fbpx

Creating A Low Carbon Economy Is Cheaper Than Climate Change Costs

Given the summer of wildfires, floods and extreme heat in Europe, the financial and human costs of climate change have become increasingly stark. The European Central Bank released a new report which reaffirms the stark consequences of inaction or delays on climate change.

Companies and banks in the eurozone risk financial instability and economic loss, according to the central bank, as it released the results of its first economy-wide climate stress test. The stress test is part of a major effort by policymakers to support the world’s transition to a net-zero carbon world.

More frequent and severe natural disasters could shrink the region’s economy by 10% by the end of the century. This is if no new climate change mitigation policies are introduced. By comparison, the cost of transition would only account for 2% of gross domestic product.

“The short-term costs of transition pale in comparison with the costs of unfettered climate change in the medium to long term,” the report published on Wednesday stated.

The European Central Bank utilised data collected from 1,600 banks and 2.3 million companies operating in the eurozone to analyse the impact of three outcomes on the economy.

The first sees an orderly transition which contains global warming to 1.5 degrees Celsius compared with the preindustrial era. The second is a “disorderly transition” in which countries delay action till 2030, causing them to make costly and abrupt changes to contain global warming to 2 degrees Celsius. The third is the hothouse world, which involves no further action to mitigate climate change, which would result in the costs from natural catastrophes being extremely high.

European Union nations have already agreed to lower their collective greenhouse gas emissions by 55% from 1990 levels by 2030, with a path of becoming carbon-neutral by 2050.

The European Central Bank has made climate change one of its major focuses, with an aim to influence financial regulation and monetary policy. However, it is still a hotly contested topic whether central banks should play an active role in tackling climate change through policies such as altering the composition of asset purchases to exclude oil companies.

In July, the European Central Bank justified incorporating climate change into its monetary policy framework by stating that  “climate change and the transition towards a more sustainable economy affect the outlook for price stability.”

Under the orderly transition path, eurozone companies would have less profitability, slightly more leverage and a higher risk of default over the next 4 or 5 years due to the costs of complying with green policies such as replacing technologies and carbon taxes. However, the benefits of the transition would kick in.

In comparison, the disorderly transition would cause a company’s profitability to drop more than 20% by 2050 and its probability of default could rise more than 2%. In the hothouse world where no climate action is taken, profitability would take a 40% hit and the probability of default would rise 6%.

Banks across the eurozone could have a similar exposure to the costs of transition, however, their exposure to physical risks can greatly vary, according to the report. In southern European nations such as Spain, Portugal and Greece, where the risk of extreme wildfires and heat waves are higher, climate change is a “major source of systemic risk”, the central bank was quoted saying.

As previously reported by The New York Times

Share this article on your social networks
Share on facebook
Share on twitter
Share on linkedin

Related Posts

Climate Impact Measurement and Disclosure Growing Quickly Among Businesses

Many of the world’s biggest organisations have begun to share information concerning their carbon footprint in a new move that embraces transparency as organisations are increasingly seeing value in measuring their impact.

Read More
Explosive research for Australian businesses: people are turning down high paying jobs for 1 surprising reason

employed by a company that did not do its part to address climate change.

Read More
Australia Ranks Last Out Of 60 Nations For Climate Crisis Response Policy

Australia’s government policy response to the climate crisis was ranked last in an assessment of 60 nations released at the current global climate summit in Glasgow

Read More
The Maldives have max 80 years left: President says

The Maldives is renowned for being a great holiday destination, when the country’s name is mentioned, it inspires thoughts of …

Read More
Paying.Green® launches Carbon Easy™ – Grow your business and be on the right side of history.

Carbon Easy™ is a global initiative helping businesses up to 250 people be climate smart and access best practice and affordable climate action and carbon offsetting through a convenient online service.

Read More
Collapsing Arctic Ground releases World’s largest carbon sink

Covering about 25% of the Northern Hemisphere, the frozen vault is defrosting due to rising temperatures, unprecedented heatwaves and extensive wildfires in Siberia and other far-northern regions. This is in turn rapidly transforming the Arctic carbon sink into a source of greenhouse gases.

Read More
Carbon Emissions From G20 Countries Increased Sharply In 2021

The new Climate Transparency Report shows that carbon emissions across the world are rebounding strongly with the world’s 20 richest nations responsible for the 2021 rise.

Read More
Climate Basics: CO2 Explained

Learn what CO2, or carbon dioxide, is and why it plays such big role is changing our atmosphere and climate.

Read More
Facebook Offers Cash For Help On Climate Misinformation

Facebook has decided to put serious money down on the misinformation front, virtually outsourcing the fix for climate misinformation on its apps.

Read More