Kapitel 2

disconncetion between climate economics and macroeconomic policy

now, they are connected

OECD, central banks, IMF adressing now decarbonization

IAM: integrated assessment models

direkt:

• heißer

• teure Energie

• weniger Land, deshakb teurer

• extreme Wetter events

• demand & supply gets shifted

• decline in the supply potential of the economy

1. physical and transition risks affect macroeconomy and the prospect for inflation

2. climate changhe can affect monetary policy indirectly because the expectations on future economic outcomes from firms and housholds change if the wether changes

agriculture

• change in crop yields, less in sothern europe, more in northern europe

energy

• cooling an heating gets more expensive

transportation

• less cold days, less water in Rhine River, therefore no transportation possible

health

• more expensive due to extreme weather events

tourism

• less in Südeuopa, mehr in Nordeuropa

Net zero (with reference to net zero commitment) means reducing all greenhouse gas emissions as much as humanly possible, and offsetting only the essential emissions that remain. Net zero GHG emissions is designed to keep us on track for a global temperature rise of less than 1.5°C - compared with pre industrial levels. In other words, net zero emissions will be achieved when human activity no longer causes global warming.

The term carbon neutral refers to an activity or a company which offsets the same amount of carbon or greenhouse gases that they emit. Carbon neutral means that emissions produced and offset are equivalent. On its own, it won’t keep the world under the 1.5°C target, set by the 2015 Paris Agreement.

What does Net Zero mean, and how is it different from Carbon Neutral?

Net Zero is a similar concept to Carbon Neutral, however it goes beyond just carbon and is typically on a larger scale. Net Zero refers to when all greenhouse gases being emitted into the atmosphere are equivalent to the greenhouse gases being removed from the atmosphere on a global scale. In other words, net zero emissions will be achieved when human activity no longer causes global warming.

Stranded assets are investments that are not able to meet a viable economic return and which are likely to see their economic life curtailed due to a combination of technology, regulatory and/or market changes.

In the context of upstream energy production, the International Energy Agency defines stranded assets as "those investments which are made but which, at some time prior to the end of their economic life (as assumed at the investment decision point), are no longer able to generate an economic return, as a result of changes in the market and regulatory environment.”

The new EU agenda changes the economic perspective. Immediate economic implications:

Equipment will lose economic value

Some plants will have to close

Employees will have to be reallocated to other occupations.

Investment will have to increase, to repair or rebuild the capital stock.

all new cars must be carbon neutral by 2035, whcih means that all the procudction must change

Consequence:

Investment in the design of new combustion engine models will stop without delay.

The corresponding stock of patents, skills, and equipment will lose value prematurely.

Instead of being replaced at the end of its economic life, equipment will be discarded.

Plants will close, especially those of specialized subcontractors.

An abrupt transition is bound to result in the accelerated obsolescence of the existing physical and human capital stock.

stranded assets can arise from policies put in place:

penalise carbon use

shifts in investor and consumer preferences

new technologies, that render older technologies obsolete

Stranded assets will affect financial markets and the banking sector:

Via the stranding of assets and the sudden re-pricing of climate-related financial risks,

With regards to the banking sector, the value of collateral may be reduced and credit losses may

materialise

Which could dent the capital and liquidity position of banks and other financial intermediaries, thereby weakening their ability to channel funds to the real economy.

If the financial system is weakened, the transmission of monetary policy may be impaired.

Climate-related events and risks are uncertain, and may be subject to non-linearities.

Physical risks have been categorised into acute and chronic events, and while some aspects of those risks can be predictable, there is increasing uncertainty as to the location, frequency and severity of these events.

For transition risks, there is uncertainty as to the future pathways that changes in policies, technology innovation and shifts in consumer sentiment contribute to shaping.

no historical experience

non-linearities

goegraphically diverse

hard to predict

variety of possible futures