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GARP SCR > Climate Models & Scenario Analysis > Flashcards

Climate Models & Scenario Analysis Flashcards

1
Q

When did scenario analysis originate?

A

1950s

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2
Q

What are global reference scenarios?

A

Agreed and widely used projections of future emissions, sometimes with socio-economic narratives

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3
Q

Most universal reference scenarios are from the IPCC, these include _____

A

Representative concentration pathways (RCPs) & accompanying shared socioeconomic platforms (SSPs)

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4
Q

What are IAMs?

A

Integrated Assessment Models (IAMs) - economic models that also include representations of societal and environmental phenomena and sector-specific decarbonisation pathways

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5
Q

Scenario analysis is used for…

A 
Strategy and stakeholder communication to investors / regulators 
Resilience planning 
Portfolio risk management 
Stress Testing 
Pre-emotive portfolio selection
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6
Q

Who is scenario analysis often credited to?

A

Herman Kahn

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7
Q

What team sent its oil price forecasts to executives, what did this prepare for?

A

Shell’s ‘Futures’ team 1960s - sent forecasts to executives in early 1970s

Helped prepare for oil crisis of 1973

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8
Q

Reference scenarios are a set of agreed upon projections of emissions trajectories

Because of this, they allow for…

A

Cross comparability

Combinations of scenarios can be used in tandem to help cover gaps in coverage for a particular time frame

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9
Q

Due to a lag in the global climate system, the physical outcomes of climate change are…

A

Practically the same for the next few decades (until about 2050) regardless of emissions

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10
Q

When were stress tests widely adopted

A

In the wake of the financial crisis of 2008 - now increasingly repurposed to examine climate risk

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11
Q

First iteration of climate scenarios was devised…

A

In the 1990s, with assumptions around population growth, economic growth and emissions

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12
Q

TCFD Recommendations on Scenario Analysis x5

Challenge conventional wisdom about the future, explore alternatives that may significantly alter the basis of BAU assumptions

A
  1. Plausible
  2. Distinctive
  3. Consistent
  4. Relevant
  5. Challenging

Cammy Can Dance Pretty Rubbish

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13
Q

Current IPCC modelling is based on…

These are agreed upon, projected, plausible emissions based on emissions through to ___

A

Representative Concentration Pathways (RCPs)

Plausible emissions pathways through to 2100

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14
Q

How were RCPs constructed?

A

By back-calculating the amount of emissions that would result in a given amount of radiative forcing - the difference between solar radiation absorbed by the Earth and energy radiated back into space

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15
Q

RCP names are based on…

A

The amount of radiative forcing measured in watts / meter squared

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16
Q

RCP 2.6 is often used as shorthand for…

A

Below 2*c

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17
Q

What are CMIP5 models?

A

Models used for the 2014 IPCC Report

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18
Q

What proportion of CMIp models found that global temperatures surpassed the 2*c threshold

A

22% surpassed the 2*c threshold

Meaning there is a 78% probability that global temperature does remain below 2*c

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19
Q

RCP 8.5 is sometimes referred to … and is used as ___

A

RCP8.5 referred to as BAU - sometimes used as ‘worst case scenario’

Assumes continued rising emissions, leading to much higher levels of warming

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20
Q

Name the RCP Pathways - which are the most popular?

A

RCP 1.9

RCP 2.6*

RCP 4.5

RCP 6.0

RCP 8.5*

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21
Q

What is the RCP pathway equivalent for ‘current policies’

A

RCP 6.0

Approx 2.8*c

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22
Q

Why were shared socioeconomic pathways developed?

A

Developed in conjunction with the RCPs

SSPs intended to provide plausible scenarios for how the world evolves in areas such as population, economic growth, education, level of globalisation, urbanisation etc.

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23
Q

Only some SSPs and compatible with some RCPs.

Which RCP is not feasible with any SSPs?

A

RCP 8.5

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24
Q

Which two RCPs are both possible to achieve under baseline SSP1 assumptions?

A

RCP 1.9 and RCP 2.6

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25
Q

RCP 2.6 is a plausible emissions pathway under what SSPs?

A

Under SSP 1 and SSP 2

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26
Q

SSPs will be included in IPCC reports from ___ onwards

A

2021

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27
Q

IEA has x2 core reference scenarios - what are these scenarios?

A
  1. Stated Policies Scenario - reflects existing policy framework
  2. Sustainable Development Scenario - combines social & climate targets
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28
Q

IEA’s World Energy Outlook - explain

A

Considered one of the definitive global assessments of the energy sector

Criticised for excess of caution and friendliness towards FF sector, solar PV capacity annually always underestimated

In 2019, after pressure to include an energy model compatible with 1.5*c included in its 2020 outlook

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29
Q

Explain conditions in the IEA’s Net Zero Scenario (2021)

A

More ambitious path to achieve net zero to date - far less room for continued FF use than previous IEA models, sets out sector specific milestones

  • no new coal power plants / new coal mines
  • 60% of vehicles EV by 2030
  • 50% of all buildings retrofitted and electricity generation emissions globally net zero by 2040
  • no new sales of FF boilers by 2025
30
Q

Sector specific scenarios include the DDPP - define

A

Deep Decarbonisation Pathways Project

31
Q

IEA Stated Policies Scenario

What is the peak, when does the modelling end?

A

Peak - 2030

Not modelled beyond 2040

32
Q

IEA Sustainable Development Scenario

When is the peak?

Not modelled beyond what year?

A

Peak - 2021

Not modelled beyond 2040

33
Q

IEA Net Zero Scenario (2021)

Peak emissions?

Net Zero by when?

A

Peak in 2019

Net zero in 2050

34
Q

Two scenarios by IRENA

When is peak emissions in both?

A
  • Planned Energy Scenario
  • 1.5*c Scenario

Both peak in 2021

35
Q

Name of the Greenpeace scenario

When does it Peak, when is Net Zero?

A

Advanced Energy Revolution

Peaks in 2020 - net zero in 2050

36
Q

What does the ISD Deep Decarbonisation Pathways Initiative look at?

When is peak and net zero?

A

Country level pathways for emissions reductions consistent with global 2*c -

NA Net Zero and NA Peak as differs between countries

37
Q

What are the x3 NGFS scenarios?

A
  • Orderly Scenario
  • Disorderly Transition Scenario
  • Hothouse World
38
Q

NGFS Orderly Scenario

When is peak emissions
When is net zero

A

2020 peak emissions

Net Zero in 2060

39
Q

NGFS Disorderly Transition Scenario

When is peak emissions?

When is net zero?

A

Peak emissions in 2030

Net Zero in 2050

40
Q

NGFS Hothouse Earth

When is peak emissions?

When is net zero?

A

Peak emissions in 2080

No net zero

41
Q

IAMs are grounded in ___ and model what?

A

Grounded in economic theory

Model how social and economic factors affect each other and the climate

42
Q

What is radiative forcing?

A

Proportion of solar radiation reflected back into space and the difference between radiation reflected by sea ice and that absorbed by ocean

43
Q

Give examples of analytical choices

A

Qualitative vs Quantitative

Timescales

Choice of climate hazards

Scope of analysis

44
Q

Scenario Outputs

A

Earnings / profits
Revenues
Asset Valuations
Investment / capital expenditure

45
Q

Most basic IAMs compare what..?

A

Compare the costs and benefits of avoiding a certain level of warming

46
Q

Sector Decarbonising Pathways are a useful way of gauging transition risk.

They are designed to be…

A

Compatible with Paris targets and whether it is possible for the firm to align with the trajectory

47
Q

What does the Transition Pathway Initiative intend to do?

A

Publicly listed companies on their level of alignment with Paris compliant sector trajectories

48
Q

What is PACTA?

A

Paris Alignment Capital Transition Assessment

49
Q

Who developed PACTA?

A

2 Degrees Investing Initiative

50
Q

PACTA for banks starts with…

A

A bank’s financial exposure to physical assets in the real economy

51
Q

PACTA output metrics look to control two key climate issues:

A
  1. Absolute production output and limits of high carbon technologies
  2. Identifying the production shift from high carbon to low carbon production needed to be compatible with a Paris aligned world
52
Q

PACTA for banks currently covers x5 climate-critical sectors

A 
Power 
Fossil Fuels
Automotive
Steel 
Cement
53
Q

PACTA uses two metrics to measure alignment - these include:

A
  1. Production Volume Trajectory - measures alignment of a loan book
  2. Technology / Fuel Mix - shows sectoral technology
54
Q

For sectors with clear decarbonisation pathways (i.e. steel and cement) PACTA use what metric?

A

Emissions Intensity

55
Q

Shell’s scenarios include a …

A

Large continued role for oil and gas

56
Q

Sky & Sky 1.5 - explain these scenarios

A

Sky = pre-covid 2*c compatible scenario

Sky 1.5 = post-covid 1.5*c compatible scenario

57
Q

Shell’s WAVE scenario - explain

A

Disorderly, delayed but quick transition

58
Q

Shell’s ISLANDS scenario - explain

A

Late and slow transition

59
Q

Emissions scenarios have a lower importance for physical risk in what term?

A

In the short term - meaning that they cannot predict incidence, but can build preparedness and resilience

60
Q

Name of a model specialising in projecting extreme weather risk

A

ClimatePREDICT

61
Q

Transition Risk typically means starting with…

A

Global reference scenarios and emissions trajectories, but also requires sector-specific pathway and firm specific information

62
Q

Physical risk scenario analysis mainly looks at what type of risk?

A

Operational Risk

63
Q

In May 2021, what vote took place?

A

Investor Campaign (Engine 1) voted to replace two independent directors on the board of Exxon-Mobil

64
Q

Example of scenario analysis and Citi

A

Carried out scenario analysis exercise on extreme weather events on two large employee centres (Florida & New York) due to strategic importance

1/25 Tropical storm - some damage

1/100 Hurricane - facilities left inoperable

1/1000 Hurricane & Storm simultaneously impacts both offices

65
Q

What was Citi’s conclusion?

A

Citi concluded there would not be material impact to operational resilience

66
Q

What is ‘ex ante investment integration’?

A

Integration as part of the toolkit portfolio managers can use to preempt undue exposure or serve as early indication

67
Q

Climate scenarios - HSBC Transition Risk, explain:

A

HSBC stress tested x6 sectors exposed to high transition risk, using NGFS scenarios
Sectors: automotive ; construction ; chemicals ; metals ; oil & gas ; utilities

68
Q

HSBC Transition Stress Test -

What was the stress to the automotive sector?

A

Automotive sector - transition to EV’s, high EV adoption expected

69
Q

HSBC Scenario Analysis

Chemicals - what was the stress?

A

Carbon pricing impacts chemicals sector, but demand continues to increase as a result of continued economic expansion

70
Q

What did Legal & General co-found in terms of frameworks?

What did the framework intend to do?

A

Co-founded Destination@Risk

Intended to quantify physical and transition risks within the portfolio using proprietary scenarios
Degree of aligning to Paris goals
Integrate into ‘Climate Dashboard’

GARP SCR (7 decks)

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