IPCC Options on the menu: Climate disaster or $500bn of low-carbon investment opportunities p.a. Hmmmm.

The Intergovernmental Panel on Climate Change (IPCC) issued a new report a few days ago, the summary of its full 5th report. It's a tough one.

Now, the first thing you need to remember is that the IPCC reports have to be agreed by participating governments. That means that members appointed by the governments of the likes of Saudi Arabia, Canada and Australia (governments renowned for their climate change-denying leaders)have to agree to it - so the papers from the 2000 participating scientists that the government reps were reviewing were much, much tougher than the official report suggests.

That said, the official IPCC report is tough enough to us. Even more than previous IPCC reports, it says that we're facing a massive challenge to avoid catastrophic climate change: action has to now be rapid and large-scale.

Bill McKibben had a nice description of the report:

This week, with the release of their new synthesis report, they are trying the words “severe, widespread, and irreversible” to describe the effects of climate change – which for scientists, conservative by nature, falls just short of announcing that climate change will produce a zombie apocalypse plus random beheadings plus Ebola.

The report is full of statistics that describe a dramatically different world if we don’t step up our game on climate mitigation. For example:

  • A 35%-85% decrease in glacier volume, excluding melting ice sheets in Antarctica and Greenland. Yes, that means up to 85% of mountain glaciers disappear, for example those glaciers at the headwaters of the Ganges and Indus Rivers.
  • Sea level rises of 0.45-0.82 meters (1.5 to 2.7 feet)by 2081-2100 – and remember, this is the toned down, official estimate.

Scientific findings too recent to be included in the IPCC report actually suggest that ice is melting at a faster pace than scientists previously expected: a study this year found that a part of the West Antarctic Ice Sheet is in the process of irreversible collapse, which alone would lead to sea level rise globally of around 1.2 meters. Bye, bye to big chunks of the world’s low-elevation coastal zones – while they only account for 2% of the world’s land, they contain two-thirds of large cities and 600 million people.

Oh, and as we can also expect more intense storms, this means that storm surges are higher, so factor in lots of coastal flooding on top of that sea level rise.

Doesn’t sound too promising, does it? But wait, we haven’t gotten to the most dramatic bits yet. The IPCC reports that the risks of big changes like ice shelf collapses becomes “high” beyond 3 degrees Celcius warming. The International Energy Agency says we are tracking beautifully towards 4-6 degrees Celcius warming (7-11 degrees Fahrenheit). Uh oh.

And then there are tipping points. Climate change tipping points are where a certain amount of warming triggers big emission releases, which then again trigger further warming, creating a vicious circle. A key tipping point we are currently heading for comes from a decline in Arctic permafrost - as it thaws it releases huge amounts of methane, a very potent greenhouse gas. The IPCC says that our current emissions trajectory is expected to lead to an 81% decline in upper-level permafrost; methane bubbles have already started popping - check out the chilling report from the Arctic Sea and a bizarre one from Siberia.

We should remember that all these are risks, not predictions. But high probability risks need to be addressed.

Compared to previous reports, there is one important change in IPCC language that policy makers, and investors, should really take note of: the recommendations are not about emissions cuts anymore; they're about making it to zero emissions, because we need to have an absolute limit on cumulative global emissions. This means it’s not enough to have cuts in fossil fuel use: without carbon capture and storage this means a complete fossil fuel phase out, with the majority of this occurring in the next 35 years.

The statistics of what's required can make gloomy reading, but we don’t think a zero emissions scenario should be read as gloomy – in fact, quite the opposite.

Phasing out fossil fuels is not just about the cost of writing off some investments, it’s about different investment opportunities: the IPCC estimates that annual investment in low-carbon electricity will increase by US$147bn and investment for energy efficiency in transport, industry and buildings by US$336bn compared to a business-as-usual scenario for the time period 2010-2029. Zero emissions do not imply zero growth.

What we need to fund is essentially a shift to green (climate-smart) infrastructure. The good news here is that infrastructure investment is nothing new, and the wide range of tools already developed for this purpose are perfectly suitable when the infrastructure in question happens to be green. While the massive scale and speed of change required is unprecedented, the tools and instruments are well-known and well-proven; from regulation to floor pricing and partial guarantees. All policy makers need to do is pull them out of the bottom drawer and put them to work for the climate.

Oh, and by the way, green bonds are an ideal financial instrument for green infrastructure.