For climate policies to stay on track we must prepare for transition risks

(Credit: Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Aengus Collins, Deputy Director and Head of Policy, EPFL International Risk Governance Center & Rainer Sachs, Founder, Sachs Institute

  • 2021 could be a pivotal year for climate policy as a growing number of countries and companies increase their environmental ambitions.
  • Ahead of COP26 policymakers must prepare for “transition risks” that increasingly bold climate policies are likely to trigger.
  • Policies are starting to be adopted but a more holistic and proactive approach is needed to avoid small risks becoming significant barriers to change.

The world is well behind target on its climate change goals, but there are growing signs of accelerating action. More and more countries are committing to carbon neutrality in two or three decades. Oil and gas companies are under increasing pressure from investors and activists to do more. COP26 in Glasgow later this year offers the prospect of renewed momentum.

These are all welcome steps, but more climate action is urgently needed. Progress on decarbonization has been so slow until now that it will be necessary to make dramatic moves. But this pace of change increases the likelihood of unforeseen disruptions. Policymakers must therefore prepare for the “transition risks” that increasingly ambitious climate policies are likely to trigger.

Transition risks are a classic example of a risk-risk trade off, where the measures introduced to mitigate one risk become the source of additional risks. In the case of decarbonization, these secondary risks are small compared to the huge benefits of mitigating climate change.

However, if not addressed in time, they could still slow or derail crucial policies, as happened with the gilets jaunesprotests in France – anger at hikes in fuel tax turned into violent clashes against President Macron’s government, who insisted the measure was designed to reduce reliance on fossil fuels. The dynamic and interconnected nature of the transition means tiny initial risks can quickly grow into significant barriers.

What’s the World Economic Forum doing about climate change?

Climate change poses an urgent threat demanding decisive action. Communities around the world are already experiencing increased climate impacts, from droughts to floods to rising seas. The World Economic Forum’s Global Risks Report continues to rank these environmental threats at the top of the list.

To limit global temperature rise to well below 2°C and as close as possible to 1.5°C above pre-industrial levels, it is essential that businesses, policy-makers, and civil society advance comprehensive near- and long-term climate actions in line with the goals of the Paris Agreement on climate change.Global warming can be beaten thanks to this simple plan

The World Economic Forum’s Climate Initiative supports the scaling and acceleration of global climate action through public and private-sector collaboration. The Initiative works across several workstreams to develop and implement inclusive and ambitious solutions.

This includes the Alliance of CEO Climate Leaders, a global network of business leaders from various industries developing cost-effective solutions to transitioning to a low-carbon, climate-resilient economy. CEOs use their position and influence with policy-makers and corporate partners to accelerate the transition and realize the economic benefits of delivering a safer climate.

Contact us to get involved.

Much of the initial focus on transition risks has been in the financial sector, largely due to the work of the Taskforce on Climate Related Disclosures. But decarbonization is going to reach into every facet of life and so are the associated risks. To address these risks, EPFL’s International Risk Governance Center (IRGC) – part of the Swiss research institute and university École Polytechnique Fédérale de Lausanne – brought together a group of international experts for a workshop last year. The resulting policy brief highlights eight key transition risk categories: economic, financial, societal, environmental, technological, energy-related, geopolitical and corporate. Distributional factors figure prominently: there will be winners and losers in the low-carbon transition, both within and between countries.

Some of these transition risks have already begun to crystallize. In addition to the gilets jaunes, there have been protests in Ecuador over the withdrawal of fossil-fuel subsidies pushing up petrol prices. Australia has moved slowly on the transition and now has to scramble to respond to slumping demand for its coal exports. The race for control of clean energy technologies is starting to affect the global balance of power, with China leading on many fronts.

Image: EPFL International Risk Governance Center.

What can be done?

Policies are already being but in place. For example, the Task Force on Climate-related Financial Disclosures regime is gaining momentum, and looks set to be put on a statutory basis in some countries. In the EU, the ambitious Green Deal is accompanied by the Just Transition Mechanism, which is designed to support those regions and communities that are going to be worst affected by the winding down of old energy sectors.

But beyond case-by-case responses to individual transition risks, a wider systems perspective on transition risks is needed. Without that, the complexity of the transition will be missed and policy responses will be hampered. Complex interconnections between the different risk categories can lead to systemic risks, but they can also lead to opportunities. Embracing this complexity can help support the transition, for example by identifying “catalysing policies” that act on key leverage points and can unlock rapid progress, as happened with solar feed-in tariffs in Germany.

Interestingly, central banks are already calling for greater policy attention for complexity dynamics in this area. The Green Swan report, published by the Bank for International Settlements (BIS) and the Banque de France, calls for methodological experimentation to help capture the effect on the financial system of societal, geopolitical and other risks that are not easily quantified.

Other recommendations in the IRGC report include the need for regional and sectoral transition risk maps to reveal where vulnerabilities lie, and for institutional capacity building to ensure that governments and organizations are equipped to respond. The report also cautions that contingency planning is needed, in case preparations fail and transition-related crises erupt.

Getting the world to focus on climate change is a huge challenge. The history of climate policy is littered with false starts and missed opportunities. But there is a window of opportunity now, with signs of new momentum and consensus ahead of COP26 in November. Bold moves are needed, which may lead to some disruption. Being proactive about this disruption must be an integral part of the world’s climate change strategy. Now is the time to identify, assess and manage transition risks.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Public Health: EU Tobacco Products Directive is delivering but stronger action is needed

UN chief welcomes new Government in Lebanon, after eight-month impasse

Island nations on climate crisis frontline ‘not sitting idly by’

ECB bets billions on Eurozone’s economic recovery

Is there a cure for corruption in Greece?

Saudi Arabia expresses ‘regret and pain’ over Khashoggi killing, during UN rights review

This surgeon runs a makeshift hospital for over 200,000 people

As the year closes out, UN political chief talks the art of diplomacy – and crises to watch in 2019.

Humanitarian crisis in Yemen remains the worst in the world, warns UN

Amid troop build-up in Rohingya’s home state, UN appeals to Myanmar for peaceful solution

UN urges ‘maximum restraint’ as Israel-Hamas tensions rise over rocket attack

“Let hope be the antidote to fear” – Today’s WHO briefing and other key Coronavirus updates, tips and tools

UN Human Rights chief urges Venezuela to halt grave rights violations

Is continuous sanctioning the way to resolve the Ukrainian crisis?

How Africa’s women can drive the 4IR forward

E-cigars: Improbable ally or enemy in disguise?

Who’s promised net-zero, and who looks likely to get there?

This is how drones and other ‘tradetech’ are transforming international trade

This is what’s happening to the Amazon, according to NASA

Judges urge Security Council to serve interests of all UN Member States

The Swiss will pay dearly for voting out fellow Europeans

Tragedy of Mediterranean deaths continues, as seven drown, 57 rescued: UN migration agency

Palliative care and Universal Health Coverage: Do not leave those suffering behind

The price of centralization of human resources for health

‘Climate change is the battle of my life’, UN chief tells students living on the frontline in Fiji

Perspective on the policy of disinformation in the face of the COVID-19 pandemic

State aid: Commission approves €380 million German rescue aid to Condor

UN experts urge Turkey to repatriate Irish woman associated with terror group

Urban Waste Water: Commission decides to refer HUNGARY to the Court of Justice over waste water treatment

Innovations in reusable packaging need a playbook. Here’s why

Palliative care and Universal Health Coverage: how to advocate for the inclusion of palliative care in UHC

Is Universal Health Coverage really available for all in the European Union?

COP21 Breaking News_08 December: Global Business Community Comes to Paris with Solutions for Taking On the Climate Challenge Across the Board

Why leaders need to upgrade their operating systems

A new catastrophic phase in the Syrian carnage

Cyclone Idai: emergency getting ‘bigger by the hour’, warns UN food agency

Eurozone closer to a deflation – stagnation trap

As rural communities age, their public transport is shrinking. It’s time to fix this

G7: A serious setback hardly avoided in iconic Biarritz

Remarks by Ambassador Zhang Ming at a Virtual Event Marking the 100th Anniversary of the Founding of the Communist Party of China

UNESCO food and culture forum dishes up fresh serving of SDGs

How many more financial crises in the West can the world stand?

Trump to subject the Fed, challenge the ECB and make Wall St. bankers even richer

The costs of corruption: values, economic development under assault, trillions lost, says Guterres

The ASEAN Community sees the light: the genesis of a new powerful economic and political bloc and EU’s big opportunity

G20 LIVE: the EU trade gold rush continues as EU and Australia agree to launch Free Trade Agreement (FTA) live from Antalya Turkey

‘Free state aid’ for imprudent banks

Parliament boosts consumer rights online and offline

How telehealth can get healthcare to more people

Monday’s Daily Brief: ‘Horror’ at Notre Dame fire disaster, Yemen still bleeding, measles now ‘global crisis’

Smoking VS Vaping: is it a battle?

EU-Turkey relations: Will Turkey manage to revive the EU accession process talks?

Human rights defenders, too often left defenceless themselves – UN expert

Why we need to rethink geo-economics to beat climate change

European Citizens’ Initiative: Commission registers ‘Stop Finning – Stop the trade’ initiative

These Harvard scientists think we’ll have to socially distance until 2022

Vaccine against Ebola: Commission grants first-ever market authorisation

All sides in Yemen conflict could be guilty of war crimes, UN experts find

How has tech been used for good in civil society? We asked the experts

Financing economic recovery, written by United Nations Under-Secretary-General

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s