Electricity Generation

According to the IPCC, the global decarbonization of the power sector by no later than 2050 is a robust feature of all modeled pathways aligned with limiting warming to 1.5°C. In 2021, the International Energy Agency (IEA) released its Net Zero Emissions by 2050 Scenario (NZE), which requires emissions from electricity production in advanced economies to reach zero by 2035. The Global Sector Strategy for investor coalition Climate Action 100+ reiterates that investors expect that emissions from electricity generation should reach net zero by 2040 globally and by 2035 in advanced economies. 

In assessing the credibility and robustness of net zero targets, investors should consider whether a target includes all relevant scope 1, 2, and 3 emissions company-wide. For utilities, this includes emissions not only from electricity directly generated by assets they own but also emissions from purchased and resold power, and, for combined gas-electric utilities, emissions from customer use of fossil gas. Investors should also consider whether the utility has plans to eliminate the upstream methane emissions from gas used in power production, distribution operations, or by its customers.

Interim targets and milestones should prioritize accelerated emissions reduction between now and 2030 rather than delaying the hard task of emissions reduction until after that date. This is underscored by the IEA’s report on Achieving Net Zero Electricity Sectors in G7 Members, which suggests emissions reductions of 76% or higher to be achieved by 2030 in G7 countries from 2019 levels under its Net Zero by 2050 scenario, with average reductions in the order of 6% per year between 2019 and 2035.

Finally, robust net zero targets should not rely on substantial use of offsets, negative emissions, or technologies yet to be developed or commercialized to avoid having to make near-term greenhouse gas emissions reductions. Utilities and power producers should clearly disclose any use of such offsets or negative emissions to allow investors to assess the quality and credibility of their plans. The Science Based Targets initiative currently only allows for small amounts of emissions after net zero to be mitigated with carbon removal; any other investment into mitigation is encouraged but not a substitute for lowering a company's own emissions.

Key Data Sources: 

• Climate Action 100+, Disclosure Indicators 1-4

• Science-Based Targets initiative, Companies list and Sector Guidance

• CDP (formerly Carbon Disclosure Project), search company survey responses here

• Transition Pathway Initiative Global Benchmarks

Investors must have confidence that utilities are making the near-term shifts in capital allocation and investment necessary to decarbonize in alignment with a 1.5°C future. According to multiple studies, U.S. power producers must phase out the use of coal generation by 2030 to stay on track to limit warming to 1.5°C. The IEA’s Net Zero Emissions by 2050 Scenario also indicates all unabated coal generation must be phased out completely by 2030 in advanced economies, with fossil fuel generation, including gas, phased out by 2035.

Further, research indicates that 99% of all coal-fired power plants in the U.S. are more expensive to operate on a forward looking basis than the total cost of replacement renewable energy projects. Utility-scale solar is now 33% cheaper than gas-fired power, and onshore wind is approximately 44% less expensive, making further gas generation investments a risky long-term bet. For regulated utilities, these additional costs will be borne by shareholders if utilities cannot convince regulators to pass on those costs to consumers, creating substantial stranded asset risk for investors.

Any future for gas generation in the U.S. beyond 2035 will only be compatible with the IEA NZE Scenario if it includes carbon capture, utilization and storage, a technology that does not fully abate emissions, does not account for upstream methane emissions and is currently cost-prohibitive.

In assessing the alignment of capital allocation plans with limiting warming to 1.5°C, investors should consider whether utilities are planning for no to limited investment in new gas generation. The IEA NZE deadline for gas generation retirement or abatement of 2035 is now within the integrated resource planning window for most U.S. utilities, and utilities should plan to exit those forms of generation in line with limiting warming to 1.5°C.

Key Data Sources:

• Climate Action 100+ (CA100+), Disclosure Indicator 6

• Carbon Tracker, Company Profiles: Utilities

• Sierra Club,Dirty Truth report and Data Dashboard

Utilities must fully align their policy influence activities, including political spending and lobbying activities, with the policy settings required to accelerate sector-wide emissions reduction on a timeline necessary to limit warming to 1.5°C. Utilities must fully disclose all political and lobbying spending to allow investors to assess this alignment. Finally, utilities must ensure the alignment of the policy influence activities of any trade associations or similar entities of which they are members or to which they contribute, or cease membership of such organizations. The recently signed Inflation Reduction Act (IRA) provides the resources to enable U.S. GHG emissions to decrease by up to 40% by the end of the decade. The utilities sector stands to benefit the most from the IRA as enactment of the legislation could decrease emissions from utilities by up to 72%. As a result, companies central to the production and consumption of fossil fuels can no longer credibly maintain indifference or hostility towards the clean energy transition.

Key data sources:

• Climate Action 100+, Disclosure Indicator 7

• Influence Map,

• List of companies and influencers

• Energy and Policy Institute

In 2023, we have updated our metrics to more closely align with the Climate Action 100+ Net Zero Company Benchmark Indicators for the power generation sector, while still focusing on the three core pillars of target setting, capital allocation, and policy influence. This allows for a more standardized assessment across companies that is broadly accepted by investors.