www.pwc.co.uk/lowcarboneconomy
The Paris Agreement:
A turning point?
The Low Carbon Economy
Index 2016



November 2016
The Low Carbon Economy Index 2016


PwC  Contents

The Paris Agreement: A turning point?
1
The Index
3
Has coal consumption peaked in China?
6
The UK maintains position as climate leader
7
Responding to climate risks is a strategic, business priority
8
Methodology
9
Contacts
10


Contents
The Low Carbon Economy Index 2016


PwC  1
In Paris last year, governments agreed to limit
warming to well below two degrees. Did this
signal a turning point? Are countries matching the
decarbonisation pledges they made at the
climate summit?
The results are positive. In 2015 the world
economy decarbonised at a record 2.8%. But this still
falls far short of the rapid reductions needed
to achieve the two degrees goal.
As a result of this decarbonisation gap, companies
face both climate impacts risks and low carbon
transition risks – Their investors are increasingly
demanding to know the implications and calling for
better disclosure. The G20 FSB Task Force on
Climate-related Financial Disclosure is expected to
issue guidelines on how they should do this.
Pathway to two degrees
This year marks a step change in the decarbonisation
of the global economy. For the last 15 years the global
decarbonisation rate has averaged only 1.3% a year. In
the lead up to the Paris Agreement in December 2015,
carbon intensity fell by a record-breaking 2.8% (up
from 2.7% in 2014). Some major emerging economies,
including China, showed sharp reductions in carbon
intensity last year. In addition several countries saw
sharp falls in coal consumption. These may be the
first signs of the uncoupling of emissions from
economic growth.
Global emissions were flat in 2015 while GDP grew by
a respectable 3.1%. Coal consumption fell by 1.8%,
with a switch to lower carbon gas (+1.7%) as well as
oil (+1.9%). Wind and solar energy output grew at
17.4% and 32.6% last year, but are still tiny fractions
of the whole energy system.
Governments have proposed a range of emissions
targets with different baselines and target years. To
gauge performance, PwC’s Low Carbon Economy
Index calculates the implied carbon intensity
pathways and assesses their ambition on a
comparable basis.

Figure 1:
Low Carbon Economy Index 2016: Transition pathways

Sources: BP, Energy Information Agency, World Bank, IMF, UNFCCC, National Government Agencies, PwC data and analysis.
Notes: GDP is measured on a purchasing power parity (PPP) basis. The INDC pathway is an estimate of the decarbonisation rate
needed to achieve the targets released by G20 countries. INDCs only cover the period to 2030, we extrapolate the trend in
decarbonisation needed to meet the targets to 2100 for comparison.

The Paris Agreement:
A turning point?
The Low Carbon Economy Index 2016


PwC  2
Overall, the INDC pledges aim for a global average
decarbonisation rate of nearly 3% per year – More
than double the business as usual rate of 1.3%
(2000-14). This suggests a step change in government
policies to reduce emissions and support clean
infrastructure investment. But this INDC pathway is
more closely aligned with the IPCC’s three
degrees scenario.
Despite the relatively rapid decarbonisation in 2015,
countries still fall short of what’s needed. Based on
expected GDP growth of approximately 3% each year
and the remaining two degrees carbon budget, on
average, countries will need to reduce their carbon
intensity by 6.5% every year from now to 2100.
Countries are expected to address this ambition gap
during the global stocktake and INDC review process
over the next few years. Governments will need to
engage with business to clearly make the link between
their ambitious emissions targets, their policies –
Both sector specific and economy-wide – and
investment in low carbon infrastructure and products.







The Low Carbon Economy Index 2016


PwC  3
Our Low Carbon Economy Index shows how fast the G20 countries decarbonised their economies last year,
relative to their INDC targets.
The good news this year is that three of the world’s six largest economies (US, China and the UK) are at the top
of the league table.
Table 1:
Low Carbon Economy Index – country summary
Country
Change in
carbon
intensity
2014-15
INDC target
annual change
in carbon
intensity 2015-
2030
Annual average
change in
carbon intensity
2000-2015
Change in
energy related
emissions
2014-2015
Real GDP
growth
(PPP)
2014-2015
Carbon
intensity
(tCO2/$m
GDP) 2015
World
-2.8%
-2.8%
-1.3%
0.2%
3.1%
295
G7
-3.6%
-3.4%
-2.1%
-1.9%
1.8%
252
E7
-4.0%
-2.5%
-1.3%
0.5%
4.6%
363
China
-6.4%
-3.5%
-2.4%
0.04%
6.9%
475
UK
-6.0%
-3.1%
-3.5%
-3.8%
2.3%
157
US
-4.7%
-4.3%
-2.4%
-2.4%
2.4%
301
South Africa
-4.5%
-4.5%
-1.7%
-3.2%
1.3%
583
Mexico
-4.4%
-3.9%
-0.6%
-2.0%
2.5%
206
Canada
-4.2%
-3.9%
-1.9%
-3.1%
1.1%
351
Japan
-2.7%
-3.0%
-0.9%
-2.3%
0.5%
257
Turkey
-2.6%
0.7%
-0.9%
1.3%
4.0%
211
India
-2.0%
-1.9%
-1.5%
5.4%
7.6%
276
Korea
-1.4%
-4.3%
-1.3%
1.1%
2.6%
419
Germany
-1.1%
-3.1%
-1.9%
0.5%
1.7%
195
EU
-0.7%
-3.1%
-2.3%
1.2%
1.9%
180
Australia
-0.5%
-4.5%
-2.1%
1.8%
2.3%
347
France
-0.2%
-3.1%
-2.6%
0.9%
1.2%
121
Russia
0.0%
0.8%
-3.2%
-3.7%
-3.7%
418
Argentina
0.0%
-2.2%
-0.8%
1.4%
1.3%
190
Indonesia
0.6%
-5.9%
0.0%
5.4%
4.8%
208
Brazil
0.8%
-3.9%
0.2%
-3.0%
-3.8%
157
Saudi Arabia
1.1%
-0.3%
0.5%
4.6%
3.5%
411
Italy
4.7%
-3.1%
-1.8%
5.5%
0.8%
153

Key:
Top 5
Bottom 5

Sources: BP, Energy Information Agency, World Bank, IMF, UNFCCC, National Government Agencies,
PwC data and analysis.

The Index
The Low Carbon Economy Index 2016


PwC  4
Figures 2 and 3 show the historic and projected
changes in carbon intensity of major economies if
they achieve their INDCs. The global average carbon
intensity from 2005 to 2015 is included in green for
comparison, followed by the two degrees global
average reduction pathway. This provides a reference
point for the historic performance and future
ambition of countries. Table 2 shows the targets
submitted by each of the G20 countries.
Most G20 countries’ targets will require a step change
in effort to reduce their carbon intensity. However,
only the EU, US and Japan are projected to be near
the average intensity required by 2030 to limit
warming to two degrees.
Figure 2:
Developed economies progress and targets

Figure 3:
Emerging economies progress and targets

100
300
500
700
900
1,100
20
00
20
05
20
10
20
15
20
20
20
25
20
30
C
a
rb
o
n
i
n
te
n
s
it
y
(
tC
O
2
/$
m
G
D
P
2
0
1
5
)
Canada
EU
Japan
US
Australia
Global
average
Global
average 2
degrees
pathway
100
300
500
700
900
1,100
20
05
20
10
20
15
20
20
20
25
20
30
C
a
rb
o
n
i
n
te
n
s
it
y
(
tC
O
2
/$
m
G
D
P
2
0
1
5
)
China
India
Indonesia
Brazil
Mexico
South Africa
Russia
Turkey
Global average
Global
average 2
degrees
pathway
The Low Carbon Economy Index 2016


PwC  5
Table 2:
INDC targets for G20 countries
Country
Target description
South Africa Emissions in a range between 398 and 614 MtCO2e by 2025-30
Mexico
22% reduction against baseline scenario by 2030
Korea
37% reduction against baseline scenario by 2030
Canada
30% reduction against 2005 absolute emissions by 2030
Japan
26% reduction against 2013 absolute emissions by 2030
Australia
26% to 28% reduction against 2005 absolute emissions by 2030
US
26% to 28% reduction against 2005 absolute emissions by 2025
India
33% to 35% reduction against 2005 carbon intensity by 2030
China
60% to 65% reduction against 2005 carbon intensity by 2030
EU
40% reduction against 1990 absolute emissions by 2030
Brazil
37% reduction against 2005 absolute emissions by 2025 and indicative 43% against 2005 by 2030
Russia
25% to 30% reduction against 1990 absolute emissions by 2030
Indonesia
41% reduction against business as usual emissions by 2030
Turkey
21% reduction against business as usual scenario by 2030
Saudi Arabia
130 MtCO2e reduction on annual dynamic baseline by 2030

The Low Carbon Economy Index 2016


PwC  6
China’s position at the top of the Index is the result of
falling coal use and the changing nature of its
economic development, with rapid growth in services.
China consumes half the global coal output, so
changes that affect consumption in China have global
significance for the coal market and emissions. In
2015, coal consumption in China fell by 1.5%1 or 29
Mtoe (million tonnes of oil equivalent), which
compares with total UK consumption of 23Mtoe last
year. This fall has been the most significant factor in
levelling China’s emissions and is partly the result of
policies to improve air quality and power plant
efficiency. And although it is a small part of China’s
economy, solar power grew by 70% in 2015.
As China looks to rebalance its economy, the service
sectors have experienced significant growth, with
average annual services exports growth of 14.3% since
2010. Financial Services dominated this growth, as
the financial intermediation industry’s share of
Chinese GDP grew by 1.5 times over 5 years
(from 6.2% in 2010 to 9.2% in H1 2016).



Figure 4:
China’s Energy Mix 2000-15

1 China’s own official figures suggest that coal consumption fell by 3.7% from 2014 to 2015.
http://www.stats.gov.cn/english/PressRelease/201602/t20160229_1324019.html
0
500
1,000
1,500
2,000
2,500
3,000
3,500
20
00
20
05
20
10
20
15
M
tO
e
Year
Geothermal/biomass
Solar
Wind
Nuclear
Gas
Hydroelectricity
Oil
Coal

Has coal consumption peaked
in China?
The Low Carbon Economy Index 2016


PwC  7
For the second year running, UK’s consumption of
coal has fallen by over 20% and has maintained its
position as a leader in our Index.
This is largely the result of the EU’s Large
Combustion Plant directive and a UK policy to close
all coal-fired power plants by 2025. Coal now makes
up around 12.2% of the UK energy mix. This trend is
accompanied by a 31% increase in renewables
generation, which has now reached 9.1% of the energy
mix. Only two years ago coal’s share of the energy mix
was more than three times that of renewables.
While changes in coal and renewables have played
significant roles in the reductions in carbon intensity,
changes in the UK economy have also been important.
The service sector has been the primary driver of the
UK economic recovery since the recession in 2008.
Services now accounts for 80% of total UK jobs and is
expected to continue growing. Manufacturing on the
other hand has suffered, with outputs falling in 2015
after being relatively flat since early 2011.
The decarbonisation of the UK’s economy looks set to
continue. Recent government announcements include
the adoption of the fifth carbon budget, the approval
of the Hinkley C nuclear power project and
confirmation of the government’s intent to ratify the
Paris Agreement. But there are questions about the
status of the EU Emissions Trading System and
whether climate action will feature in the
Government’s Brexit negotiations with the EU.

Figure 5:
UK’s energy mix 2000-15
0
50
100
150
200
250
20
00
20
05
20
10
20
15
M
tO
e
Year
Geothermal/biomass
Solar
Wind
Nuclear
Gas
Hydroelectricity
Oil
Coal

The UK maintains position as
climate leader
The Low Carbon Economy Index 2016


PwC  8
Our Low Carbon Economy Index shows the rapid
transition that is needed to get to the INDC targets
and ultimately to two degrees. This transition
presents high probability, high impact risks to the
financial performance of companies as well as to the
returns expected by their investors and lenders.
Such companies, including financial institutions such
as banks, insurers and asset managers/owners, are
increasingly expected to identify, understand, manage
and report on a range of climate risks and
opportunities that will drive the transition to a low-
carbon, climate resilient economy. This should allow
their stakeholders to better understand and price in
these risks and the issue is now firmly on the agenda
of financial regulators.
In his speech at Lloyds of London last year, Mark
Carney, Governor of the Bank of England and Chair of
the Financial Stability Board (FSB), identified climate
change as one of the most material threats to financial
stability. As a result the FSB set up a Task Force on
Climate-related Financial Disclosure (TCFD) at the
climate summit in Paris. This Task Force will provide
guidelines for financial disclosure on climate risks,
including by financial institutions by the end of 2016.
The Task Force is focused on the disclosure of
financial impacts arising from climate change, and
looks to move reporting beyond carbon footprinting
alone. Currently few companies or financial
institutions are comprehensively able to disclose the
financial impacts of climate change to their business.


Responding to climate risks is a
strategic, business priority
The Low Carbon Economy Index 2016


PwC  9
Our approach
The low carbon economy index
The purpose of our model is to calculate carbon
intensity (tCO2/$m GDP) for different countries
and the world, and the rate of carbon intensity
change needed in the future to limit warming to
two degrees by 2100.
The countries the study focuses on are individual
G20 economies, as well as world totals. The G20 is
also portioned into 3 blocks: G7 economies (US,
Japan, Germany, UK, France, Italy, Canada), E7
economies which covers the BRICs (Brazil, Russia,
India and China), and Indonesia, Mexico and Turkey
and other G20 (Australia, Korea, EU, South Africa,
Saudi Arabia, Argentina).
For GDP data, the study draws on World Bank
historic data. For long-term GDP projections the
study draws on the latest version of PwC’s ‘World in
2050’ model, which is based on a long-term GDP data
are taken from the World Bank. Long-term GDP
projections are drawn from the latest versions of
PwC’s ‘World in 2050’. This was last published in
February 2015 and details and a methodology
summary can be found here:
http://www.pwc.com/world2050.
For emissions, the study considers energy-related
carbon emissions drawn from the BP Statistical
Review (2016). For biofuels we adjust BP Statistical
Review (2016) data from production to consumption
using US Energy Information Administration data.
We use Intergovernmental Panel on Climate Change
data for the energy related emissions associated with
limiting warming to two degrees by 2100.
The national targets
Our analysis of the national targets in this report
considers the full national greenhouse gas inventory.
So this analysis includes emissions from industrial
process, fugitives (leaks from pipes), land use change
and forestry. This is because some countries’ targets
focus on actions to reduce emissions in those sectors
(which are outside our normal energy-based LCEI
model). So although the emissions intensity numbers
are not directly comparable with those in Table 1 of
this report the rate of change implied by these INDCs
is representative of what’s required in Figure 1.
INDC targets were taken from the UNFCCC portal.
Where available national greenhouse gas inventory
data was taken from the UNFCCC for 1990 to 2012.
This was supplemented with national government
department data where gaps existed in UNFCC data.
Where there were still missing years we used the rate
of change in energy related emissions from the BP
Statistical Review (2016) and applied this to the
UNFCCC or national government department data.
Where INDCs mention emissions from Land Use,
Land Use Change and Forestry (LULUCF) we assume
a net-net approach has been used. If LULUCF is not
mentioned in INDCs we assumed it is not included
in the target.

Methodology
The Low Carbon Economy Index 2016
This document has been prepared only for The Low Carbon Economy Index 2016 and solely for the purpose and on the terms
agreed with The Low Carbon Economy Index 2016. We accept no liability (including for negligence) to anyone else in connection
with this document, and it may not be provided to anyone else.
© 2016 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may
sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for
further details.
161026-110710-LA-OS
Leo Johnson
E: leo.j.johnson@uk.pwc.com
Jonathan Grant
E: jonathan.grant@uk.pwc.com
Lit Ping Low
E: lit.ping.low@uk.pwc.com
Sam Unsworth
E: samuel.j.unsworth@uk.pwc.com



Contacts