World Bank: “Turn down the Heat” – What does it mean for investors

Some days before the start of the climate negotiations in Doha, the president of the World Bank Yong Kim has presented the report “Turn down the Heat”. It includes inconvenient provisions: The world is barreling down a path to heat up by 4 degrees at the end of the century if the global community fails to act on climate change, triggering a cascade of cataclysmic changes that include extreme heat-waves, declining food stocks and a sea-level rise affecting hundreds of millions of people. 

„A 4 degree warmer world can, and must be, avoided – we need to hold warming below 2 degrees“, explains Yong Kim. „Lack of action on climate change threatens to make the world our children inherit a completely different world than we are living in today. Climate change is one of the single biggest challenges facing development, and we need to assume the moral responsibility to take action on behalf of future generations, especially the poorest.“

“Turn Down the Heat”, a snapshot of the latest climate science prepared for the World Bank by the Potsdam Institute for Climate Impact Research (PIK), and Climate Analytics, says that the world is on a path to a 4 degree Celsius warmer world by the end of this century and current greenhouse gas emissions pledges will not reduce this by much. The PIK Director Hans Joachim Schellnhuber points out the risk: „The Earth system’s responses to climate change appear to be non-linear. If we venture far beyond the 2 degrees guardrail, towards the 4 degrees line, the risk of crossing tipping points rises sharply.“ It is useful to recall that a global mean temperature increase of 4° C approaches the difference between temperatures and those of the last ice age, when much of central Europe and the northern United States were covered with kilometers of ice.

The World Bank Report summarizes a range of the direct and indirect climatic consequences like:

  • Extreme heat waves, that without global warming would be expected to occur once in several hundred years, will be experienced during almost all summer months in many regions. The effects would not be evenly distributed. The largest warming would be expected to occur over land and range from 4° C to 10° C. Increases of 6° C or more in average monthly summer temperatures would be expected in the Mediterranean, North Africa, Middle East and parts of the United States.
  • Increased frequency of high-intensity tropical cyclones, and irreversible loss of biodiversity, including coral reef systems. Higher concentration of carbon dioxide concentration in the atmospheres results also in acidification, which is critical for coral reefs and therefore a risk to the protection against coastal floods, storm surges and wave damages.
  • Sea level-rise by 0.5 to 1 meter by 2100 is likely, with higher levels also possible. Sea levels rose by about 20 cm since pre-industrial times and are now rising at 3.2 cm per decade. The accelerating loss of ice from the Greenland and Antarctic ice sheets and this melting could add substantially to sea-level rise in the future. As for the Arctic sea ice, it reached a record minimum in September 2012, halving the area of ice covering the Arctic Ocean in summers over the last 30 years.
  • The most vulnerable regions are in the tropics, sub-tropics and towards the poles, where multiple impacts are likely to come together.
  • Agriculture, water resources, human health, biodiversity and ecosystem services are likely to be severely impacted: Many dry regions becoming dryer, wet regions wetter, increasing risks for food production potentially leading to higher malnutrition rates. This could lead to large-scale displacement of populations and consequences for human security and economic and trade systems.

In the face of the complexity and severity of the key findings the report presents the option, that warming of 4° C can still be avoided: numerous studies show that there are technically and economically feasible emissions pathways to hold warming likely below 2°.

Current emission trends do not allow large scale exploitation of unconventional fossil fuels

What is the present status? Current emission trends provide a pessimistic picture: estimations from the International Energy Agency show a 3.2% increase in combustion-related CO2 emissions in 2011. The 6.1% increase in CO2 emissions outside the OECD were only partly offset by a 0.6% reduction in emissions in the OECD. China represents a 9.3% increase in emissions, despite the effort that the carbon intensity fell by 15% between 2005 and 2011.

If the large reserves of unconventional fossil fuels will be exploited, the target of emission reduction to stabilize the global climate cannot be achieved: If only the Canadian oil sands development continues to expand at the pace currently desired by the industry, the production and use of the fuel would account for 87% of the maximum emissions from OECD countries in 2050 under a 450ppm stabilisation pathway. Not only the amount of resources is a danger to society, the exploitation is very energy and therefore CO2 intensive: average life cycle emissions from tar sands is 23% worse than conventional oil currently used in the EU.

There are also political and financial implications: The run for unconventional fuels means that US infrastructure is once again running into a carbon lock-in. When costly refineries and pipelines are built, political pressure increases to avoid carbon regulation policies which would render this “emission capacity” into sunk investment. What does this mean for investors? The financial sustainability of unconventional oil is dependent on a scenario with limited regulation, a high oil price and a low carbon price. Policy makers, and energy and utility companies agree that these factors are at risk and might not last long.

For additional information, please also refer to the press release of the Potsdam Institute for Climate Impact Research (PIK).

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