction. Neither actors
nor external factors should completely overturn the evidence of current trends and positions
unless logical explanations for those changes are a central part of the scenario.
4. Relevant. Each scenario, and the set of scenarios taken as a whole, should contribute
specific insights into the future that relate to strategic and/or financial implications of climaterelated risks and opportunities.
A

5. Challenging. Scenarios should challenge conventional wisdom and simplistic assumptions

Introduction

about the future. When thinking about the major sources of uncertainty, scenarios should try

Bto explore alternatives that will significantly alter the basis for business-as-usual assumptions.

Scenario Analysis

The Task Force believes that organizations should use a range of scenarios that illuminateC

future exposure to both transition and physical climate-related risks and opportunities,

Applying Scenario
Analysissuch as business-as-usual, NDC, and 2°C scenarios. In identifying scenarios that might work
best, organizations may make use of existing publicly-available scenarios and models orDorganizations may wish to internally develop their own scenarios.7 The approach taken will

Publicly-Available
Climate-Related
Scenarios

depend on an organization’s needs, resources, and capabilities. Among the range of scenarios
used, the Task Force believes it is important that organizations include a 2°C scenario given theagreed international climate change commitments.

E
GlossaryF
References andFurther Reading

6

7

J. Maack, Scenario Analysis: A Tool for Task Managers.
http://siteresources.worldbank.org/INTPSIA/Resources/490023-1121114603600/13053_scenarioanalysis.pdf.
The different publicly-available scenarios are discussed in Section D.

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C Applying Scenario Analysis
Applying scenario analysis, although potentially complex, has a number of significant benefits
for organizations faced with the uncertainties of climate change. For organizations justbeginning to use scenario analysis, a qualitative approach may be appropriate.
As organizations gain experience with scenario analysis, and for organizations alreadyconducting scenario analysis, greater rigor and sophistication in the use of data sets andquantitative models and analysis may be warranted. Quantitative approaches may be achievedby using existing external scenarios and models (e.g., those provided by third-party providers)or by organizations developing their own, in-house modeling capabilities. The choice ofapproach will depend on an organization’s needs, resources, and capabilities. Organizations
that are likely to be significantly impacted by climate-related transition and/or physical risks
should consider some level of quantitative scenario analysis.
Organizations should apply scenario analysis as part of their strategic planning and/or
enterprise risk management processes by:A

identifying and defining a range of scenarios, including a 2°C scenario, that reasonably■■

Introduction

cover the range of future potential exposure to climate-related transition and physicalB

risks (and opportunities);

Scenario Analysis

evaluating the potential effects on their strategic and financial position under each of the■■

C
Applying Scenario
AnalysisD
Publicly-Available
Climate-Related
Scenarios
E
GlossaryF

defined scenarios; andusing the results to identify options for managing the identified risks and opportunities■■

through adjustments to strategic and financial plans.
Over time, organizations can improve disclosure through documenting:the process and transparently disclosing key inputs, assumptions, and analytical methods■■

and outputs (including potential business impacts and management responses to them) andthe sensitivity of the results to key assumptions.

■■

References andFurther Reading

1. Considerations for Building Climate Change into Scenario Analysis
Recognizing the benefits of scenario analysis and the need to minimize implementation costs,
organizations undertaking scenario analysis for the first time may want to consider startingwith a simple, yet robust, process for incorporating climate-related considerations into theirscenarios.
First, an organization needs to understand the nature of the climate-related risks andopportunities it may face. Each individual organization faces a different blend of climaterelated risks and opportunities. The business impacts related to climate change may varysignificantly depending on the industry and economic sector(s)/sub-sector(s) in which anorganization operates. Business impacts may also vary significantly depending on:
the geographic location of the organization’s value chain (both upstream and■■downstream);
the organization’s assets and nature of operations;■■the structure and dynamics of the organization’s supply and demand markets;■■

the organization’s customers; and■■the organization’s other key stakeholders.

■■Technical Supplement | The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities

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Many organizations already disclose their views on climate-related risks and opportunities
at a high, qualitative level. The Task Force’s Phase I report identified several frameworks forreporting climate-related information, many of which include disclosures around risks andopportunities.8 Such information provides a starting point for scenario analysis and for further
disclosure.
Figure 1 provides a summary of the typical categories of climate-related risks and opportunities
an organization should consider when applying scenario analysis. Figure 2 (p. 6) presents anindicative process for applying climate-related scenario analysis, reflecting the climate-relatedrisks and opportunities outlined in Figure 1.

Figure 1

Typical Categories of Climate-Related Risks and Opportunities

A

Markets and Technology Shifts

Reputation

Policies and investments to deliver a low
carbon emissions economy.

Growing expectations for responsible
conduct from stakeholders, including
investors, lenders, and consumers.

Introduction–– Reduced market demand for higher
carbon products/commodities

B–– Increased demand for energy-efficient,lower-carbon products and services

Scenario Analysis
C–– Opportunity to enhance reputation andbrand value–– New technologies disrupt markets–– Loss of trust and confidence inmanagement

Policy and Legal

Physical Risks

An evolving patchwork of requirements atinternational, national, and state level.

Chronic changes and more frequent andsevere extremes of climate.

–– Increased input/operating costs for highcarbon activities–– Increased business interruption anddamage across operations and supply
chains with consequences for input
costs, revenues, asset values, andinsurance claims

Applying Scenario
AnalysisD
Publicly-Available
Climate-Related
Scenarios
E
Glossary–– Threats to securing license to operate forhigh carbon activities

F
References andFurther Reading–– Emerging concern about liabilities

Sources:
CDP, “Climate Change Questionnaire.” 2016. https://www.cdp.net/Documents/Guidance/2016/
CDP-2016-Climate-Change-Reporting-Guidance.pdf. Task Force on Climate-related Financial
Disclosures, Recommendations of the Task Force on Climate-related Financial Disclosures.
December 2016. https://www.fsb-tcfd.org/publication/recommendations-report/.

8

Task Force on Climate-related Financial Disclosures, “Phase I Report of the Task Force on Climate-related Financial Disclosures.” March
31, 2016. https://www.fsb-tcfd.org/wp-content/uploads/2016/03/Phase_I_Report_v15.pdf.

Technical Supplement | The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities

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Figure 2

A Process for Applying Scenario Analysis to Climate-Related Risks and Opportunities

1
2

Ensure governanceIntegrate scenario analysis into strategic planning and/or enterprise risk management frameworks. Assign oversight to relevant board committees/
sub-committees. Identify which internal (and external) stakeholders to involve, and how.

Assess materiality ofclimate-related risksMarket andTechnology
ShiftsReputation

3

Identify and define rangeof scenarios

Transition Risk Scenarios

4

Evaluate business impacts

5

Identify potential
responses

Impact on:

Responses might include:–– Input costs–– Changes to business model–– Operating costs–– Portfolio mix–– Revenues–– Investments in capabilities
and technologies–– Supply chain–– Business interruption
Policy andLegalPhysical Risks

Physical Risk Scenarios–– Timing

What are the current and anticipated

What scenarios (and narratives)

Evaluate the potential effects on the

Use the results to identify applicable,organizational exposures to climate-

are appropriate, given the exposures?

organization’s strategic and financial

realistic decisions to manage the identified

related risks and opportunities? Do these

Consider input parameters, assumptions,

position under each of the definedrisks and opportunities. What adjustments

have the potential to be material in theand analytical choices. What reference

scenarios. Identify key sensitivities.

to strategic/financial plans would be

future? Are organizational stakeholders

scenario(s) should be used?

needed?

concerned?

6

Document and disclose
Document the process; communicate to relevant parties; be prepared to disclose key inputs, assumptions, analytical methods, outputs, and potential
management responses.

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2. Analytical Choices in Scenario Analysis
In constructing scenarios and conducting scenario analysis, organizations face a number ofchoices and considerations. These will affect whether scenarios are applied consistently,
analyses and disclosures are comparable, and the process is efficiently applied.
Three major categories of considerations are:Parameters (e.g., discount rate, GDP, other macro-economic variables, demographic■■

variables)
Assumptions (e.g., assumptions related to future policy implementation, technology■■

development, energy mix, price of key commodities or inputs, geographical tailoring oftransitional and physical impacts, and timing of implications)
Analytical Choices (e.g., choice of scenarios, time horizons, supporting data, and models)■■All scenarios, including climate-related scenarios, contain a series of critical parameters andassumptions that are key drivers of the modeling results and outcomes. Organizations should
first endeavor to identify and understand the key drivers of their business performanceand look to build these into their scenarios. Figure 3 (p. 8) outlines some climate changeA
Introduction
B
Scenario Analysis
Cparameters that may have a material impact on organizations’ business performance.
Figure 3 (p. 8) may also serve as a roadmap for investors and other stakeholders inanalyzing organizations’ disclosures around scenario analysis.
Organizations should carefully consider the key parameters, assumptions, and other

Applying Scenario
Analysisanalytical choices made during scenario analysis as well as the potential impacts or effects

Dshould consider disclosing this information where appropriate. In particular, organizations

Publicly-Available
Climate-Related
Scenarios

are encouraged to disclose the approach used for selecting scenarios used as well as theE
GlossaryF
References andFurther Readingthat are identified and how those results are considered by management. Organizations

underlying assumptions for each scenario regarding how a particular pathway might develop(e.g., emergence and deployment of key technologies, policy developments and timing,
geopolitical environment around climate policies). This information will be important for
an organization to disclose and discuss, including the sensitivity of various assumptions tochanges in key parameters such as carbon prices, input prices, customer preferences, etc., sothat investors and other stakeholders have a clear understanding of the scenario process—not
only the outcomes each scenario describes, but the pathway envisioned by an organizationthat leads to that outcome (i.e., the how and why of those outcomes).
Transparency around key parameters, assumptions, and analytical choices will help to
support comparability of results between different scenarios used by an organization andacross organizations. In turn, this will support the evaluation, by analysts and investors, ofthe potential magnitude and timing of impacts on individual organizations and sectors andthe robustness of organizations’ strategies across the range of plausible impacts, thereby
supporting better risk and capital allocation decisions.
Given the number of variables and analytical approaches to scenario analysis, there will be awide range of scenarios used that describe various outcomes. Given this, direct comparability
across organizations is likely to be a very real challenge. This underpins the importance oftransparency across the three categories of considerations. Keeping in mind that improved
disclosure and transparency are important for comparability, organizations should consider
disclosing as many of these considerations as possible and endeavor to increase their levels of
disclosure over time.

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Figure 3

Key Considerations: Parameters, Assumptions, Analytical Choices, and Impacts
Parameters/Assumptions
Discount rate — what discount rate does theorganization apply to discount future value?
Carbon price — what assumptions are madeabout how carbon price(s) would develop
over time (within tax and/or emissions
trading frameworks), geographic scope of
implementation, whether the carbon pricewould apply only at the margin or as a basecost, whether it is applied to specific economic
sectors or across the whole economy and inwhat regions? Is a common carbon price used
(at multiple points in time?) or differentiatedprices? Assumptions about scope andmodality of implementation of a CO 2 price via
tax or trading scheme?
Energy demand and mix — what would be
the resulting total energy demand and energy
mix across different sources of primaryenergy e.g., coal/oil/gas/nuclear/ renewables(sub-categories)? How does
this develop over time assuming supply/
end-use efficiency improvements? Whatfactors are used for energy conversion
efficiencies of each source category and for
end-use efficiency in each demand category
over time?
Price of key commodities/products — what
conclusions does the organization draw,
based on the input parameters/ assumptions,about the development
over time of market prices for key inputs,
energy commodities (e.g., coal, oil, gas,and electricity)?
Macro-economic variables — what GDP
rate, employ-ment rate, and other economic
variables are used?
Demographic variables — what assumptions
are made about population growth, and/or
migration?

Efficiency — to what extent are positive
aspects of efficiency gains/clean energy
transition/physical changes incorporated into
scenarios and business planning?
Geographical tailoring of transition
impacts — what assumptions does theorganization make about potential differences
in input parameters across regions/ countries/ asset locations / markets?
Technology — does the organization makeassumptions about the development of
performance/cost and resulting levels of
deployment over time of various key supply
and demand-side technologies (e.g., solar PV/
CSP, wind, energy storage, biofuels, CCS/CCUS,
nuclear, unconventional gas, transport sector
technologies such as electric vehicles, andefficiency technologies in other key sectors
including industrial and infrastructure)?
Policy — what are assumptions aboutstrength of different policy signals and theirdevelopment over time (e.g., national headline
carbon emissions targets; energy efficiency
or technology standards and policies in key
sectors; subsidies for fossil fuels; subsidies orsupport for renewable energy sources and for
CCS/CCUS)
Climate sensitivity assumptions — whatassumptions of temperature increase relative
to CO 2 increase have been made?

Analytical Choices
Scenarios — what scenarios does theorganization use for transition impact
analysis and which sources are used toassess physical impact (e.g., CMIP5) – bothfor central/base case and for sensitivity
analyses?
Quantitative vs. qualitative or“directional” — is the scenario exercise fully
quantitative, or a mix of quantitative andqualitative?
Timing — how does the organizationconsider timing of implications underscenarios e.g., is this considered at a decadallevel for potential futures to 2020; 2030;
2040; 2050
Scope of application — is the analysis
applied to the whole organization value
chain (inputs, operations and markets), or
just direct effects on specific business units /operations?
Climate models/data sets — whichclimate models and data sets support theassessment of physical impacts?
Physical risks — when assessing physicalrisks, which specific risks have been included
and their severity (e.g., temperature,
precipitation, flooding, storm surge, sea levelrise, hurricanes, water availability/ drought,
landslides, wildfires or others)? To what
extent has the organization assessed thephysical impact to its portfolio (e.g., largest
assets, most vulnerable assets) and to what
extent have physical risks been incorporated
in investment screening and future businessstrategy?
To what extent has the impact on prices andavailability in the whole value chain been
considered, including knock on effects fromsuppliers, shippers, infrastructure and accessto customers?

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Business Impacts/Effects
Earnings — what conclusions does theorganization draw about impact on earnings
and how does it express that impact(e.g., as EBITDA, EBITDA margins, EBITDA
contribution, dividends)?
Costs — what conclusions does theorganization draw about the implications
for its operating/ production costs and theirdevelopment over time?
Revenues — what conclusions does theorganization draw about the implications
for the revenues from its key commodities/
products/ services, and their development
over time?
Assets — what are the implications for asset
values of various scenarios?
Capital allocation/investments —what are the implications for capex andother investments?
Timing — what detail does the organization
provide about development of costs,
revenues and earnings across time(e.g., 5/10/20 year averages)?
Responses — what detail does theorganization provide in relation to
impacts (e.g., intended changes to capital
expenditure plans, changes to portfolio
through acquisitions and divestments,
retirement of assets, entry into newmarkets, development of new capabilitiesetc.)?
Business interruption due to physicalimpacts — what is the estimate of businessinterruption/productivity loss due tophysical impacts both direct effects on
the organization’s own assets and indirect
effects of supply chain/product delivery
disruptions?

83. Challenges
Conducting climate-related scenario analysis is not without challenges. First, the majority of
publicly-available climate-related scenarios (both transition and physical risk scenarios) were
not designed for individual company risk assessment or financial analysis. Consequently, they
do not always provide the ideal level of transparency, range of data outputs, and functionalityof tools that would facilitate their use in organizational scenario analysis or third-party analysis
by investors or analysts. For example:
A majority of transition risk scenarios provide outputs such as the energy mix under given■■

circumstances in the future, but not sector- or activity-specific results in most instances.
The outputs of climate modeling of physical scenarios, undertaken within the framework■■of the IPCC, are currently not easily accessible to the wide majority of organizations.
Organizations across many different sectors will inevitably need to learn by doing. Many arelikely to seek guidance appropriate for their sector from industry associations, consultants, andother experts on how to apply scenarios to make forward-looking analyses of climate-relatedrisks and opportunities.
A

Second, scenario-based climate assessments are still in their infancy. Although a handful of theIntroduction

world’s largest companies and investors are applying climate-related scenario analysis as partBof their strategic planning and risk management processes, it is not a tool widely used in many

Scenario Analysis
C
Applying Scenario
Analysis

sectors that are exposed to transition and physical risks. Sharing experiences and approaches
to scenario analysis across organizations, therefore, is critical to advancing both the use andthe capability of scenario analysis. Industry associations, for example, may be able to play
an important role in this regard by facilitating information and experience exchanges among

Dorganizations; developing tools, data sets, and methodologies; and working to set standards.

Publicly-Available
Climate-Related
Scenarios

Third, for those organizations that use scenario analysis, whether for transition and/or physicalE

disclosed information about these analyses is limited, while even fewer disclose scenario

Glossaryrisk, in their strategic planning and risk management processes, the number that have publicly
analysis information in financial filings. Disclosure is critical to advance both the goals ofFtransparency around an important category of risk and to the development of better measures

References andFurther Reading

and methodologies for assessing such risk by investors and other stakeholders.
Addressing these challenges may require further work by industry groups, NGOs, and official
bodies, both individually and collectively, to:further develop applicable 2°C (or lower) transition risk scenarios and physical risk■■

scenarios at the sector and geographic level and create industry-specific (financial andnon-financial) guidance for preparers and users of climate-related scenarios;
further develop, and improve access to, methodologies, data sets, and tools that allow■■

organizations to more effectively conduct scenario-based analysis of transition andphysical risk at more granular industry, geographic, and temporal levels;
develop and refine accepted good practice for scenario-based climate-related financial■■

disclosure and facilitate uptake by organizations in sectors most greatly impacted byclimate change;
establish stronger norms for better, relevant disclosure around scenario analysis; and■■develop methodologies and tools for investors to better understand and use disclosures■■around scenario analysis.

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D Publicly-Available Climate-Related Scenarios
While organizations may want to develop their own climate-related scenarios, there are many
publicly-available scenarios that can be used by organizations as a platform on which to basetheir own evaluations of the impacts posed by climate change. These can be broadly assigned
into two categories: (1) scenarios that articulate different pathways in the energy and economic
system that would result in a certain level or trajectory of GHG emissions and resulting GHG
concentrations in the atmosphere (transition risk scenarios) and (2) scenarios that articulatedifferent pathways that account for physical changes arising from different levels of GHG
concentrations (physical risk scenarios) (see Figure 4).

Figure 4

Overview of Publicly-Available Climate-Related Scenarios
Publicly-Available ScenariosA
Introduction
B

Transition

Physical

3.6°C
IEA New Policies Scenarios

6°C
IPCC RCP 8.5

2°C
IEA 2DS/450 Scenarios,
DDPP, IRENA, Greenpeace

4°C
IPCC RCP 6.0

Scenario Analysis
C
Applying Scenario
AnalysisD
Publicly-Available
Climate-Related
Scenarios
E
Glossary

1.5°C
Forthcoming IEA 1.5DS scenario

F

2.6°C
IPCC RCP 4.5
2°C
IPCC RCP 2.6

References andFurther Reading

Pathways to deliver a given limit to warming are commonly referred to as “transition risk
scenarios.” Transition risk scenarios typically present plausible assumptions about thedevelopment of climate policies and the deployment of “climate-friendly” technologies to limit
GHG emissions. Transition risk scenarios draw conclusions, often based on modeling, about
how policy and technology regarding energy supply and GHG emissions interact with economic
activity, energy consumption and GDP among other key factors. Such scenarios may havematerial consequences for organizations in certain sectors of the economy in the short andmedium term as well as longer term. These scenarios can reflect a faster or slower transition
depending on different rates of change of key parameters (e.g., the rate of technology
development and deployment; changes and timing of key policies). The IEA and others produce
a number of transition risk scenarios.
Patterns of physical impacts attributable to climate change can be termed “physical risk
scenarios.” Physical risk scenarios typically present the results of global climate models(referred to as “general circulation models”) that show the response of the Earth’s climate
to changes in atmospheric GHG concentrations. IPCC scenarios based on “Representative
Concentration Pathways” (RCPs) are examples of physical climate change scenarios adopted

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by the IPCC in its 5th Assessment Report (AR5).9 Model results are frequently “downscaled”
to derive potential local-level changes in climate, which are then used to generate scenariosof impacts from climate change (first order impacts such as flooding or drought, second order
impacts such as loss of crop production, and third order impacts such as famine).10 Physicalrisk scenarios assist organizations in exploring questions such as:
What type of physical impacts might there be?

■■

What if the physical consequences of climate change become more severe?

■■

When, where, to whom, and to what degree might they be felt?

■■

In scenarios, both transition and physical considerations are complementary when assessing
climate-related financial impacts and both are required to understand the full implications ofclimate change and the resilience of organizations to those implications. For example, delays inaddressing the transition to a low-carbon economy through policies, technology, and markets
will likely exacerbate physical risks. Delays may also result in sharper, more dramatic policy
shifts and market shifts. Finally, the transition and physical impacts will fall differently on
different organizations. Some organizations will likely be more affected by transition risk (e.g.,fossil fuel and energy-intensive manufacturers), while others will be more affected by physicalA

climate risk (e.g., those reliant upon agriculture or infrastructure). This is why the two sets ofIntroduction

risks should be evaluated together (Figure 5, p. 12). Using both types of scenarios allows

B

organizations to consider a range of potential effects on their performance, strategy, andScenario Analysis

financial plan and how these effects compare to various publicly-available scenarios andnational goals.

C
Applying Scenario
AnalysisD
Publicly-Available
Climate-Related
Scenarios
E
GlossaryF
References andFurther Reading

Representative Concentration Pathways (RCPs) are referred to as pathways to emphasize that their primary purpose is to provide
time-dependent projections of atmospheric greenhouse gas (GHG) concentrations, both a specific long-term concentration outcome
and the trajectory that is taken over time to reach that outcome. They are representative of several different scenarios that have
similar radiative forcing and emissions characteristics and are intended to expedite the preparation of integrated scenarios. The IPCC’s
current RCPs describe four possible climate futures, all of which are considered possible depending on the volume of greenhousegases are emitted in the future—RCP 2.6 assumes that global annual GHG emissions (measured in CO2-equivalents) peak between
2010-2020, with emissions declining substantially thereafter; RCP 4.5 assumes that emissions peak around 2040, then decline; in RCP
6, emissions peak around 2080, then decline; while RCP 8.5, assumes that emissions continue to rise throughout the 21st century(Intergovernmental Panel on Climate Change (IPCC). “Towards new Scenarios for Analysis of Emissions, Climate Change, Impacts, andResponse Strategies,” September, 2007. IPCC Expert Meeting Report. http://www.aimes.ucar.edu/docs/IPCC.meetingreport.final.pdf).
10
For example, see Wilby, R.G., et al (2004). “Guidelines for Use of Climate Scenarios Developed from Statistical Downscaling Methods.”(August, 2004.) Supporting Material of the IPCC, Task Group on Data and Scenario Support for Impacts and Climate Analysis (TGICA).
http://www.ipcc-data.org/guidelines/dgm_no2_v1_09_2004.pdf.
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Figure 5

Interplay between Transition and Physical Scenarios
Carbon Crossroads
The Intergovernmental Panel on Climate Change (IPCC) explores four potential futures
depending on what policies governments adopt to cut emissions

A
Introduction
B
Scenario Analysis
C
Applying Scenario
AnalysisD
Publicly-Available
Climate-Related
Scenarios
E
GlossaryF
References andFurther Reading*The four RCP (Representative Concentration Pathway) scenarios each project a certain
amount of carbon to be emitted by 2100 and, as a result, lead to a different amount of
human-driven climate change. Climate change will continue after 2100 and elevatedtemperatures will remain for many centuries after human CO 2 emissions cease.
Source: Intergovernmental Panel on Climate Change, Fifth Assessment Report (AR5), Climate
Change: Action, Trends, and Implications for Business, Cambridge University Press, 2013.
http://www.cisl.cam.ac.uk/business-action/low-carbon-transformation/ipcc-climate-sciencebusiness-briefings/climate-science.

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In constructing scenarios about the potential impact of the transition to a low-carbon economy
on an organization, the organization may use one or more publicly-available climate-related
scenarios as well as their own scenarios. A number of published scenarios are available that lay
out various plausible pathways to particular target outcomes (e.g., specific temperature
increases) and that have varying assumptions about the likely timing of policy changes,
technology adoption, changes in energy mix and other factors to achieve a climate-friendly
economy. For example, Figure 6 shows the potential impacts on energy mix and share of fossil
fuels produced in three of the IEA scenarios.

Figure 6

IEA World Energy Outlook (WEO) Scenarios to 2040
25,000A

20,000Introduction

Scenario Analysis
C
Applying Scenario
AnalysisD
Publicly-Available
Climate-Related
Scenarios

Renewables
Energy Demand (MToe)

B

Fossil Fuels 80%

Nuclear15,000Natural Gas

Fossil Fuels 75%
Renewables
Nuclear

Nuclear
Coal

5,000

Glossary

Renewables

Natural Gas
10,000Coal

E

Fossil Fuels 60%

F
References andFurther Reading

Natural Gas
Coal

Oil

Oil

IEA WEO Current
Policies scenario

IEA WEO New
Policies scenario

Oil

0
IEA WEO 450 scenario

Source: IEA. World Energy Outlook, 2015. http://www.worldenergyoutlook.org/weo2015/

Boxes 1 and 2 (pp. 15-16) summarize various published transition risk scenarios andassociated target pathways. They include:
six different IEA scenarios around various assumed pathways and temperature increases■■

anda number of alternative, publicly available 2°C scenarios and tools, such as International■■

Renewable Energy Agency (IRENA) REmap, Greenpeace Advanced Energy [R]evolution, andDeep Decarbonization Pathways Project (DDPP).
Organizations, therefore, have a variety of choices available to them on plausible future
development pathways when carrying out scenario analysis.

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a. Publicly-Available IEA Transition Risk Scenarios
The most well-known, widely used and reviewed scenarios for the transition to a low carbon
economy are those prepared by the IEA. A majority of analyses conducted by academic
and industry analysts are built upon or compared with the IEA scenarios. The IEA data andscenarios capture the entire energy chain, but not “non-energy” sectors such as land use/land
use change/forestry (LULUCF) and process emissions from industry that do not involve fuelcombustion. These scenarios, however, are not suited to producing precise estimates, but they
can be used to qualitatively assess risks associated with different pathways.11 The IEA scenarios
are summarized in Box 1 (p. 15).
b. 2°C Transition Risk Scenarios
One type of transition scenario is a so-called 2°C scenario, which lays out a pathway and anemissions trajectory consistent with limiting the average global temperature increase to 2°C.12
Effectively, a 2°C scenario asks the question “if the world limits warming at or below 2°C,
what are the pathways for achieving that goal?” It is useful for comparison against alternative
scenarios. A variety of 2°C scenarios are available or an organization can develop its own 2°C
scenario.
A

It is important to note that, of the IEA scenarios, only the IEA 450ppm and 2DS scenarios

Introduction

model a 2°C future, although the INDC and Bridge scenarios also acknowledge 2°C as a policyBobjective.13 A number of other alternative 2°C scenarios and tools are available in addition

Scenario Analysis

to the IEA 450 and 2DS scenarios; these alternatives are potentially helpful to organizations

Cseeking to understand possible future transition pathways.

Applying Scenario
Analysis

In designing a 2°C scenario, organizations should consider publicly-available scenarios that areD(1) used, referenced, and issued by an independent body; (2) wherever possible, supported

Publicly-Available
Climate-Related
Scenarios

by publicly available data sets; (3) updated on a regular basis; and (4) linked to functional

E

DDPP, and IRENA (see Boxes 1 and 2 on pp. 15-16 for a description of these scenarios). These

tools (e.g., visualizers, calculators, and mapping tools) that can be applied by organizations.
Examples of 2°C scenarios that presently meet most of these criteria include: IEA 2DS, IEA 450,

Glossary

publicly-available scenarios can help inform development of an organization’s own scenarios orthey can be used directly. However, it is important to note that these scenarios do not consider

F
References andFurther Reading

impacts on all sectors and individual organizations.

This is borne out by the recognition that, in recent years, the IEA scenarios have significantly under-forecast the deployment of
renewables (Paltsev, Sergey. “Energy Scenarios: The Value and Limits of Scenario Analysis.” MIT CEEPR WP 2016-007, 2016.
http://ceepr.mit.edu/files/papers/2016-007.pdf).
12Limiting the temperature increase to below 2°C (relative to pre-industrial levels) is a stated goal of the 2015 UNFCCC Paris Agreementthat entered into force on November 4, 2016.
13
The IEA 450 scenario is premised on a 50% likelihood of keeping below 2°C.
11

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Box 1IEA Scenarios
IEA WEO Current Policies Scenario (projected to generate warming of 6°C)
The Current Policies Scenario considers only those policies that have been formally adopted bygovernments. According to the UNEP, it sets out “a business-as-usual future in which governments
fail to follow through on policy proposals that have yet to be backed-up by legislation or otherbases for implementation and do not introduce any other policies that affect the energy sector.”14This ‘No New Measures’ Scenario provides a comparison point against which new policies can beassessed.
IEA WEO New Policies Scenario (projected to generate warming of 4°C)
The New Policies Scenario is the central scenario of WEO. It takes into account the policies andimplementing measures affecting energy markets that have been adopted, together with relevant
policy proposals, even though specific measures necessary to put them into effect may need to be
fully developed. The WEO report makes a case-by-case judgment (often cautious) of the extent towhich policy proposals will be implemented. This is done in view of the many institutional, political,
and economic obstacles that exist, as well as, in some cases, a lack of detail in announced intentions
about how they will be implemented. 15
IEA INDC Paris Agreement Scenario (projected to limit warming to 2.6°C)

A

The INDC Scenario assesses implications of the INDCs submitted before COP21 as the basis for theParis Agreement. “The share of fossil fuels in the world energy mix declines, but is still around 75%
in 2030. The rate of growth in coal and oil demand slows but demand does not decline, while gas
use marches higher. Renewables become the leading source of electricity by 2030, but sub-criticalcoal-fired capacity declines only slightly. The carbon intensity of the power sector improves by30%.”16 Carbon capture and storage (CCS) achieves no more than marginal penetration by 2030.
Increased efficiency measures across sectors reduce the energy used to provide energy services,
without reducing the services themselves.

Introduction
B
Scenario Analysis
C
Applying Scenario
AnalysisD

IEA Bridge Scenario (keeps world on path to 2°C limit to 2025, but more needed after 2025)

Publicly-Available
Climate-Related
Scenarios

The IEA sought to contribute to practical discussions about near-term GHG mitigation options
amongst policymakers and business planners by developing the Bridge Scenario. The purpose of theBridge Scenario is to facilitate adoption of methods through which the movement towards a peakin global energy-related GHG emissions can be achieved by each country or region individually. This
Bridge Scenario is not, in itself, a pathway to the 2°C target – additional technology developments
and policy requirements for such a pathway are set out in the WEO 450 Scenario.

E
GlossaryF
References andFurther Reading

IEA WEO 450ppm Scenario (projected to limit warming to 2°C)
The WEO 450 Scenario takes a different approach. “It adopts a specified outcome: achievement of
the necessary action in the energy sector to limit the rise in long-term average global temperature(with a likelihood of 50%) to 2°C and offers steps by which that goal might be achieved.” 17 Many
separate efforts are required to reduce energy-related CO2 emissions from 2015 to 2040, including
stronger deployment of technologies that are familiar and available at commercial scale today, which
will deliver close to 60% of the emissions reductions; the building of significant additional nuclear
capacity; and rapid CCS expansion after 2025 matching the pace of expansion of gas-fired capacity
between 1990 and 2010.
IEA ETP 2DS Scenario (projected to limit warming to 2°C)
The IEA has a separate annual publication called “Energy Technology Perspectives” (ETP) which
provides scenario analysis of lower carbon technology development and deployment in various
sectors. ETP 2016 lays out an energy system development pathway and an emissions trajectory
consistent with at least a 50% chance of limiting the average global temperature rise to 2°C. The 2DS
sets the target of cutting CO2 emissions by almost 60% by 2050 (compared with 2013), followed bycontinued decline after 2050 until carbon neutrality is reached. The 2DS identifies changes that help
ensure a secure and affordable energy system in the long run, while emphasizing that transforming
the energy sector is vital, but not enough on its own.

UNEP, Best Practices and Case Studies for Industrial Energy Efficiency Improvement. February, 2016. http://www.unepdtu.org/-/media/
Sites/energyefficiencycentre/Publications/C2E2%20Publications/Best-Practises-for-Industrial-EE_web.ashx?la=da.
15
IEA, World Energy Model Documentation 2015 Version. 2015.
16
IEA, “Energy and Climate Change,” 2015.
http://www.worldenergyoutlook.org/media/weowebsite/2015/WEM_Documentation_WEO2015.pdf.
17
Ibid.
14

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Box 2Other 2°C Scenarios
International Renewable Energy Agency (IRENA) REmap (2016)This scenario outlines a plan to
double the share of renewables in the world’s energy mix by 2030. A renewable generation shareof 36% is required by 2030, up from 18% currently and a quadrupling of ”modern” renewables
due to the phase out of traditional uses of biomass (e.g., fuel wood) energy. “REmap determines
the realistic potential for countries, regions and the world to scale up renewables, starting withseparate country analyses done in collaboration with country experts, and then aggregatingthese results to arrive at a global picture. The analysis encompasses 40 countries representing
80% of global energy use. The road map focuses not just on renewable power technologies, butalso technology options in heating, cooling and transport. In determining the potential to scale up
renewables, REmap focuses on possible technology pathways.”18
Greenpeace Advanced Energy [R]evolution (5th Edition)
This scenario sets out an ambitious pathway toward a fully decarbonized energy system by 2050.
The scenario adds significant additional efforts to the basic Energy [R]evolution scenario (whichis also covered in the latest edition of Greenpeace’s Advanced Energy [R]evolution). It is based on
the basic scenario, which includes significant efforts to exploit opportunities for energy efficiency,
along with large-scale integration of renewables, biofuels, and hydrogen into the energy mix.
The advanced scenario requires much stronger efforts to move energy systems towards a 100%
renewable energy supply. Consumption pathways remain similar, but faster introduction of thesetechnologies leads to complete decarbonization. The IEA’s World Energy Outlook 2014 Current
Policies Scenario serves as the reference case.

A
Introduction
B

Deep Decarbonization Pathways Project (DDPP)The DDPP fills a gap in the climate policy dialogue by providing, in the form of deep decarbonization
pathways (DDPs), a clear and tangible understanding of what will be required for countries to reduce
emissions, consistent with the 2°C limit. “The DDPP framework has been developed and utilized bya consortium led by The Institute for Sustainable Development and International Relations (IDDRI)
and the Sustainable Development Solutions Network (SDSN). The DDPP is a global collaboration ofscientific research teams from leading research institutions in 16 of the world’s largest greenhousegas-emitting countries: Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy,
Japan, Mexico, Russia, South Africa, South Korea, UK and USA.” 19 The research teams developed
these blueprints for change, sector by sector and over time, for each physical infrastructure of the
16 countries, to inform decision makers of the technological and cost requirements of different
options for meeting their country’s emissions reduction goal. DDPs begin with an emissions target in
2050 and determine the steps required to get there. This tool therefore allows the user to create any
number of 2°C pathways.

Scenario Analysis
C
Applying Scenario
AnalysisD
Publicly-Available
Climate-Related
Scenarios
E
GlossaryF
References andFurther Reading

In common with, and sometimes going beyond the IEA scenarios, these 2°C scenarios are:publicly available, peer reviewed, and generally used/referenced,■■

supported by publicly available data sets providing data at global, regional and national■■

level, andin some cases, linked to functional tools (e.g., visualizers, calculators, and/or mapping■■

tools) that can be employed by ”user” organizations.

c. Nationally Determined Contributions and the Importance of 2°C Scenarios
When considering resilience to transition risks, an organization’s management, shareholders,and analysts should, as a starting point, take into account the stated measures andoutcomes of governments’ NDC plans. In some instances, NDCs are built on domestic policy
considerations around what constitutes a practical, sound pathway to a low-carbon economy
in light of energy security requirements.

18
19

International Renewable Energy Agency (IRENA), Remap. 2016. http://irena.org/remap/.
Deep Decarbonization Pathways Project (DDPP), DDPP, 2016. http://deepdecarbonization.org/about/.

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While taking into account NDC goals in scenario analysis is a substantive first step, thefollowing should be noted:
The current NDCs are not sufficient to deliver the objective, stated in Article 2 of the Paris■■

Agreement and agreed to by 195 signatory countries, of “holding the increase in the global
average temperature to well below 2°C above pre-industrial levels and to pursue efforts tolimit the temperature increase to 1.5°C above pre-industrial levels.” 20
The current NDCs end at 2030 (some earlier than 2030) and only achieve an expected 2.7°C■■

warming limit.
Article 4 of the Paris Agreement introduces the ”ratcheting” requirement for countries to■■communicate enhanced NDCs every five years (i.e., to go further than they have currently
committed to in order to achieve the Agreement’s objectives of below 2°C above pre-industrial
levels).
It is important, therefore, that organizations take into account a 2°C scenario in their analyses.
A 2°C scenario provides a common reference point that is aligned with the objectives of theParis Agreement and will support the evaluation, by analysts and investors, of the potential
magnitude and timing of transition-related implications for individual organizations, acrossAdifferent organizations within a sector, and across different sectors.

Introduction
B

In this context, it is useful to highlight several points from the Grantham Institute submission

Scenario Analysis

to the Task Force:21

C…it is becoming increasingly risky for companies to pin all business strategies on the assumption■■

Applying Scenario
Analysisthat extensive decarbonization will not happen, for example, on the basis because of (mostly
backward-looking) lack of political will.

D

It is likely that all businesses will need to have an answer to the key question “what strategy is in

Publicly-Available
Climate-Related
Scenarios■■

place to transition business models to ones that remain valuable once ambitious climate policies
are in place?” Similar questions relating to exposure to physical risks and future-proofingEbusiness models will have to be formulated, these varying according to different sectors’

Glossary

exposure.

F

Resilience requires the presence of forward risk management and hedging strategies. In addition■■

References andFurther Reading

to answering the question “what is your most likely scenario?” investors will seek to ask “whatwill you do in alternative scenarios such as a net zero emissions world?” The answer to this puts
market players in a better position to assess market capitalization.

d. Comparison of Relevant Parameters and Signposts
A comparison of the IEA and other scenarios, their related models and tools, and theirunderlying assumptions is presented in Table 1 (p. 18). It should be noted that this figure
does not include the IEA WEO Current Policies and New Policies scenarios since these do not
explicitly model the transition to a lower-carbon economy. Instead, they model alternative
versions of “business-as-usual.”
Analyzing the range of 2°C and other transition risk scenarios from the IEA, DDPP, IRENA, andGreenpeace, a number of key drivers or signposts appear relevant for organizations to consider
when constructing, using, and assessing various scenarios (Table 2, p. 19). These drivers andsignposts can also serve as key indicators that organizations may wish to monitor in order togauge the emergence or change of different transition pathways and the implications for theirorganization relative to these indicators. For instance, information from such monitoring is likely
to be an important input into an organization’s strategic planning process as well as contributing
to the ongoing adjustment of scenarios to emerging trends and conditions.
United Nations Framework Convention on Climate Change, ”The Paris Agreement,” December 2015,
http://unfccc.int/files/essential_background/convention/application/pdf/english_paris_agreement.pdf.
21
Dimitri Zenghelis and Nicholas Stern, The importance of looking forward to manage risks: submission to the Task Force on ClimateRelated Financial Disclosures, Policy Paper, June 2016, http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2016/06/
Zenghelis-and-Stern-policy-paper-June-2016.pdf.
20

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Table 1

Summary of Transition Risk Scenarios and their Underlying Assumptions
Scenario Description

Model Details

Scenario

Temp Impact
Range and %Likelihood

Source and Data Visualization

Model

Underlying Assumption:
Population

Underlying Assumption:
Economics

Details: Non-Energy
emissions sources22

Details:
Timeframe

IEA WEO 450
Scenario

2°C, with a likelihoodof around 50%

IEA Special Report: Energy andClimate Change and WEO 2014

IEA World
EnergyModel(WEM)

World population to grow by 0.9% per
year, from 7 billion in mid-2012 to 9
billion in 2040 (WEO 2014, pp. 42-44)

World GDP assumed to grow at a
rate of 3.4% over 2012- 2040 (WEO
2014, pp. 39-42)

No (p. 35)

2012-2040

ETP 2DS Scenario

2°C, with a likelihoodof around 50% (p. 29)

ETP (Energy Technology Perspectives)2016
http://www.iea.org/etp/explore

ETP Model

Population to grow from 7.1 billion in2013, to 9.4 billion in 2050 (p. 385)

Average World GDP growth for
2013-2050 is 3.2% (p. 385)

Yes (p. 29)

2013-2050

Deep
decarbonizati on
Pathways Project(DDPP)

Consistent with…
warming to less than
2°C with a “better
than even” chance

DDPP 2015 Report
http://deepdecarbonization.org/
countries/visualization-of-countryscenarios/

Expanded population growth of 17%
from 2010-2050 across the 16 countries(p. 6)

Global average GDP growth rate of
3.1% per year (pp. 4-5)

“Some of the individual
country analyses consider
sources of carbon emissions
other than energy” (p. 4)

2010-2050

IRENA REmap

2°C, if the lower endof CO 2 emissions
reductions areachieved (p. 42)

IRENA: Roadmap for a Renewable
Energy Future (Remap): 2016 edition& IRENA Working Paper: Synergies
between Renewable Energy andEnergy Efficiency
http://resourceirena.irena.org/
gateway/dashboard/

Population growth between 2010-2030
for 8 significant countries is in table 3 ofthe IRENA ‘Synergies’ paper

GDP change between 2010-2030
for 8 significant countries is in
Table 3 of the IRENA ‘Synergies’
paper“The energy use of
agriculture, forestry, andfishing, as well as nonenergy
use is excluded” p. 27, 2016
REmap Paper

2010-2030

Greenpeace
Advanced Energy[R]evolution

Aim to holdtemperature increase
to under 2°C (p. 59)

Greenpeace Energy [R]evolution (5thEd)

Population expected to grow by 0.8%
per year on average over the period of
2015-2050 from 7.3 Bn in 2009 to nearly
9.5 Bn in 2050

Average annual GDP growth rate of
3.1% between 2012-2050

Yes - Final energy demand
includes nonenergy use (p.
317)

2012-2050

IEA WEO Bridge
Scenario

Aim to “keep the door
to the 2°C goal open”
through the energy
transition. Note: thisis NOT a 2°C scenario
in itself.

IEA Special Report: Energy andClimate Change

IEA World
EnergyModel(WEM)

Population expected to grow by 0.9% per
year, from an estimated 7 Bn in mid-2012
to 9 Bn in 2040 (WEO 2014, pp. 42-44)

World GDP assumed to grow at a
rate of 3.4% over 2012-2040 (WEO
2014, pp. 39-42)

No (p. 35)

2012-2030

IEA WEO INDC
Scenario

By 2040, all remaining
carbon budget for a
50% change of 2°C
will be used. If nostronger action after
2030, warming of
2.6°C by 2100, and3.5°C after 2200 (p.
12)

IEA Special Report: Energy
and Climate Change and Data/
Tables available at http://www.
worldenergyoutlook.org/indc/

IEA World
EnergyModel(WEM)

Population expected to grow by 0.9% per
year, from an estimated 7 Bn in mid-2012
to 9 Bn in 2040 (WEO 2014, pp. 42-44)

World GDP assumed to grow at a
rate of 3.4% over 2012-2040 (WEO
2014, pp. 39-42)

No (p. 35)

2012-2030

22

Note: One key non-energy source of emissions is the contribution to GHG emissions expected from land-use, land-use change and forestry, which, for some countries, can be very significant(IEA, “Energy and Climate Change: Special Briefing for COP21.” 2015. http://www.worldenergyoutlook.org/media/news/WEO2015_COP21Briefing.pdf).

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Table 2

Comparison of Relevant Parameters and Signposts within Transition Risk Scenarios
ETP 2DS scenario

Deep Decarbonization Pathways
Project (DDPP)

IRENA REmap

Greenpeace Advanced Energy[R]evolution–– Strong efficiency related policy action–– Around 5100 GW of new capacity isavoided between 2016 and 2050.

–– Average energy intensity of GDP for
the 16 DDPP countries as a whole falls
64% from ~8.2 MJ/$ in2010 to 3 MJ/$in 2050. (p. 9)–– Building sector has the greatest energy
savings. (p. 22, Synergies paper)–– Efficiency measures in theindustry, residential and service
sectors avoid the generation of
about 16,700 TWh/a (by 2050](p. 13)–– A decrease in energy intensity is ofalmost two thirds is assumed from2013 to 2050. (p. 31)

CO2 Price–– After 2020, a CO 2 price is adopted inOECD countries.
–– Fossil fuel subsidies removed in
all regions except the Middle Eastby 2035. CO 2 prices in most OECDmarkets reach $140/ton in 2040, up
from ~$20/ton in 2020 (p. 45, WEO
2014)–– Global energy demand grows on
average by only 0.6% per year; in 2040
demand is up 17% on 2012.

EV Deployment–– Assumptions are that in the US
Carbon taxes begin in2020 at $35/
tCO 2 , and increase linearly to$210/
tCO 2 by 2050.
–– Where the current level of taxation
is greater than this, taxes aremaintained until this schedule
catches up with them.
–– Final energy demand to grow to 455EJ
by 2050, up from 390 EJ in 2014. (p.32)–– Average Carbon Intensity of electricity
falls from~530 gCO 2 /kWh in 2010, to~40gCO 2 /kWh in 2050. (p. 9)–– Efficiency gains from the deployment of
REmap would keep the global Total Primary
Energy Supply 5% below 2010 level. (p.
27,Synergies paper)–– Note: “The choice of policy
instruments depends on societal
preferences;” therefore in the
DDPPs, the importance of carbon
pricing does vary, although it is ofimportance in all. (pp.39-41)–– A range of USD 17-80/t CO 2 is assumed
for carbon prices (p. 26- 27, 2016 REmap
paper)–– In contrast to the 2012 edition,
the 2015 Energy [R]evolution
analysis, CO 2 pricing is set aside.
(p. 67)–– Medium emissions/moderate income
countries: Energy consumption peaks
2030-40. Fossil fuel consumption in
2050 = 2010 levels. (p.15)–– Global energy demand grows 30% in 2030
compared to levels today. (p. 14, Remap
2016 Paper)–– Primary energy consumption
433,000 PJ/a in 2050 (excluding
non- energy consumption),
down from 534,870 PJ/a today.
(p.92)–– High emissions/ high-income
countries: Final energy demand falls
10% below 2010 levels by 2050.(p. 17)

Solar PV
Deployment

Energy Demand

Policy & Demand
Emerging Technologies

Key Drivers / Signposts

Energy Efficiency

Scenario
IEA WEO 450 scenario–– Sale of EVs exceed 40% of total
passenger car sales worldwide in
2040. (p. 109, WEO Special Report) –– Advanced biofuels and EVs reduce oil
consumption by 13.8 mboe per day in
2040 (p. 123, WEO Special Report)–– Peak final energy demandreached in 2020 with a total of
355,000 PJ/a. (pp.12-13)–– In 2050, urban rooftop solar PV isassumed to account for around 47%of global electricity generated bysolar PV, and 9% of the electricity
consumed in cities. (p. 284)–– Cumulative production of
decarbonized energy(GW) from SolarPV, in all DDPP countries, grows asfollows: 2010: 1GW, 2020: 275GW,
2030:823GW, 2040: 1752GW, 2050:
3254GW (p. 29)–– Solar PV power generation capacity is 1760
GW by 2030, up from 180GW in 2014 and
780 GW in the reference case (p. 67, 2016
REmap paper)–– 100 million EVs by 2030, up from
1 Million in 2016. (p. 253)–– Production of EVs (per million): 2010:
0, 2020:32, 2030:134, 2040:333, 2050:
650 (p. 29)–– The number of electric vehicles reaches
160 million units in 2030 under theRemap scenario, up from 60 million in
the reference case and 0.8 million in
2013/2014. (p. 102, 2016 REmap paper)–– Annual sales growth of EVs assumed
to be sustained, from 53% in 2014,
to 66% through 2020 and to 39%
through 2025. (p. 104)

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–– Solar PV power capacity increases at a rateof 99 GW/year in 2012- 2030.

–– Solar PV provides 14% of total
electricity generation by 2030,
employing 10.3 million people.
–– Total generation rises from 1,090
TWh in 2020, to 2,659 TWh in
2025, and 5,067 TWh in 2030.
(p. 202)19

Table 2

Comparison of Relevant Parameters and Signposts within Transition Risk Scenarios (continued)

CCS Deployment
Bio-energy% Renewables
Nuclear

CO2 Emissions

Outcomes

Energy Mix

Emerging Technologies

Scenario
IEA WEO 450 scenario

ETP 2DS scenario

Deep Decarbonization Pathways
Project (DDPP)

IRENA REmap

Greenpeace Advanced Energy[R]evolution–– 80 GW of CCS equipped Oil & Gas
capacity to be operating by 2025.
Between 2030 and 2040, 580 GW ofcoal-fired power generation equippedwith CCS.

–– Assumed 540 MtCo2 being stored peryear in 2025. (p.96)–– Assumed growth in CCS deployment
from ~3GW in2020 to ~20 GW in 2030,
rising to ~56 GW in 2040, and 76.7 GW
in 2050. (p.37)–– (Credits CCS as important, but no
discussion of specific impact in scenario)–– ‘CCS Technologies are not
implemented.’ (p.60)–– Cumulative production of
decarbonized energy (GW) from
Biomass, in all DDPP countries,
grows as follows:2010: 1 GW, 2020:
26 GW,2030: 105 GW, 2040: 221GW,
2050: 270 GW–– Demand for liquid biofuels reaches 500
billion liters per year in 2030 if all REmap
options are implemented.
(p. 108, 2016 Remap paper)–– By 2040, 80% of coal-fired generation
capacity has CCS equipped, comparedwith 4% in the new policies Scenario.

–– The fuel mix is much more diversified
by 2040, biofuels consisting of 17% ofworld transport demand (p.124, WEO
Special Report)–– CCS assumed to provide12% of
cumulative emissions reductions,capturing around 3.5 GtCo2 worldwide
in 2050. (p. 39)–– Assumed production of 56.8 billion
liters of biofuels by 2025. (p. 108)–– CCS technologies are notincluded in the Energy
Revolution, due to the
speculative nature ofassumptions around costs,
effectiveness and environmental
effects (p.67)–– Heat supplied by Biomass
increases from 31,404 PJ in 2020,
to 34,909 PJ in 2025, and 36,623
PJ in 2030. (p. 203)–– Bioenergy power generation capacity is
430 GW by 2030. (p. 67, 2016 REmap paper)–– Variable renewables increase fromincrease from 3% of global electricity
generation in 2015 to more than 20%
by 2040. (p. 109, WEO Special Report)–– CO 2 intensity of electricity fallingfrom 528 gCO 2 /kWh in 2013 to lessthan40gCo2/kWh in 2050.Achieved
through deployment of low-carbon
generation.

–– Annual investment in low carbon
technology as a share of GDP (%)
expected to grow across the DDPP
countries: 0.8% in 2020, 1.2% in 2030,
1.3% in2040, 1.3% in 2050. (p.32)–– 45% of Power generation in the REmap
scenario in 2030 uses renewable
technology (up from 23% in 2014),
compared to 30% in the Reference case. (p.
54, 2016 REmap paper)–– 45% of Power generation in the
REmap scenario in 2030 uses
renewable technology (up from
23% in 2014), compared to 30%
in the Reference case. (p. 54,
2016 REmap paper)–– Global nuclear capacity more thandoubles to 862 Gw in 2040, 38%
higher than in the New Policies
Scenario. (p. 406)–– Assumed growth in global nuclear
capacity from403GW in 2016 to 553
GW by 2025. (p. 90)–– Cumulative production of
decarbonized energy (GW)from
Nuclear technology, in all DDPP
countries, grows as follows: 2010:
2GW,2020: 53GW, 2030:259GW, 2040:
632GW,2050: 1053GW (p. 29)–– Under the REmap scenario, Nuclear power
generation capacity is 600GW by 2030,
up from 370GW in 2014, but less than the
Reference Case in 2030, at 650GW. (p. 67,
2016 REmap paper)–– No new nuclear power plants will
be built worldwide in the Energy[R]evolution Scenarios. (p. 122)–– CO 2 emissions in the 2DSare reduced
to 15 Gt in 2050, less than half thecurrent value. (p. 28)–– Range of cumulative energy-related
emissions of 805- 847GtCO 2 by 2050.
(pp. 17-18)–– The lower end of this (CO 2 reduction) range
is sufficient to keep the world on a 2oC
pathway”(pp. 41-42, 2016 REmap paper)–– 100% Renewableenergydecarbonization–– Development depends on some $81
billion/year in investment in new
nuclear plants over 2014- 2040. (p.
406)–– Energy-related CO 2 emissions peakat 33Gt before 2020, then fall back to
25.4 Gt in 2030 and 19.3 Gt in 2040
(almost 50% lower than New Policies
Scenario).

Technical Supplement | The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities–– of the entire energy system by
2050.
–– Global CO 2 emissions stabilize
by 2020 and then constantly
reduce. - Total cumulative CO 2
emissions between 2012 & 2050
are 667 Gt CO 2 . (p. 15)

20

e. Outputs from Transition Risk Scenarios
The transition risk scenarios summarized above provide data and graphical outputs that
present analysis and outcomes for key parameters at global and regional levels, and frequently
also at national and sector levels.
In addition, many of the published transition risk scenarios are accompanied by functional
tools and dashboards that can help organizations access the information of greatest
relevance to them. For example, the DDPP tool (and also the Global Calculator developed by
the UK government) allows users to undertake ”what if” analysis by modifying certain input
parameters and assumptions. 23 Further development of supporting tools and user interfaces,
however, is necessary to facilitate uptake of scenario analysis by organizations, reduceorganizational transaction costs, and help ensure comparability by investors.

2. Physical Risk Scenarios
The science and the results of global climate models can support organizations’ assessmentsof the broader physical impacts of climate change (e.g., temperature, precipitation, anddrought) and the associated financial consequences. As an illustration of this, recent analysis

A

by MIT of six Integrated Assessment Models (which model interactions between anthropogenic

Introduction

greenhouse gas emissions in climate systems and climate change impacts on social-economicBsystems) found that climate outcomes such as global temperature were highly comparable

Scenario Analysis

across the models. The MIT work and other experience suggests that business planners,
financial analysts, and others can effectively use the outputs of global climate models inCApplying Scenario
Analysis

scenario analysis to assess the broader consequences of physical climate-related impacts.
Downscaling these global climate models to local impacts, however, is still a work in progress.

D
Publicly-Available
Climate-Related
Scenarios

Several governments and international financial institutions are now using “downscaled”
data from global climate models to assess new infrastructure projects. However, many global
climate models still have difficulties in projecting accurately extreme weather events at local

Elevels (e.g., floods, precipitation patterns, and droughts).

GlossaryFa. Publicly-Available Physical Risk Scenarios
The four RCPs are the latest generation of scenarios that provide input to the climate
models underpinning the IPCC’s AR5. These scenarios describe the climate impacts of arange of possible future GHG emissions and consequent trajectories of atmospheric GHG
concentrations (Box 3, p. 22).

References andFurther Reading

The RCP scenarios fix the amount of GHG concentration in the atmosphere and analyze theresulting changes in global temperatures (and other variables such as precipitation) at various
future points (i.e., out to 2035, mid-century [2046-65], and end of century [2081-2100]) relative
to pre-industrial levels.

23

See http://www.globalcalculator.org/.

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Box 3IPCC Representative Concentration Pathway (RCP) Scenarios
RCP8.5 is the high-emissions scenario, consistent with a future with no policy changes to reduce
emissions, and characterized by increasing GHG emissions that lead to high atmospheric GHG
concentrations. It is aligned broadly with a Current Policies or Business-As-Usual Scenario.
RCP6.0 is a high-to-intermediate emissions scenario where GHG emissions peak at around 2060 andthen decline through the rest of the century.
RCP4.5 is an intermediate-emissions scenario, consistent with a future with relatively ambitious
emissions reductions and GHG emissions increasing slightly before starting to decline circa
2040. Despite such relatively ambitious emissions reduction actions, RCP4.5 falls short of the 2°C
limit/1.5°C aim agreed on in the Paris Agreement. It is aligned broadly with the GHG emissions profilethat would result from implementation of the 2015 NDCs (out to 2030), followed rapidly by peaking
and then reduction of global emissions by 50% by 2080.
RCP2.6 is the only IPCC scenario in line with the Paris Agreement’s stated 2°C limit/1.5°C aim.
This RCP is consistent with ambitious reduction of GHG emissions, which would peak around 2020,
then decline on a linear path and become net negative before 2100.
A
Introduction
B
Scenario Analysis
C
Applying Scenario
AnalysisD
Publicly-Available
Climate-Related
Scenarios

Figure 7 illustrates the range of emission pathways and temperature outcomes modeled as
inputs to the IPCC’s AR5 and the resulting atmospheric CO 2 concentrations and global averagetemperature change.

Figure 7

CO2 Emissions Pathways and Temperature Outcomes in IPCC AR5
RCP Scenarios

E
GlossaryF
References andFurther Reading

Source: Fuss, Sabine; Canadell, Josep G.; Peters, Glen P.; Tavoni, Massimo; Andrew,
Robbie M.; Ciais, Philippe et al., “Betting on negative emissions.” Nature Climate Change
4 (10), September 2014, pp. 850–853.

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The data and outcomes of this modeling are available in CMIP5, the Coupled Model Intercomparison Project Phase 5. 24 A summary of CMIP5 is provided in Box 4. This data is publicly
available and is used by many organizations, academic researchers, and specialist consultants
and practitioners in their evaluations of the potential first-, second- and third-order impacts ofclimate change.

Box 4

CMIP5 Summary
CMIP5 promotes a standard set of model simulations in order to evaluate how realistic the models
are in simulating the recent past; provide projections of future climate change on two time scales,
near term (out to about 2035) and long term (out to 2100 and beyond); and understand someof the factors responsible for differences in model projections, including quantifying some key
feedbacks such as those involving clouds and the carbon cycle. 25
The multi-model-mean results from the CMIP5 data sets can be used to conduct physical climatechange impact assessments. Using these data, organizations can screen the outcomes for thefollowing variables in 2030, 2050 and beyond:26–– temperature–– wildfires–– water supply and demandA–– precipitation–– hurricanes/cyclones–– sea level rise

Introduction–– drought–– typhoons–– landslides–– storm surges–– floods

B
Scenario Analysis

For organizations wishing to understand their stressed exposure to plausible physical climatechange risks in the time frame from now until mid-century, what is likely to be most helpful is
to consider scenarios consistent with RCP8.5 (which most closely reflects a business-as-usual
pathway consistent with failure to properly implement NDCs).

C
Applying Scenario
AnalysisD
Publicly-Available
Climate-Related
Scenariosb. Comparison of Relevant Signposts
The physical scenarios or RCPs from IPCC’s AR5 reflect a range of GHG emissions andconcentration pathways and consequent temperature outcomes. Modeling results, such as
those contained in the CMIP5 archive, provide projected climate data for the range of variables
for each of the RCPs.

E
GlossaryF
References andFurther Reading

Indicative outputs from the modeling of these two RCP scenarios are shown in Figure 8(p. 24). These show some of the global mapping resources available to organizations, bothfrom IPCC itself and from other organizations that have used IPCC modeling data to develop
user-friendly mapping tools. When undertaking physical climate-related scenario analysis,organizations may find it useful to derive high-level data from such maps and to supplement
this with site-, local- or region-specific data from the CMIP5 data set, and the results of relevant
studies drawn from the many academic research papers that have informed the work of the
IPCC. These will include research papers specific to individual regions or countries; to individual
climate impacts/variables, including on the severity and frequency of extreme weather events;
and to the impacts on specific industries (e.g., the impact on agricultural production within a
specific country).

CMIP was established by leading climate-modeling groups around the world in 1995 to promote a new set of coordinated climate
model experiments (http://cmip-pcmdi.llnl.gov/ ). CMIP Phase 5 provided key results and access to data from 28 modeling centersthat underpinned the IPCC 5th Assessment Report, generating projections of future climate change under each of the RCPs. The data
within CMIP5 is publicly available at http://cmip-pcmdi.llnl.gov/cmip5/availability.html.
25
Coupled Model Intercomparison Project 5 (CMIP5), CMIP5, 2016. http://cmip-pcmdi.llnl.gov/cmip5/.
26
Note: some variables, such as wildfires, also rely upon use of separate data sets outside CMIP5.
24

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Figure 8

Comparison of Relevant Signposts within Physical Climate Scenarios
Key Drivers/Signpost

IPCC 5AR
RCP 4.5

IPCC 5AR
RCP 85

Surface Temperature Change

Precipitation and Water Supply

Indicative change in averagesurface temperature(2016-2035 and 2046-2065)

Indicative precipitation maps
(2016-2035 and 2046-2065)

Temperature change RCP4.5 in2016–2035: annual

Precipitation change RCP4.5 in
2016-2035: annual

Temperature change RCP4.5 in
2046-2065: annual

Precipitation change RCP4.5 in
2046-2065: annual

Temperature change RCP8.5 in
2016-2035; annual

Precipitation change RCP8.5 in
2016-2035; annual

Temperature change RCP8.5 in
2046-2065; annual

Precipitation change RCP8.5 in
2046-2065; annual

Sea Level Change
Indicative water supply anddemand map 2030

Projected ensemble mean sea levelchange (model projection averages) from1986-2005 to 2081-2100
Maps detail global variations in sea level rise,with darker indicating the largest increase. In RCP
4.5, sea level rise peaks at 0.3m in some regions.
Increases are particularly concentrated aroundthe 30° regions, while Antarctic region shows thesmallest change.

Taken from: WRI (2016), Aqueduct Water Risk Atlas(www.wri.org/applications/maps/aqueduct-atlas/)

Maps detail global variations in sea level rise, withthe darkest colours indicating the largest increases.
In RCP 8.5, sea level rise peaks at 0.8m in someregions. Increases are particularly concentrated in
the Southern Hemisphere. There are some small
areas which experience reductions in sea level.

Taken from: WRI (2016), Aqueduct Water Risk Atlas(www.wri.org/applications/maps/aqueduct-atlas/)Scale
Source: IPCC, Annex I: Atlas of Global and Regional Climate Projections Supplementary Material RCP4.5 and RCP 8.5 [van Oldenborgh, G.J., M. Collins, J. Arblaster, J.H. Christensen, J.
Marotzke, S.B. Power, M. Rummukainen and T. Zhou (eds.)]. 2013. In: Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Reportof the Intergovernmental Panel on Climate Change [Stocker, T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen, J. Boschung, A. Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)]. Available fromwww.climatechange2013.org and www.ipcc.ch.
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c. Available Assessment Tools & Resources
In addition to the modeling results from applying the IPCC RCP scenarios shown above, drawn
from the CMIP5 data set, a number of other tools are available to organizations to support theirassessments of physical climate impacts and risks at global, regional, national, and local levels.
The WRI Aqueduct Atlas (Figure 9) is a risk-mapping tool that “helps companies, investors,
governments, and other users understand where and how water risks and opportunities are
emerging worldwide. The Atlas uses a robust, peer-reviewed methodology and the best-available
data to create high-resolution, customizable global maps of water risk.”

Figure 9

WRI Aqueduct Water Risk Atlas

AIntroduction
B
Scenario Analysis
C
Applying Scenario
AnalysisD
Publicly-Available
Climate-Related
Scenarios
E
Glossary

Source: World Resources Institute (WRI). Aqueduct: Measuring and Mapping Water Risk.
2016. http://www.wri.org/our-work/project/aqueduct.

F
References andFurther Reading

In addition to the WRI Aqueduct tool, other tools include the following:
The WBCSD Water Tool27 is a multifunctional resource for identifying corporate water risks and■■opportunities, including a workbook (for site inventories, key reporting indicators, and metrics),
a mapping functionality, and Google Earth compatibility. The tool is intended to support
organizations operating in multiple countries, whether they are new to water management
or as part of a long-term resilience strategy. Organizations can compare sites on the basis ofwater availability, sanitation, population, and biodiversity.
The UN Food and Agriculture Organization GAEZ Agri tool data portal is based on the■■

Global Agro-Ecological Zones (GAEZ) methodology for assessing agricultural resources andpotential. 28 The data portal is a collection of databases and study results, including the option
for visualization. The tool was updated in 2014 to take account of the RCPs, developed for the
IPCC’s AR5, that enable users to forecast changes in yields, production, and other outputs due
to climate change.

27
28

http://old.wbcsd.org/work-program/sector-projects/water/global-water-tool.aspx
http://gaez.fao.org/

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An increasing number of national governments and national meteorological offices are making
projections of climate change at a local/national level and are conducting assessments andpreparing toolkits that can form reference points and provide resources for use by organizations.
Examples include:
The UK Climate Impacts Programme (UK CIP) has gathered historical climate records and future■■climate projections. Climate projections cover low-, medium- and high-emissions scenarios andcan be viewed through an online user interface and associated briefing report. The UKCP09
Weather Generator provides projections of future daily climate using 5km data baseline from1961-1995, producing projections for specific future time periods.
The U.S. Interagency Archive of Downscaled Climate Data and Information provides an archive■■of simulated historical and future climatology and hydrology; it is maintained at Lawrence
Livermore National Lab by a consortium of federal and non-federal partners. Information
available from this archive is free and open to all.
In France, climate research is led by the program Management and Impacts of Climate Change■■(GICC). Meteo-France is the primary provider of climate projections out to 2100, covering
temperature, precipitation and wind speeds, aligned with the IPCC’s RCPs. Projections areA

provided for the medium term (2021-2050) and long term (2071-2100). Using regionalized

Introduction

models, it has been possible to achieve a resolution of around 12km.

B
Scenario Analysis

Similar resources are available in other countries including, but not limited to, Australia,■■

Canada, Germany, Japan, the Netherlands, and South Africa.

C
Applying Scenario
AnalysisD
Publicly-Available
Climate-Related
Scenarios
E
GlossaryF
References andFurther Reading

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E Glossary
Adaptation: Anticipating the adverse effects of climate change and taking appropriate action
to prevent or minimize the damage they can cause or taking advantage of opportunities that
may arise. 29
Business-As-Usual (BAU): Business-as-usual projections are based on the assumption that
operating practices and policies remain as they are at present. Although baseline scenarios
could incorporate some specific features of BAU scenarios (e.g., a ban on a specific technology),
BAU scenarios imply that no practices or policies other than the current ones are in place. 30
Carbon Capture and Storage (CCS): A technology that can capture carbon dioxide (CO 2)
emissions produced from the use of fossil fuels in electricity generation and industrial
processes and store the CO 2 deep underground, preventing the CO 2 from entering theatmosphere. 31
Emissions Scenario: A plausible future pathway of man-made emissions (e.g., greenhousegases and other pollutants,) that can affect climate. These pathways are based on a coherentAand internally consistent set of assumptions about determining factors (such as demographic

Introduction

and socioeconomic development, technological change) and their key relationships.

B
Scenario Analysis

Energy Transition: A shift from a system currently dominated by mainly fossil-fuel based

Cenergy toward a system using a majority of low-emissions and renewable energy sources, andApplying Scenario
Analysismaximizing opportunities for increased energy efficiency and better management of energy
demand.

D
Publicly-Available
Climate-Related
Scenarios

Fifth Assessment Report (AR5): Report published by the IPCC in 2014 that provides an updateof knowledge on the scientific, technical and socio-economic impacts of climate change.

E

General Circulation Models (GCM): These are numerical models representing physicalGlossary

processes in the atmosphere, ocean, cryosphere, and land surface.

F

Greenhouse Gas (GHG): These are a variety of gases that have the ability to trap heat

References andFurther Readingwhen emitted within the atmosphere. Some of the most common GHGs are carbon dioxide,
methane, nitrous oxide, and fluorinated gases.
Integrated Assessment Models (IAM): These models attempt to integrate knowledge
from two or more domains of expertise or academic disciplines. They are constructed toaddress climate change by tracking emissions, the concentration of greenhouse gases in theatmosphere as well as other carbon sinks, temperature and other climate impacts arising fromincreased concentrations of greenhouse gases in the atmosphere, and damages resulting fromthose climate impacts. Emissions follow from economic behavior, and policies scenarios can be
hypothesized to affect emissions along a number of dimensions.
Intended Nationally Determined Contribution (INDC): INDCs outline national efforts
towards low emissions and climate resilient development in pursuit of the United Nations
Framework Convention on Climate Change’s objective and represent one of the maindeliverables of the Paris Agreement. Following ratification of the Paris Agreement, INDCs are
now known as NDCs; see Paris Agreement. 32
European Commission Climate Action, Adaptation to Climate Change. 2016. https://ec.europa.eu/clima/policies/adaptation/index_en.htm.
Intergovernmental Panel on Climate Change (IPCC), Annex II: Glossary [Mach, K.J., S. Planton and C. von Stechow (eds.)]. 2014.
In: Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of theIntergovernmental Panel on Climate Change [Core Writing Team, R.K. Pachauri and L.A. Meyer (eds.)]. IPCC, Geneva, Switzerland, pp.
117-130.
31
Carbon Capture and Storage Association, “What is CCS?” 2016. http://www.ccsassociation.org/what-is-ccs/.
32
UNFCCC, Synthesis Report on the Aggregate Effect of Intended Nationally Determined Contributions (INDCs). 2013.
http://unfccc.int/files/focus/indc_portal/application/pdf/synthesis_report_-_overview.pdf.
29

30

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International Energy Agency (IEA): An autonomous organization that works to ensure
reliable, affordable and clean energy for its 29 member countries and beyond. The IEA has fourmain areas of focus: energy security, economic development, environmental awareness, andengagement.
IPCC: Intergovernmental Panel on Climate Change. An international forum of experts
established in 1988 and used by the United Nations to undertake periodic assessments that
address how climate will change, what its impacts may be, and how we can respond. 33
Land Use/Land Use Change/Forestry (LULUCF): A greenhouse gas inventory sector thatcovers emissions and removals of greenhouse gases resulting from direct human-induced landuse, land-use change, and forestry activities. 34
Mitigation: Refers to efforts to reduce or prevent emission of greenhouse gases. Mitigation
can mean using new technologies and renewable energies, making older equipment moreenergy efficient, or changing management practices or consumer behavior.
Organizations: Unless otherwise specified, the use in this report of the term “organizations”
refers to both financial and non-financial organizations.

A
Introduction

Paris Agreement: In 2015, Parties to the UNFCCC agreed in Paris to keep the global
temperature rise this century well below 2°C above pre-industrial levels and to pursue efforts

B
Scenario Analysis

to limit the temperature increase even further to 1.5°C. The agreement requires all PartiesC

to put forward “Nationally Determined Contributions” (NDCs). There will also be a global

Applying Scenario
Analysisstocktaking every five years to assess the collective progress towards achieving the agreement
and to inform about further individual actions by Parties. 35

D
Publicly-Available
Climate-Related
Scenarios

Physical Risks: Risks associated with physical impacts from climate change that could affectcarbon assets and operating companies. These impacts may include “acute” physical damage
from variations in weather patterns (such as severe storms, floods, and drought) and “chronic”

E
Glossary

impacts such as sea level rise, and desertification.

F

Pre-industrial Levels: Pre-industrial average temperature using an 1850-1900 reference

References andFurther Reading

period.
Representative Concentration Pathways (RCPs): Four independent pathways comprisingsets of projections of radiative forcing that serve as inputs to climate modeling, pattern scaling
and atmospheric chemistry modeling. These are based on the forcing of greenhouse gases andother forcing agents.
Scenario: A plausible description of how the future may develop based on a coherent andinternally consistent set of assumptions about key driving forces (e. g., rate of technologicalchange, prices) and relationships. Note that scenarios are neither predictions nor forecasts, but
are useful for providing a view of the implications of developments and actions. 36
Single Simplified Climate Model: Referred to as ‘Simple Climate Models’ in the IPCC Second
Assessment Report and used to provide projections of global mean temperature and sea levelchange in response to the IS92 emissions scenarios and carbon dioxide stabilization profiles.

Intergovernmental Panel on Climate Change (IPCC), 2014: Annex II: Glossary [Mach, K.J., S. Planton and C. von Stechow (eds.)].
In: Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of theIntergovernmental Panel on Climate Change [Core Writing Team, R.K. Pachauri and L.A. Meyer (eds.)]. IPCC, Geneva, Switzerland,
pp. 117-130. https://www.ipcc.ch/pdf/assessment-report/ar5/syr/AR5_SYR_FINAL_Glossary.pdf.
34
Ibid.
35
United Nations Framework Convention on Climate Change, “The Paris Agreement.” 2016.
https://unfccc.int/paris_agreement/items/9485.php.
36Intergovernmental Panel on Climate Change (IPCC), 2014: Annex II: Glossary [Mach, K.J., S. Planton and C. von Stechow (eds.)].
In: Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of theIntergovernmental Panel on Climate Change [Core Writing Team, R.K. Pachauri and L.A. Meyer (eds.)]. IPCC, Geneva, Switzerland, pp.
117-130. https://www.ipcc.ch/pdf/assessment-report/ar5/syr/AR5_SYR_FINAL_Glossary.pdf.
33

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Transition Risks: Risks related to the transition to a lower-carbon economy. The risks can begrouped into four categories: policy and legal risk; technological risk; market risk (e.g., consumer
preferences); and reputational risk.
Value Chain: Terminology used to describe the upstream and downstream life cycle of a product,
process, or service, including material sourcing, production, consumption and disposal/recycling.
Upstream activities include operations that relate to the initial stages of producing a good orservice, e.g., material sourcing, material processing, supplier activities. Downstream activities
include operations that relate to processing the materials into a finished product and delivering itto the end user (e.g., transportation, distribution and consumption).

A
Introduction
B
Scenario Analysis
C
Applying Scenario
AnalysisD
Publicly-Available
Climate-Related
Scenarios
E
GlossaryF
References andFurther Reading

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F References and Further Reading
2° Investing Initiative (2°ii), “Transition Risk Toolbox: Scenarios, Data, and Models”
November, 2016. http://2degrees-investing.org/IMG/pdf/2ii_et_toolbox_v0.pdf.
BHP Billiton, “Climate Change: Portfolio Analysis.” 2015. http://www.bhpbilliton.com/~/media/
bhp/documents/investors/reports/2015/bhpbillitonclimatechangeporfolioanalysis2015.pdf.
BHP Billiton, “Climate Change: Portfolio Analysis Views after Paris.” 2016.
http://www.bhpbilliton.com/~/media/bhp/documents/investors/reports/2016/
bhpbillitonclimatechangeporfolioanalysis2016.pdf.
Coupled Model Intercomparison Project 5 (CMIP5), “CMIP5.” 2016.
http://cmip-pcmdi.llnl.gov/cmip5/.
Deep Decarbonization Pathways Project (DDPP), “DDPP.” 2016.
http://deepdecarbonization.org/about/.
Dimitri Zenghelis and Nicholas Stern, “The importance of looking forward to manage risks:
submission to the Task Force on Climate-Related Financial Disclosures,” Policy Paper, June 2016,
A
Introduction
B
Scenario Analysis
C
Applying Scenario
AnalysisD
Publicly-Available
Climate-Related
Scenarios
E
GlossaryF
References andFurther Reading

http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2016/06/Zenghelis-andStern-policy-paper-June-2016.pdf
Fuss, Sabine; Canadell, Joseph G.; Peters, Glen P.; Tavoni, Massimo; Andrew, Robbie M.; Ciais,
Philippe et al., “Betting on negative emissions.” Nature Climate Change 4 (10), September
2014, pp. 850–853.
International Energy Agency (IEA). “Energy and Climate Change,” 2015.
https://www.iea.org/publications/freepublications/publication/
WEO2015SpecialReportonEnergyandClimateChange.pdf.
Intergovernmental Panel on Climate Change (IPCC), “Special Report on Emissions Scenarios.”
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Recommendationsof the Task Forceon Climate-related
Financial Disclosures

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