CICERO - Center for International Climate Research
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Guide to scenarios

Physical impacts will continue or worsen with growing GHG concentration levels. Investors should consider various scenarios, including high-end catastrophic change and low-end ones with ambitious policies and high transitional risk.

The Paris agreement has brought forward the horizon of ambition on climate action. It targets limiting global warming to “well below” 2°C, while pursuing efforts to limit warming to 1.5°C.

The effectiveness of the agreement hinges on domestic policy implementation and potentially the wide-spread use of negative emissions technology, such as biomass energy with carbon capture and storage (BECCS). Our assessment, based on the current climate policies and pledges, is that meeting a 2°C scenario is not the most probable scenario. The current pledges, if fully implemented, would lead to closer to 3°C warming by 2100, whereas business as usual with current policies would lead to even greater global warming.

To assess physical impacts in the next 10-20 years, the choice of scenario does not make much difference, but the Shades of Risk provided in this report can indicate impacts with a high probability for a particular region.

Physical impacts around mid-century or later are more dependent on policy changes. Stress-testing against various scenarios, including extreme scenarios, is useful. The upper tail of the probability distribution based on current implemented policies is also useful to consider as a worst-case scenario for physical impacts (4-5°C), especially as catastrophic change is not well understood.

 

 

Keeping global warming below 2°C is not likely. Investors should consider various scenarios, including high-end catastrophic change and low-end ones with ambitious policies and high transitional risk.

About the Shades of risk tool

The focus is on risks that could cause abrupt impacts that have relevance for investors. To assess the probability of the identified risks, climate scientists used expert judgement, based on current observations of impacts, the latest scientific literature and a qualitative assessment of scenario ranges.

The Shades of Risk tool can help guide investors to the ‘red flag’ risks that require further analysis of information at a sub-regional and/or company or asset level.

The risk of climate change impacts occurring is a function of probability, vulnerability, and exposure:

  • The probability of a hazard or physical event occurring or a policy being implemented is presented in this report as the projected outcomes between lower and upper bound emissions scenarios.
  • The vulnerability of an investment to risk depends on how well the sector or asset can adapt to the impact. In this report, we highlight the impacts that could have the most abrupt onset, to provide guidance on which regions are most vulnerable.
  • Investors themselves are best suited to understand the exposure of their portfolios to the risks, based on diversification at a portfolio, sectoral or asset level.

See the Shades of Risk tool applied on Statkraft's global investments in renewable energy and on observed impact examples.

 

The Shades of Risk tool can help guide investors to the ‘red flag’ risks that require immediate attention.