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Indicators on economic risk from global climate change
Wolf D Grossmann1, Karl Steininger, Iris Grossmann
1Wegener Center for Global and Climate Change and Department of Economics, University of Graz, Leechgasse 25, A-8010 Austria.
Environmental Science & Technology
|September 15, 2009
Summary
Climate change mitigation demands significant greenhouse gas (GHG) emission reductions. New indicators reveal high financial risks for long-lived, carbon-intensive investments like coal power plants under various emission targets.
Area of Science:
- Environmental science
- Climate change economics
- Energy policy
Background:
- Global greenhouse gas (GHG) emissions require drastic reduction from 8.4 GtC/year to ~1 GtC/year by 2100 for climate change mitigation.
- Long-lived investments (e.g., coal power plants, buildings) face significant risks from emission reduction policies.
Purpose of the Study:
- To develop and present simple indicators for assessing investment risks related to climate change mitigation targets.
- To support strategic decision-making for major, long-lifetime investments under evolving emissions regulations.
Main Methods:
- Development of indicators to measure national progress towards emission targets.
- Assessment of risks for long-lived investments under various cap-and-trade scenarios.
- Comparative case study of coal-fired power plants versus photovoltaic power plants.
Main Results:
- Indicators quantify the risk of costly retrofitting or premature shutdown for carbon-intensive assets.
- Analysis indicates a high emerging risk for existing and planned coal-fired power plants.
- New legislation further supports the identified high-risk assessment for coal power.
Conclusions:
- The developed indicators effectively assess climate-related financial risks for long-lived investments.
- Strategic investment decisions require consideration of future carbon allowance prices and emission targets.
- The transition to renewable energy sources like photovoltaics presents lower risk compared to coal power.
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