‘Why would you not follow a low carbon path?’, Citi concludes in a 132-page study finding that the incremental costs of doing so are limited and seem affordable, return on investment is acceptable and the likely avoided liabilities are enormous.
It set out two scenarios for investment in the energy sector, finding the cost under climate ‘action’ at $190.2 trillion over 2015-2040, and ‘inaction’ at $192.0 trillion.
“The difference is marginal between the two scenarios; mainly due to the fact that although we spend more on renewable resources and energy efficiency in the ‘Action’ scenario, this is offset by savings in fossil fuels through lower usage and the lack of fuels used by wind and solar.”
- Yet, the resulting temperature increases due to ‘inaction’ would lead to global GDP cuts costing $72 trillion by 2060.
“We calculate the implied return of incremental avoided costs on annual spend and even though the returns are not spectacular, in today’s context of low yields, and certainly in the context of potential implications of climate change inaction on society and global GDP, and with the additional benefit of cleaner air, the ‘why would you not’ argument comes to the fore, an argument that becomes progressively harder to ignore over time.”
- In meeting a carbon budget capable of limiting global temperatures to 2C, one-third of oil reserves, half of gas reserves and 80% of coal reserves would have to remain in the ground, the value of which – stranded assets- could be over $1 trillion based on current market prices.
- Some conventional sources are already effectively stranded given low commodity prices and coal companies are already experiencing some considerable stress.
- The main stumbling block to action had been the lack of investment opportunities to available, with innovations in credit markets offering significant encouragement for the future.
GLOBAL CARBON MARKET
“We believe that a single global carbon market is not likely to be the outcome from (Paris) COP21, rather that countries will select their own approaches to meeting their INDCs. These might involve market mechanisms such as carbon pricing or energy efficiency incentives, removal of fossil fuel subsidies, various types of regulatory constraints, or some combination of these approaches. Supranational mechanisms such as the CDM or JI might allow trading or interchangeability between these schemes.” (p. 14)
The uncertainty around a global climate agreement (the commitments under the Kyoto Protocol have expired) and the lack of demand for such credits have crippled the Clean Development Mechanism over time, although an agreement at the COP21 meeting in Paris could revive the CDM. (p. 13)