Decarb Economics 101
To mitigate the consequences of climate change, the world requires international coordination. In 2015, the Paris Agreement was signed by 195 nations. Its long-term temperature goal is to keep the rise in mean global temperature to well below 2 °C (3.6 °F) above pre-industrial levels, and preferably limit the increase to 1.5 °C (2.7 °F), which would reduce the worst effects of climate change. Many countries are developing policies to get themselves on a path toward achieving the agreed-upon 1.5 °C goal. Although present progress may seem piecemeal, in the words of a Chinese proverb, “A great journey begins with a single step.” The figure below […]
Free the Data
Hurricanes, floods, heat waves, droughts: weather events are increasing in severity as the earth’s atmosphere warms. The consensus is that we need to reduce greenhouse gas (GHG) emissions. Yet recent reports show waning interest in initiatives such as Climate Action 100+. “When performance is measured, performance improves,” according to Pearson’s law, and “when performance is measured and reported back, the rate of improvement accelerates.” Such is the reasoning behind the data repository known as the Net-Zero Data Public Utility (NZDPU). On February 21, 2024, three panelists from NZDPU spoke about the “why” and the “how” of their new organization. The […]
Diversifying Wildfire Risk
Climate change is altering risk profiles the world over. In the US, it has led to an increase in wildfire season length, wildfire frequency, and the size of burned area. When it comes to such disasters, is the economic risk only borne by those in the risky area, or can the economic risk be shared among investors? A recent webinar looked at a longstanding tool for financial adaptation. For nearly a century, mortgages have been used to create mortgage-backed securities (MBSs) in order to share the risk (and thus the return) of financing real estate. “What are the benefits of […]
World Energy Outlook
On October 24, 2023, the International Energy Agency (IEA) released its annual report, World Energy Outlook (WEO), to an international audience. The agency states that the energy world “remains fragile but has effective ways to improve energy security and tackle emissions.” Agency analysts looked at how close the countries of the world are to meeting the objectives of the Net Zero Emissions by 2050 (NZE) Scenario, which limits global warming to 1.5 °C, a goal signed by many countries and often referred to as the Paris Agreement. [As of March 2021, 194 states and the European Union have signed the […]
The Greenium
Does the average household want to invest in climate-friendly assets? If so, what proportion of assets are earmarked for green investments? What kinds of assets (equity or fixed income) are preferred? “Green investments are popular, but only about one-third of German households have some kind of green account,” said Monika Piazzesi, Professor of Economics at Stanford University. She was speaking at a webinar titled “Household Climate Finance: Theory and Survey Data on Safe and Risky Green Assets,” held on September 7, 2023, as part of the Virtual Seminar on Climate Economics sponsored by the Federal Reserve Bank of San Francisco (FRBSF). Her […]
The Meerkat Way
Given that climate change is the biggest economic upheaval of our age, what can risk professionals do? What, exactly, is meant by a “net-zero transition,” and why does each organization need a transition plan to reach it? How should risk professionals get started? On May 23, 2023, the membership of the Global Association of Risk Professionals (GARP) was invited to a one-hour webinar titled “Net-Zero Transition Plans” that promised to answer these questions and more. Tony Rooke, Executive Director and Head of Transition Finance at the Glasgow Financial Alliance for Net Zero (GFANZ), delivered the webinar. GFANZ is a global […]
Carbon Pricing
What is the best way to address climate change? If too much carbon is released in the air, how can emissions be reduced? By regulating corporations or by imposing costs on consumers in the form of a carbon tax? Moreover, even if a solution is found, not all nations, and not all people within nations, will agree on how to tackle the problem. In the words of Professor Barry Rabe, author of Can We Price Carbon? “Compelling ideas from economics do not necessarily suspend the laws of politics.” On May 4, 2023, Jessica Green, professor of political science at University […]
Chemistry and the Economy
Risks are multiplying and becoming more complex. The chemical industry is intrinsically connected to the economy. Can chemistry help solve the biggest crises facing us today? On December 15, 2022, the American Chemical Society hosted a virtual webinar, “Chemistry and the Economy.” The moderator was Bill Carroll, principal of Carroll Applied Science, who spoke to Paul Hodges, chairman of the Swiss-based strategy consulting firm New Normal. In speaking about risks, Hodges does not beat around the bush. He began with what he called “the four horsemen of the apocalypse.” He stated, “First there was the pandemic and associated supply chain […]
Climate Risk in Africa
Are European governments turning to African energy producers? What is the effect of Russia’s illegal invasion of Ukraine on other parts of the world? Will this threaten Africa’s transition to renewable energy? Is there any way to put the brakes on climate risk? On December 12, 2022, the Climate Action Tracker group held a virtual event, where three experts on climate risk discussed how to accelerate the transition to renewable energy and enhance climate action in Africa, with a focus on climate governance. Fossil gas is not the answer To meet the 1.5°C target of the Paris Agreement, “the global […]
Drivers of Inflation
What is causing the current inflationary environment? How are financial risk managers (FRMs) coping with escalating prices and renewed demand? What are the best strategies for addressing unanticipated inflation—what should a risk manager recommend to hedge against inflation? These and related questions led to a recent survey by the Global Association of Risk Professionals (GARP). “In June 2022, we surveyed 350 FRMs and found that most respondents expected inflation to remain high over the next year, followed by a significant reduction in the next five years,” said William May, Senior VP, Global Head of Certifications and Educational Programs, GARP. The survey […]