February 20, 2020

Global Letter – Climate change: let the numbers speak

BY John Llewellyn, Silja Sepping, Preston Llewellyn

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( 11 mins)


Global Letter - Climate change: let the numbers speak 1

Below1 are the key numbers2 relating to climate change, and some fundamental implications

Definitions and facts

  1. Main greenhouse gases (GHGs): carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O).3
  2. Global warming potential (GWP): differs by gas. Indicative relative values (ton for ton) are 1 (by definition) for CO2; 28-36 for methane; 265-298 for nitrous oxide.4
  3. Carbon dioxide equivalent (CO2e): the GWP-weighted average of the various GHGs.
  4. Global CO2e emissions: 55 gigatons (gt) per year (2019).5
    1. Global CO2 emissions: 33 gt per year (2019).6

        • Main emitters:7 China 29%; US 16%; EU 10%; India 7%; Russia 5%; Japan 4%; UK 1%.8
        • Main sectors: electricity and heat 25%; agriculture and forestry 24%; industry 21%; transportation 14%; buildings 5%; other 11%.9
  5. Atmospheric CO2e concentration: 454 parts per million (ppm).10 (Stock ≈ 750 gt).
    1. CO2e reabsorption: of the fossil-fuel-emitted CO2 into the atmosphere, about ½ remains, ¼ is absorbed by plants and trees, the remaining ¼ is absorbed into areas of the ocean.11
      • Methane stays in the atmosphere for a decade; nitrous oxide more than 100 years.12
    2. Atmospheric CO2 concentration: 412 ppm,13 having been in a (pre-industrial) range of 180-300 ppm for 800,000 years.
  6. A doubling of CO2e (GHG) concentration raises Earth’s temperature ultimately by around 3oC.
    1. Increase in Earth’s mean temperature so far: around 1oC over the 20thC.14
      • The oceans have absorbed much of this heat, the top 700 meters (about 2,300 feet) warming by more than 0.2oC (0.4 degrees Fahrenheit) since 1969.15
    2.  Looking Ahead

  7. Scientists consider the consequences of a rise in temperature above 2oC would be catastrophic.
  8. Paris target:16 limit global average temperature-rise to <2oC above pre-industrial levels.17
    1. Postulated pathways require: 18
      • Emissions to fall rapidly to near zero – which patently they will not do (last year they flatlined at 33 gt: see 4.1 above); or
      • After a number of years decline, emissions then drop, by 2050 or so, to well below zero i.e. carbon is extracted from the atmosphere.
  9. Principal instruments: carbon pricing and regulations (which embody an implicit cost of carbon); as well as innovation policy; institutional policy,19 planning and procurement.20
    1. Estimated requisite price of CO2: $40-80 per tonne by 2030, and $50-100 by 2050.21
      • A $10 increase in the price of CO2 ≈ a $4 increase in the per-barrel price of oil.22
    2. Action is falling way short. Carbon pricing currently applies to only 20%-odd of global GHG emissions. The global average, only about $2 per ton, ranges from below $1 in Mexico and Poland to $127 in Sweden.23
  10. Value of catastrophic events. The number of billion-dollar weather and climate disasters has increased 7-fold since 1980.24
  11. Global sea-level rise. About 20.3 cm (8 inches) in 20th C, and accelerating:25 over the past two decades the rate nearly doubled.26
  12. Stranded assets. Assuming policies to limit global temperature rise to 1.5oC:
    1. 80 per cent of hydrocarbon assets stand to become worthless.27
    2. $900 bn is wiped off the big oil and gas industry – one-third of their current value. 28
  13. Fiscal implications. A $100 per tonne CO2e tax on all GHG emissions would increase the fiscal charge from around $220 bn to just under $4 tr, around 4% of world GDP.29

In sum: Earth’s temperature is on a course to rise by around 3oC. It would take dramatic policy change, and carbon extraction technologies that do not yet exist, to change the outcome materially. Major changes in asset prices lie ahead; with many assets becoming ‘stranded’.◼

1 Helpful comments on an earlier draft, and which led to significant improvement, were provided by Dimitri Zenghelis. All remaining errors, however, are of course ours.

2 A number of caveats have to be borne in mind throughout. Definitions are important. And all scientific numbers, and certainly those in this Global Letter, are subject to margins of error. When a range is particularly large, it is shown.

3 There are other greenhouse gases too, such as the fluorinated gases – also known as ‘F’ gases.

4 That is, emissions of 1 ton of methane and nitrous oxide are equivalent (in global warming terms) to 28-36 and 265-298 tonnes of CO2 respectively. The definition of carbon dioxide equivalence is based on Eurostat, 2017. Eurostat Statistics explained: Glossary: Carbon dioxide equivalent, 9 March. Available at explained/index.php/Glossary:Carbon_dioxide_equivalent [Accessed 10 February 2020] The figures are taken from US Environmental Protection Agency. Greenhouse Gas Emissions: Understanding Global Warming Potentials. Available at https://www.epa.gov/ghgemissions/understanding-global-warming-potentials {Accessed 16 February 2020]

5 The Netherlands Environmental Assessment Agency reports that “Global greenhouse gas (GHG) emissions have increased at an annual rate of 1.5%, over the last decade, with only a slight slowdown from 2014 to 2016. In 2018, the growth in global greenhouse gas emissions resumed at an annual rate of 2.0%, reaching 51.8 gigatonnes in CO2 equivalent (GtCO2 eq) excluding land-use change and 55.6 GtCO2 eq including land-use change … there is no sign of any of these emissions peaking, as yet. The increase in global greenhouse gas emissions was mainly due to fossil CO2 emissions, which increased by 2.0% in 2018. Global emissions of methane (CH4) and nitrous oxide (N2O) increased by 1.8% and 0.8%, respectively. For 2018, emissions of fluorinated gases (so-called F-gases) continued to grow by an estimated 5.9%. ” See PBL Netherlands Environmental Assessment Agency, 2019. Trends in Global CO2 and Total Greenhouse Gas emissions. Summary of the 2019 Report. 4 December. Available at https://www.pbl.nl/en/publications/trends-in-global-co2-and-totaal-greenhouse-gas-emissions- summary-of-the-2019-report [Accessed 10 February 2020]

6 The International Energy Agency reports that “Global energy-related CO2 emissions flattened in 2019 at around 33 gigatonnes (Gt), following two years of increases. This resulted mainly from a sharp decline in CO2 emissions from the power sector in advanced economies, thanks to the expanding role of renewable sources (mainly wind and solar PV), fuel switching from coal to natural gas, and higher nuclear power output.” See IEA, 2020. Global CO2 emissions in 2019. 11 February. Available at https://www.iea.org/articles/global-co2-emissions-in-2019 [Accessed 16 February 2020]

7 Taken principally from the Union of Concerned Scientists, 2019. Each Country’s Share of CO2 Emissions. 10 October. Available at https://www.ucsusa.org/resources/each-countrys-share-co2-emissions [Accessed 9 February 2020]

8 The rest of the world accounts for 28%, with no individual country > 1%.

9 US Environmental Protection Agency. Global Greenhouse Gas Emissions Data. Updated 10 October 2019. Available at https://www.epa.gov/ghgemissions/global-greenhouse-gas-emissions-data [Accessed 9 February 2020]

10 See European Environment Agency, 2019. Atmospheric greenhouse gas concentrations, 26 November. Available at https://www.eea.europa.eu/data-and-maps/indicators/atmospheric-greenhouse-gas-concentrations-6/assessment-1 [Accessed 13 February 2020]

11 See National Oceanic and Atmospheric Administration. Science on a sphere. Available at https://sos.noaa.gov/datasets/ocean-atmosphere-co2-exchange/ [Accessed 216 February 2020]

12 See US Environmental Protection Agency. Overview of greenhouse gases. Available at https://www.epa.gov/ghgemissions/overview-greenhouse-gases [Accessed 16 February 2020]

data graph 13 A chart of atmospheric greenhouse concentration stretching back 800,000 years from the present day is presented by NASA, 2020. Global Climate Change: Vital signs of the planet. Available at https://climate.nasa.gov/vital-signs/carbon-dioxide/ [Accessed 10 February 2020]:

These figures are proxy (indirect) measurements, reconstructed from ice cores.

Elsewhere, NASA notes that “… During ice ages, CO2 levels were around 200 parts per million (ppm), and during the warmer interglacial periods, they hovered around 280 ppm (see fluctuations in the graph). In 2013, CO2 levels surpassed 400 ppm for the first time in recorded history. This recent relentless rise in CO2 shows a remarkably constant relationship with fossil-fuel burning, and can be well accounted for based on the simple premise that about 60 percent of fossil-fuel emissions stay in the air.” See NASA, 2020. Global Climate Change: Vital signs of the planet. https://climate.nasa.gov/evidence/ [Accessed 09 February 2020]

See also World Meteorological Organization, Global Atmosphere Watch, 2019. WMO Greenhouse Gas Bulletin, 25 November. Available at https://library.wmo.int/doc_num.php?explnum_id=10100 [Accessed 09 February 2020]

14 “The planet’s average surface temperature has risen about 1.62 degrees Fahrenheit (0.9 degrees Celsius) since the late 19th century, a change driven largely by increased carbon dioxide and other human-made emissions into the atmosphere.[See https://www.ncdc.noaa.gov/monitoring-references/faq/indicators.php ,http://www.cru.uea.ac.uk/cru/data/temperature; and http://data.giss.nasa.gov/gistemp] Most of the warming occurred in the past 35 years, with the five warmest years on record taking place since 2010. Not only was 2016 the warmest year on record, but eight of the 12 months that make up the year — from January through September, with the exception of June — were the warmest on record for those respective months.” See NASA, 2020. Global Climate Change: Vital signs of the planet. Available at https://climate.nasa.gov/evidence/ https://climate.nasa.gov/evidence/ [Accessed 09 February 2020]

15 See NASA, 2020. op. cit..

16 The Paris Agreement, concluded within the United Nations Framework Convention on Climate Change (UNFCCC) and signed in December 2015, deals with greenhouse-gas-emissions mitigation, adaptation, and finance. The stated central aim is to strengthen the global response to the climate change threat by keeping a global temperature rise this century well below 2oC above pre-industrial levels, and to pursue efforts to limit the temperature increase even further to 1.5oC. For more, see What is the Paris Agreement? Available at https://unfccc.int/process-and-meetings/the-paris-agreement/what-is-the-paris-agreement [Accessed 29 May 2019]

17 Many developing countries also support a reduction in the target to keep global average temperature increases below 1.50C above pre-industrial levels.

Global Letter - Climate change: let the numbers speak 2 18 Various hypothetical paths in this spirit are shown in a special report by the Intergovernmental Panel on Climate Change (IPCC):

See, J., D. Shindell, K. Jiang, S. Fifita, P. Forster, V. Ginzburg, C. Handa, H. Kheshgi, S. Kobayashi, E. Kriegler, L. Mundaca, R. Séférian, and M.V.Vilariño, 2018. Mitigation Pathways Compatible with 1.5°C in the Context of Sustainable Development. Available at: https://www.ipcc.ch/site/assets/uploads/sites/2/2019/02/SR15_Chapter2_Low_Res.pdf [Accessed 13 February 2020]

19 Such as ‘green’ investment banks or legally-binding carbon budgets.

20 Many suggested approaches are however of limited potential efficacy at best. See for example Franklin-Wallis, O., 2020. Can carbon labels on food help save the planet? It’s complicated. Wired, 4 February. Available at https://www.wired.co.uk/article/carbon-labelling-quorn [Accessed 8 February 2020]

21 Carbon Pricing Leadership Coalition, 2017. Report of the High-Level Commission on Carbon Prices, May 29 2017. Available at https://static1.squarespace.com/static/54ff9c5ce4b0a53decccfb4c/t/59b7f2409f8dce5316811916/1505227332748/CarbonPric ing_FullReport.pdf [Accessed 4 June 2019]. That said, there are various arguments for and against a slow but progressive increase in the price of carbon. One argument is that an early, clear, and credible price shock is needed to kick-start innovation. A (political) counterargument is that if the shock is socially as well as innovatively disruptive, it could set back policy progress.

22 Assuming 1 (average) barrel of oil → 423 Kg of CO2 implies a tax of 423/1,000 * $10 = $4.23 per barrel. At the current price for crude oil of around $65 per barrel, this implies that each $10/ton tax increase raises the price of oil by (4.23/65) *100 = 6.5%.

23 For reference, the EU ETS prices carbon is around $25 per tonne, and the carbon price floor in the UK is $24 per tonne.


Global Letter - Climate change: let the numbers speak 3

25 Sea level rise is highly non-linear (as are many damages associated with climate change). There is a secular and predictable rise in sea levels from thermal expansion of water and ice melt off land; but in addition, there are unpredictable jumps as chunks of ice slide off Antarctica. These may raise sea levels up by a half a meter in the space of a few years.

26 See NASA, 2020, op cit.

27 Livesey (2020) op. cit.

28 This is an extremely complicated figure to work out: doing so properly will require a massive analytic effort, presumably by the financial services industry and/or the data provision industry. A useful illustrative summary attempt has been presented by Livsey, A., 2020. Lex in depth: the $900bn cost of ‘stranded energy assets’. Financial Times, 4 February. Available at https://www.ft.com/content/95efca74-4299-11ea-a43a-c4b328d9061c [Accessed 06 February 2020]

29 See Craig, C., 2020. The financial industry should prepare now for a “Carbon Correction”. Refinitiv, 17 January. Available at https://www.refinitiv.com/perspectives/future-of-investing-trading/the-financial-industry-should-prepare-now-for-a-carbon- correction/ [Accessed 16 February 2020]


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