The Great Climate Disconnect


Courtesy of General Electric

GE has asked the members of its Citizenship Advisory Panel to reflect on trends and key challenges for sustainable development in 2013. This first post by Nick Robins tackles the gap between climate change risk and ambition. 

The year ahead will be dominated by growing tension between ever-stronger evidence of climate change and the inadequacy of the global policy response. Drought in the USA in 2012 highlighted the vulnerability of commodity prices to intensified weather risk, and 2013 is set to be another year of above-average global temperatures. But global greenhouse gas emissions are continuing to rise, putting the world on track for overshooting the 2ºC “safe” target and ending up in a 4ºC world.

Governments are continuing negotiations to narrow the gap between the current targets for reducing emissions and the levels that scientists tell us are needed to limit climate change to 2ºC . Significant steps toward a new global climate agreement are not expected until the end of 2015. But the next 12 months will nevertheless be a year of transition—there is positive momentum emerging for low-carbon technologies, and negative pressures against “green growth” looks set to lessen.

Across the world, 2013 will see a modest tightening of carbon constraints, with new trading schemes in California and China, as well as efforts to rebalance the EU emissions trading system. Carbon regulation will move forward in the USA—and one wild card is the possibility of a carbon tax being adopted as one of the measures for resolving the country’s fiscal imbalances.

More strategically, the disconnect between the world’s carbon budget and global fossil fuel reserves will rise up the agenda as investors investigate the risk of stranded assets if and when climate policies tighten.

Three factors are driving this trend.

  • First, mainstream energy research has confirmed the initial insight from the Carbon Tracker Initiative, that well over half of the reserves of oil, coal and gas cannot be commercialized if we are to stay within the 2ºC target. For example, the International Energy Agency has calculated that the “assets at risk” amount to two-thirds of the total.
  • Second, civil society organizations are deploying this analysis to challenge investors to reform their strategies. For example, in the USA is calling on universities to freeze investments in fossil fuel companies and divest their fossil fuel holdings.
  • Third, investment analysts have quantified the financial implications of a tight carbon budget. For example, HSBC research concluded that the value of coal assets held by UK mining majors could fall by 44% in a scenario of carbon-constraints post-2020.[1]

For business, the key will be to demonstrate to investors and other stakeholders that they have the ability to generate attractive returns in a carbon-constrained world, recognizing that not all assets will make it through to the low-carbon economy.

Read more in this series on GE's Citizenship blog: Thoughts from Stakeholders.

SOURCE: General Electric (GE)

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