Climate Risk Flashcards
Climate Risk results from
An interaction of hazards or driving factors with exposure and vulnerability
Stranded assets have suffered from…
Premature / unanticipated write-offs due to climate factors
Whilst broader climate / net zero discussions are driven through the UNFCCC, climate risk analysis is usually driven by…
Financial regulators and private sector institutions
When was TCFD formed and under whom
2015 under the aegis of the G20 Financial Stability Board
Understanding climate risks does not require certainty from a climate model, but does need…
A focus on understanding how physical climate hazards or drivers of economic low carbon transition affects firms and financial outcomes
TCFD Framework & Recommendations - final report issued ___?
2017
Categories of Risk TCFD breaks down into…
Physical - acute & chronic
Transition - market ; technology ; reputational ; policy & legal
Key TCFD parameters include:
- Metrics & Targets
- Risk Management
- Strategy
- Governance
What are the key features of the TCFD recommendations? They are intended to be…
- adaptable by all organisations
- included in financial filings
- designed to be decision-useful, forward looking
- strongly focused on risks & opportunities
Vulnerability refers to notions of…
Resilience
Flexibility
Adaptation
Vulnerability at facility level links to - - -
Vulnerability at corporate level links to - - -
Facility level refers to physical infrastructure
Corporate levels refers to lack of preparation for such issues
Stranded assets & unburnable carbon - what is the link
Unburnable carbon is FF reserves that cannot be fully exploited if 2*c goal is to be met. The FF reserves are stranded assets
Stranded assets are largely concentrated within the
High emitting sectors - primarily energy and industrial sectors
Provide examples of how physical risks can result in stranded assets
Lack of availability of fresh water
Disruption to supply chains
Sea level rise / coastal flooding
Current policies put the globe on for what *C of warming
3*c
Even with an average warming of 1.5*c compared to pre-industrial times…what will this mean for areas of the globe
Impacts will still be severe
Arctic winters will be on average 4.5*c warmer
More Med droughts
Comment on the ability of models to predict hazards
Give an example
Wide range in ability to predict the magnitude and freq. of specific hazards, or their specific locations
All models agree that precipitation patterns will change - they disagree on magnitude (& decrease or increase)
How does the IPCC show model agreement
Cross hatching to indicate where 2/3 of models agree
What type of accuracy do IPCC models provide?
Looks several decades ahead and provides fairly robust estimates for 2100
Limited information on next 1/2 decades and limited on smaller geographical scales
Climate hazards require information on the interaction between climate events & _____
Therefore models must include ____
Local conditions
Land cover and human land use patterns
For acute physical risks, why do we not need to rely exclusively on models?
Increased incidence is already visible in natural catastrophe data from past several decades
Extreme hazard attribution science - provide three examples
Australian wildfires of 2019-20 made at least 30% more likely by CC
2019 Heatwaves in France unlikely to have occurred without CC
2020 Siberian Heatwave (40*c) almost impossible without CC
Physical risks only occur when there is
Exposure and vulnerability
Indirect risks include…
Supply Chain
Litigation
Systemic
Provide an example of litigation risk in action where a firm has been sued for not adequately preparing for physical risks?
Conservation Law Foundation vs Shell
Claimed it had failed to prepare its terminals for sea level rises
Give an example of systemic risk and labour
What is the opinion of the ILO
Effects of heat stress on worker productivity
ILO estimates that by 2030 the share of total working hours lost will be 2.2%
= 80million full time jobs
= USD2.4trillion in purchasing power
As a proportion of global emissions, what % do the following sectors produce:
- Electricity & Heat Production
- Agricultural
- Industries
- Transportation
- Electricity 25%
- Agriculture 24%
- Industries 21%
- Transportation 14%
Most models and scenarios for reaching 1.5*c assume very large
Amounts of net negative global emissions
To achieve large amounts of net negative global emissions we need quick roll out of …
What are these highly dependent upon
Technologies and practices such as DAC (direct air capture) or BECCS
Highly dependent upon centralised policy options - i.e. imposing carbon tax or carbon price
What are the most common policy options for achieving net zero
Carbon taxes or cap and trade schemes
Provide an example of Government mandated closures
Biden cancelled Keystone XL pipeline permit
Germany passed a law mandating closure of all coal fire plants by 2038
Legal risk comes in 2 strands - explain both
- Activist and advocacy organisations - suits against carbon intensive projects
- Nascent efforts to pin legal liability on firms for their contribution to physical impacts of climate change
Example of activist and advocacy organisations litigation
ClientEarth vs Enea
claimed they had failed to consider transition risk of their coal plants
Provide an example of litigation to pin liability on firms for their contribution to physical climate change
Peruvian Farmer vs RWE
Melting of glaciers causing increased flooding
How is technology a transition risk?
Transition risk for older assets reliant on outdated technology
What % has PV declined in price since 1970s
99.65%
With each doubling in installed capacity, solar modules have dropped in price by __?
This is referred to as the ____
Dropped by 20%
‘Learning Rate’
Batteries are on steep learning curves.
When are EVs likely to hit price parity with ICE vehicles?
Once battery prices reach USD100/kWh c.2023
Example of firms having to cut value of assets (Market Risk)
BP and Shell both cutting asset values by c.$20bn in 2020
Name.a mechanism through which transition risk impacts markets
Volatility in low carbon commodities - ie lithium
What % of retail spaces and offices in Europe are exposed to floods / sea level rise?
19% of retail spaces
16% of offices
___ found that US properties exposed to floods / sea level rise sell for ___ less on average than unexposed properties with similar characteristics?
Bernstein (2019)
7% less
Bernstein found that properties exposed at 1ft of flooding saw what % discount?
Properties at 3ft of flooding saw what % of discount?
1ft - 14.7%
3ft - 4.4%
_____ identified that local lenders pass on proportionally ___ SLR risk to secondary markets than whom?
What does this indicate?
Keenan & Bradt (2020
Local lenders pass on more risk to secondary markets than large national banks
Local lenders therefore have better access to local soft info on SLR
Who proved that catastrophes prompt originators in US to increase the share of Mortgages just below the conforming limits of mortgages eligible for securitisation?
What does this mean for markets?
Ouazad and Kahn
Passing SLR Risk on to wider markets
When will BTL E> come into effect for existing leases?
2023
Coal power generation will be impacted by technology transition risk via…
Cost competition from renewables
What is LCOE
Levelised cost of electricity
What is the situation of solar in China?
Cost of new build solar now very close to cost of running existing coal fired power plants (38 MWh to 35$ per MWh)
Wind and solar are now the cheapest forms of electricity for what % of the world’s population
2/3
Example of company losing their social license to operate following physical risk disaster
PG&E in California - poorly maintained equipment and wildfires, 85 deaths.
Forest fire area doubled in Cali since 1980s due to CC.
What happened to electricity in Texas and how was it interrupted by physical risk
Extreme cold spell (jet stream deviation) froze energy generation infrastructure
