Mark John

-COP26 climate talks running in Glasgow https://www.reuters.com/business/cop for the first two weeks of November may be the world’s best last chance to cap global warming at the 1.5-2 degrees Celsius upper limit set out in the 2015 Paris Agreement.

It is a huge global issue with many implications, including for economic stability and livelihoods around the world.

These are the 10 questions economic policymakers need to address about climate change:

1) WHAT IS CLIMATE COOPERATION COST? Economic models are struggling to cope with all the possible consequences of global warming, from floods and fires to conflicts and migration. IMF estimates that global warming will reduce world production by 7% if it is not controlled. It is even more high according to the Network for Greening the Financial System group of central banks around the world, which puts it at 13%. A Reuters survey of economists found that the average figure for output loss in this scenario was 18%.

2) WHAT IS THE EFFECT GOING TO HAVE ON THE PEOPLE? The developing world is clearly the most affected. Many of the poorest people in the world live in low-lying or tropical regions that are already experiencing climate change effects like rising sea levels or droughts. These countries often lack the ability to prevent such disasters. Global output loss is projected by NFGS at over 15% in most of Asia and Africa. This figure rises to 20% for the Sahel.

3. WHAT IS THAT MEANS FOR INDIVIDUAL LIFE WAYS? 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. This model also warns against output losses as high as 3% during last-minute transition situations.

5) WHO LOSES OUT IN A “NET ZERO” CARBON WORLD? Primarily those with exposure to fossil fuels. Carbon Tracker, a think tank published a September report that estimated that $1 trillion in business as usual investment in the oil and natural gas sectors would not be feasible in a world with low carbon. The IMF also called for an end to all subsidies for fossil fuels. It estimates that $5 trillion per year is the cost of subsidizing oil and gas. This includes undercharging supply costs, health care costs and environmental impacts.

6) WHAT IS CARBON REALLY GOING TO COST? You can encourage green behavior by using tax or permit programs that price carbon’s damage. These programs have only covered a fifth global carbon emission. They averagely price carbon at $3 per tonne. It’s still well under the IMF $75/tonne threshold required to stop global warming exceeding 2C. According to Reuters, economists recommend $100 per tonne.

7) WOULD THAT NOT SUSPEND INFLATION Price rises are likely in certain sectors, such as aviation. This could lead to inflation, which central banks refer to as broad-based and sustained price increases across the entire economy. However, history has shown that this is not always the case. Recent research showed that carbon taxes in Canada and Europe drove overall prices down because they reduced household incomes and thus consumer demand. Also, it is possible to inflate if you do nothing: an EU 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) GREEN ADVANCES DROP ECONOMIC Emissions. 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 IS RESPONSIBLE FOR THE BRUNT OF TRANSITION 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. The rich nations that have emitted the most emissions since the industrial revolutions of the 20th century have pledged to aid developing countries with $100 billion in annual transfers. This promise has not been fulfilled.

10) COULD THESE RISKS SUSPIRE A FINANCIAL THRILL? It is essential that the global financial system be shielded against both the direct risks of climate changes and from the potential upheavals due to 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. There is still much to be done by the ECB as well as other regulators.