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Carbon Budget

Carbon Budget

To create an carbon budget, in accordance with the Paris agreement, for various asset classes and portfolios. Historically analyze the fund or company's ability to meet its carbon budget.

Overview

The Paris Agreement was a crucial consensus among 196 countries on the importance of climate change, global warming and carbon emissions. The Paris Agreement has set a target to restrict warming to 2 Degrees Celsius, until the end of this century. Combing carbon emissions and climate science we have transformed this global target into a metric which is applicable at a company, portfolio, and fund level.

The Carbon Budget model drives its inputs from research papers written on climate science and follows a carbon target that is essential for the world to meet. The Carbon Budget allows you to see if a company is compliant with the Paris Accords - if its carbon emissions are aligned with the stated temperature targets, how much room for improvement is available and by how much are they missing their carbon targets.

Temperature increases have changed climate patterns by introducing higher weather volatility, which poses great social and financial risks, imagine the catastrophic events occurring 20 years from now, the loss of life and financial assets at risk. Insights from this model can inform investors of the true long term climate risk they face.

Design and Modeling

Assumptions

This model has based its calculations after the paper written by H. Damon Matthews, Nathan P. Gillett, Peter A. Stott & Kirsten Zickfeld called "The proportionality of global warming to cumulative carbon emissions".

Inputs

  • Global Budget is 1.4 trillion tonnes of Co2
  • With a confidence level of 95%
  • Global carbon budget that is aligned with the Paris agreement's warming goal of 2 degree Celsius. The best estimate to keep 2 degree Celsius warming, carbon emission must be restricted by 1.9 trillion tonnes of carbon. The total Co2 emissions from fossil fuels and land-use change until now are approximately 0.5 trillion tonnes. Therefore the final Allowable Carbon budget is 1.4 trillion tonnes globally to restrict warming at 2 Degree Celsius for the current century until 2116.
  • Territorial Carbon Emissions
  • Territorial emissions in MtCOâ‚‚
  • Territorial;"Cite as: Friedlingstein et al. (2020).
  • Friedlingstein et al.
  • Data for years 2018 and 2019 are preliminary.
  • http://www.globalcarbonatlas.org/en/CO2-emissions
  • Annual Global carbon budget
  • Global carbon budget needs to be divided by 97 (2116-2019=97)
  • US Carbon emissions
  • (https://ourworldindata.org/co2-emissions)
  • S&P emissions
  • {{url}}/portfolio/analytics/carbon-footprint
  • Company COGS and S&P total COGS
  • only for the latest year

Calculations

  • Average US Emissions as a % of total emissions
  • (US emissions/Global emissions)*100 From 2001 to 2019
  • take average of all answers
  • US Carbon Budget
  • Average US Emissions as a % of total emissions x Annual Global carbon budget
  • Average S&P emissions as a % of US emissions
  • (S&P emissions/US Carbon emissions)*100 From 2001 to 2019
  • take average of all answers
  • Company budgets
  • Associate budgets according to company's COGS
  • Company COGS / S&P COGS) * S&P Carbon Budget
  • Compare company's carbon budget with actual emission in 2019
  • if actual < budget = Achieved target
  • If actual > budget = Target not achieved