Assessing multi-sector near-term transition and longer-term physical
climate risks of greenhouse gas emissions pathways
Abstract
Financial institutions’ investment and lending portfolios could be
affected by both physical climate risks stemming from impacts related to
increasing temperatures, and from transition climate risks stemming from
the economic consequences of the shift to a low-carbon economy. Here we
present a consistent framework to explore near term (to 2030) transition
risks and longer term (to 2050) physical risks, globally and in specific
regions, for a range of plausible greenhouse gas emissions and
associated temperature pathways, spanning 1.5-4oC
levels of long-term warming. We draw on a technology-rich, regionally
disaggregated Integrated Assessment Model representing energy system,
agricultural and land-based greenhouse gas emissions, a reduced
complexity climate model to simulate probabilistic global temperature
changes over the 21st century, and a suite of impacts
models to estimate regional climate-related physical
hazards and impacts deriving from the temperature change pathways and
their underlying socio-economics. We consider 11 scenarios to explore
the dependence of risks on both temperature pathways, as well as
socio-economic, technology and policy choices. This builds and expands
on existing exercises such as the Network for Greening the Financial
System (NGFS). By 2050, physical risks deriving from major heatwaves,
agricultural drought, heat stress and crop duration reductions depend
greatly on the temperature pathway. By 2030, transition risks most
sensitive to temperature pathways stem from economy-wide mitigation
costs, carbon price increases, fossil fuel demand reductions and
potential stranding of carbon-intensive assets such as coal-fired power
stations. The more stringent the mitigation action, the higher the
abatement costs and sector-specific transition risks. However, such
scenarios result in lower physical climate hazards throughout the
century. Our study also explores multiple 2 deg C pathways which
demonstrate that scenarios with similar longer-term physical risks could
have very different near-term transition risks depending on
technological, policy and socio-economic factors. As such, “a single
scenario will not answer all questions”.