Mark John

The last opportunity to limit global warming by limiting it at 1.5-2° Celsius may lie in the COP26 climate negotiations in Glasgow that begin next Sunday.

There are many stakes on the planet – including the potential impact on the economic lives of people around the globe and the stability of the global financial market.

These are the 10 questions economic policy makers are trying to answer about climate change:

1) WHAT IS THE COST OF CLIMATE MODIFICATIONS? Global warming could have many knock-on consequences. IMF’s estimate of unchecked global warming is that it would reduce the world’s output by about 7% by 20100. Network for Greening the Financial System, a network of global central banks, puts the figure at 13%. According to Reuters, 18% was the mean output loss for this scenario.

2) WHERE WILL THE MOST IMPORTANT IMPACT BE FOUND? The emerging world, evidently. The poorest of the planet live in tropical and low-lying areas that have already been affected by climate change, such as rising sea level or droughts. These countries often lack the ability to prevent such disasters. The NFGS report shows that there are overall production losses exceeding 15% across Asia and Africa. It rises to 20% for Sahel nations.

What does that mean for individual lives? A World Bank paper from last year stated that climate change could push up to 132 millions more people into poverty by 2030. The factors included lower farming income, decreased outdoor labour productivity, rising food prices and increased disease.

4) HOW MUCH IS IT GOING TO COST? The sooner you act, the better. Even the widely popular NiGEM macroeconomic prediction model suggests that a quick start can result in modest net output gains, due to big green infrastructure investments. In last-minute transition scenarios, the same model predicts output losses up to 3 percent.

5) WHO LOSES OUT IN A “NET ZERO” CARBON WORLD? Primarily those with exposure to fossil fuels. Carbon Tracker’s September report estimated that more than $1 trillion worth of oil and gas industry business would be unviable in a truly low-carbon world. In addition, the IMF called for the elimination of fossil fuel subsidies. The IMF estimates $5 trillion annually for this figure if it includes the undercharging of supply and other costs.

6) WHAT IS CARBON REALLY GOING TO COST? Permit or tax schemes which attempt to quantify the environmental damage caused by carbon emissions can be used to encourage people to adopt greener habits. These programs have only covered a fifth global carbon emission. They averagely price carbon at $3 per tonne. That’s well below the $75/tonne the IMF says is needed to cap global warming at well below 2°C. According to Reuters, economists recommend $100 per tonne.

7) WOULD THIS NOT LEAD to INFLATION Price rises are likely in certain sectors, such as aviation. It could also lead to inflation (a broad-based, durable rise in prices across the economy). Yet history shows this hasn’t necessarily been the case: carbon taxes introduced in Canada and Europe pushed overall prices lower because they cut into household income and hence consumer demand, a recent study showed. Also, it is possible to inflate if you do nothing: A European Central Bank paper warned last year of a rise in food and commodity costs due to extreme weather conditions and land shortages caused by rising sea levels and desertification.

8) ARE GREEN AWAKENS REALLY COUPLING ECONOMIC GHOSTS? True sustainable growth is one that allows economic activity to grow at the rate it needs without adding more carbon emissions. This is “absolute” decoupling. So far however, decoupling is either relative in that it merely achieves higher economic growth or lower emission gains. Or by shifting production to other countries. Global emissions remain high for the moment.

9) WHO FEARS THE BRUNT OF TRAITION? European Union bodies have embraced the idea of “Just Transition”, which aims to ensure that transitions to net zero are fair. This includes ensuring that low-income people do not become worse off. Globally, rich countries that have produced the majority of greenhouse gases have pledged $100 billion per year to assist developing countries in their transition. However, this promise is still unfulfilled.

10) COULD THIS CAUSE A FINANCIAL CRASH? Global financial systems must be protected against the risks of climate change and any upheavals that could occur during the transition to net zero. The central banks and the national treasuries have called on financial institutions and banks to be open about their exposure to these risks. This is something that regulators, including the ECB, have stressed has a lot of work ahead.