Energy and Environment Evidence File

Nov18: Energy and the Environment: Indicators and Surprises
Why Is This Information Valuable?
New Intergovernmental Panel on Climate Change (IPCC) Report Issued, 8 October 2018
SURPRISE.

Key research finding: global warming will trigger highly harmful societal impacts at significantly lower temperature increases than was previously assumed.

Significant impacts are expected even from a 1.5°C increase in average temperature

The report also highlights the challenge of limiting global warming to just 1.5°. Annual emissions of CO2 would need to be halved by 2030 relative to 2016 levels and renewable energy would need to supply 70–85% of global electricity demand by 2050.
Potentially large equilibrium climate sensitivity tail uncertainty” by Gernot Wagner and Martin L. Weitzman
This paper highlights the extent of uncertainty in current climate models.

“Equilibrium climate sensitivity (ECS), the link between concentrations of greenhouse gases in the atmosphere and eventual global average temperatures, has been persistently and perhaps deeply uncertain. Its ‘likely’ range has been approximately between 1.5 and 4.5 degrees Centigrade for almost 40 years. Moreover, Roe and Baker (2007), Weitzman (2009), and others
have argued that its right-hand tail may be long, ‘fat’ even.“

“Enter Cox et al. (2018), who use an ’emergent constraint’ approach to characterize the probability distribution of ECS as having a central or best
estimate of 2.8℃ with a 66% confidence interval of 2.2-3.4℃. This implies, by their calculations, that the probability of ECS exceeding 4.5℃ is less than 1%. They characterize such kind of result as “renewing hope that we may yet be able to avoid global warming exceeding 2[℃]”. “

“We share the desire for less uncertainty around ECS (Weitzman, 2011; Wagner and Weitzman, 2015). However, we are afraid that the upper-tail emergent constraint on ECS is largely a function of the assumed normal error terms in the regression analysis. We do not attempt to evaluate Cox et al. (2018)’s physical modeling (aside from the normality assumption), leaving that task to physical scientists.”

“We take Cox et al. (2018)’s 66% confidence interval as given and explore the implications of applying alternative probability distributions. We find, for example, that moving from a normal to a log-normal distribution, while giving identical probabilities for being in the 2.2-3.4℃ range, increases the probability of exceeding 4.5℃ by over five times. Using instead a fat-tailed Pareto distribution, an admittedly extreme case, increases the probability by over forty times.”
Evaluating the Economic Cost of Coastal Flooding” by Desmet et al
This paper also highlights the uncertainty inherent in today’s models of the highly complex global climate system.

Too many models fail to take dynamic adaptation into account, and thus significantly overestimate the GDP loss that could result from increased coastal flooding driven by climate change
Climatic Impacts of Windpower” by Miller and Keith
SURPRISE.

This new research paper provides a sobering perspective on the IPCC report’s recommendations regarding faster deployment of wind and solar to replace other sources of power generation.”

“We find that generating today’s US electricity demand (0.5 TWe) with wind power would warm Continental US surface temperatures by 0.24C. Warming arises, in part, from turbines redistributing heat by mixing the boundary layer. Modeled diurnal and seasonal temperature differences are roughly consistent with recent observations of warming at wind farms, reflecting a coherent mechanistic understanding for how wind turbines alter climate.”

“For the same generation rate, the climatic impacts from solar photovoltaic systems are about ten times smaller than wind systems. Wind’s overall environmental impacts are surely less than fossil energy. Yet, as the energy system is decarbonized, decisions between wind and solar should be informed by estimates of their climate impacts.”

And here is the kicker: “Power densities clearly carry implications for land use. Meeting present-day US electricity consumption, for example, would require 12% of the Continental US land area for wind at 0.5We m−2 , or 1% for solar at 5.4We m−2.”
New Asian coal plants knock climate goals off course”, in the Financial Times, 31Oct18
Read in conjunction with the above report on the potential for replacing fossil fuel based power generation with wind and solar, this column on a key indicator gets to the heart of the climate change issue, and leads to the conclusion that it is unlikely that the world will avoid a significant increase in average temperature, and the consequences it will produce.


“Asia’s existing coal plants are just 11-years-old on average and most still have decades left to operate.
A fleet of new coal plants in Asia threatening to derail global emissions targets has exposed the growing “disconnect” between energy markets and climate goals.”
The Importance of Climate Risk for Institutional Investors” by Kruger et al
In light of the evidence presented so far in this section, the conclusion of this survey – that investors do not believe that current valuations significantly underestimate climate related risks – seems very much open to question.

“According to our survey regarding climate-risk perceptions, institutional investors believe these risks have financial implications for their portfolio firms and that the risks have already begun to materialize, particularly regulatory risks.”

“Many of the investors, especially the long-term, larger and ESG-oriented investors, consider risk management and engagement, rather than divestment, to be the better approach for addressing climate risks. Although the investors believe that some equity valuations do not fully reflect climate risks, their perceived overvaluations are not large. In addition, a widespread view exists that climate-risk disclosure needs improvement.
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