Citi Puts $44 Trillion Price Tag on Climate Change Inaction
Ongoing reliance on fossil fuels to the degree and extent we rely on them today will cost the world economy and global society trillions of dollars by mid-century. This forecast comes from none other than Citi, one of the world's largest multinational banks and financial services groups.
In an August 2015 Citi GPS report entitled,¨Energy Darwinism II: Why a Low Carbon Future Doesn't Have to Cost the Earth,¨ Citi's Alternative Energy and Cleantech Research Group forecasts that investing in low-carbon energy would result in global economy savings of $1.8 trillion by 2040. Moreover, the cost of inaction – pursuing a ¨business as usual¨ path when it comes to energy sources and use – by 2060 would add an additional $44 trillion to the bill. That huge additional cost would be due mainly to the effects of rapid climate change.
¨We are not climate scientists, nor are we trying to take sides in the global warming debate, rather we are trying to take an objective look at the economics of the discussion, to assess the incremental costs and impacts of mitigating the effects of emissions, to see if there is a 'solution' which offers global opportunities without penalizing global growth, whether we can afford it (or indeed we can afford not to), and how we could make it happen,¨ the report authors explain.
Cost-effective climate change ¨solution¨ exists
The Citi report authors concluded that the incremental costs of carrying out clean energy projects of sufficient scope and scale to avoid a climate change tipping point, e.g. deployment of solar, wind, geothermal, offshore, marine and other low- or zero-emissions technology, are limited and would ultimately result in savings. Furthermore, they point out that investing in low-carbon energy to such a degree offers attractive rates of investment return and could wind up boosting the global economy.
“We believe that the solution does exist,” Citi's alternative energy and cleantech researchers wrote. “The incremental costs of following a low-carbon path are in context limited and seem affordable, the ‘return’ on that investment is acceptable and moreover the likely avoided liabilities are enormous. Given that all things being equal cleaner air has to be preferable to pollution, a very strong ‘Why would you not?’ argument begins to develop.”
Citi's research team factored so-called ¨stranded assets¨ into the models they used to generate two scenarios for the global economy. They analyzed and based their conclusions on the results of running the models with varying inputs for each scenario and ran computer simulations in order to assess a broad range of possible outcomes.
Stranded assets refers to the percentages of global reserves of oil (one-third), natural gas (half) and coal (more than 80 percent) that we need to leave in the ground in order to avoid global mean temperature from rising 2ºC, a climate change tipping point beyond which the world's leading climate scientists say Earth's climate system could not recover.
Conditions ripe for global low-carbon energy transition
Citi's report authors believe that conditions are ripe for a coordinated global and persistent drive to curtail production and use of fossil fuels and invest in low-carbon energy alternatives. Upcoming UN climate talks in Paris this December provide another opportunity and venue to enact a catalyst in the form of an ambitious climate treaty with real "teeth" that can make this a reality, they add.
¨With the global economy improving post-crisis, interest rates low, the large emitters coming to the table, investment capital keen, and public opinion broadly supportive, Paris offers a generational opportunity; one that we believe should be firmly grasped with both hands.¨
Opening the report, the authors cite Thomas Edison's prescient remarks regarding our energy sources: “We are like tenant farmers chopping down the fence around our house for fuel when we should be using nature’s inexhaustible sources of energy - sun, wind and tide. I’d put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait until oil and coal run out before we tackle that.”
Whether or not we will heed and be able to realize Edison and many others' vision of a global society powered by clean, renewable energy resources remains very much in doubt. In fact, ongoing growth in greenhouse gas (GHG) emissions is leaving us ¨behind the 8-ball.¨
Unless effective, stringent constraints are imposed on the runaway train that is the fossil fuel industry and profound changes in power, transportation, agriculture, industry, commerce and consumerism take place fast we will be forced to swallow the costs – in terms of human lives, ecosystems destruction and degradation as well as their economic derivatives – and struggle to adapt as best we can to a much changed, less friendly and less accommodating natural and human-made environment.
*Image credits: 1) Citi; 2) OECD