Plausible policy pathways to Paris

Lead Research Organisation: Open University
Department Name: Faculty of Sci, Tech, Eng & Maths (STEM)

Abstract

The Paris agreement commits nations to pursuing efforts to limit the global temperature rise to 1.5 degrees. This represents a level of transformation of the socio-economic and energy systems that substantially exceeds the scenarios that have been found using conventional integrated assessment models (IAMs). Such models generally ignore economic disequilibrium effects such as unemployment, which could become important under conditions of radical economic transformation, and neglect key dynamic processes that control the rate of uptake of new technologies. Rapid reductions in greenhouse gas emissions also potentially violate the simple scaling assumptions used to derive environmental impacts in IAMs because of the slow response of some parts of the climate system such as the ocean, as compared to the land. We plan to develop a set of more realistic dynamic pathways to reach the 1.5 degree target using a new, fully dynamic IAM that does not rely on equilibrium or pattern scaling assumptions. The assessment will identify policy options and the degree of negative emissions required and will quantify the resulting spatial patterns of climate change and the associated uncertainty resulting from incomplete knowledge of climate, carbon-cycle and socio-economic parameters.

Planned Impact

The princial beneficiaries of the proposed research are public-sector policymakers involved with the formulation of national and international-level environmental policy in all areas with that impact the possibility of meeting the high-ambition Paris goals. This involves policy formulation in all high-emission sectors, most notably the energy sector, but also transport, construction and agriculture sectors amongst others.

The most important UK actors in this category include the Committee on Climate Change (CCC), currently in the process of producing a report on the Paris targets, and the former Department of Energy and Climate Change, now part of the newly created Department of Business, Energy and Industrial Strategy. But a range of other departments are implicated.

Public policymakers will benefit from the research in developing the capacity to make better informed decisions on which combinations of policies might be effective in achieving the Paris goals and to what extent radical approaches are needed in such areas as incentivisation of energy efficiency gains and alternative consumptions patterns, early retiring of fossil-intensive energy and transport infrastructure and the development and deployment of low-emissions and negative emissions technologies.

Private sector organisations, most particularly energy and transportation companies, but also any large companies with substantial energy use and large carbon footprints, as well as large companies and SMEs developing new energy technologies also have a large stake in the specific composition of policy frameworks to incentivise high-ambition climate goals. For instance, the implications of changes in the balance of tax, subsidy and regulatory regimes can easily have existential implications for renewables and energy industry firms.

Such organisations might benefit from understanding the most plausible composition of baskets of policies designed to meet high-ambition climate goals, by making appropriate investment and research and development choices to position themselves for possible changes in policy.

Financial investors with with signficant exposure to fossil fuel investments, or indeed any climate-sensitive industry stocks, that could be impacted either negatively or positively by sustantial changes in mitigation policy frameworks, could benefit from an appreciation of plausible changes in policy. This is most important where there is a potential for so-called stranded assets, such as fossil resources or infrastructure, that become effectively unusable in high-mitigation scenarios.

Such investors might benefit from the ability to make better informed choices of investment strategy and investment pricing or development of hedging strategies.

Non-governmental organisations play an important intermediary role in promoting the interests of under-represented groups and concerns including the environment and social groups and nations most vulnerable to climate change.

Such organisations need to know which policy options are genuinely effective in achieving environmental targets and what the regional and societal distributional effects of such policies are so that their actions and activism can be correctly targeted.

Ultimately, however, it is the general public who stand to benefit from more efficient and effective policymaking through more environmentally and societally desirable outcomes.

Publications

10 25 50
 
Description The research has identified specific combinations of policies that could allow the attainment of stringent climate-change mitigation goals, the impacts of the policies on the economy, and the effects of non-implementation or late implementation of groups of policies by different groups of countries. This finding remains the subject of further investigation.

A second key finding relates to the concept of climate-related 'transition risks' that originate through changes to regulatory and policy structures, and ongoing energy-related technological change, affecting the value or viability of existing assets and businesses. A key example is the devaluation, or 'stranding', of fossil-fuel assets caused by a reduction in the consumption of fossil fuels. In spite of the profound risks to the global economy posed by the energy transition and the stranding of fossil-fuel assets, very little academic work had addressed the issue prior to our high-profile paper (Mercure et al. 2018), in Nature Climate Change. The primary reason for this critical gap in knowledge is that the current generation of integrated assessment models is built on assumptions of 'rational expectations' (effectively perfect foresight) and optimal use of capital resources. The issue of stranded fossil fuel assets (SFFA) arises precisely because real-world investors do not have perfect foresight. Importantly, our model assumes that lending and investment decisions are based on a more realistic picture of the restricted past and current knowledge available to investors, and econometric representation of the investment process itself. With this more realistic modelling framework, we were able to quantify the potential impact of SFFA on the real global economy, which had not been done before. Secondly, we showed that the impacts on the real economy vary profoundly between countries, with major losses in exporting countries such as the USA and Russia and gains for net importers such as the EU and China. Thirdly, we showed that the impacts do not rely solely on the successful implementation of additional climate policy measures as they are partly 'programmed in' by the already-established momentum of the energy technology transition.
Exploitation Route The award was specifically intended to feed into a special report commissioned by UNFCCC from the Intergovernmental Panel on Climate Change on 1.5 degree scenarios.

The research results on transition risks have led to an active collaboration with the consultancy ORTEC Finance, who are using the results to create a new investment analysis product that is being marketed to and used by investors to analyse the resilience of their portfolios to climate-related transition risks.

The results are also being taken forward by an expanded group including the participants in the original project in a new UKRI-funded research project specifically focused on transition risks: Financial risk and the impact of climate change (FRANTIC).
Sectors Energy,Environment,Government, Democracy and Justice,Transport

URL https://www.camecon.com/blog/end-energy-know-stranded-assets-creative-destruction/
 
Description The research has involved consultation with policy stakeholders in government who are already being appraised of the results in 2018 concerning, in particular, policy measures that could affect the possibility of achieving the targets set in the Paris Agreement on climate change. Our research on transition risks as reported in Mercure et al (2018), Nature Climate Change, and the related societal resilience (see Key Findings), has received substantial coverage in UK media and abroad. It has been taken up by politicians, journalists and investment consultants (see Key Findings) and has been widely cited in the IPCC Special Report on 1.5 degree warming scenarios (SR15).
First Year Of Impact 2018
Sector Environment,Government, Democracy and Justice
Impact Types Policy & public services

 
Description Financial risk and the impact of climate change
Amount £226,001 (GBP)
Funding ID NE/S017119/1 
Organisation Natural Environment Research Council 
Sector Public
Country United Kingdom
Start 02/2019 
End 01/2020
 
Title FTT:Heat 
Description FTT:Heat is a model for future technology transformation (FTT) in the domestic heating sector. It is a novel, agent-level model from the FTT family of models, which describe the dynamic diffusion of innovations in particular economic sectors in a high level of regional and sectoral detail, specifically designed to be coupled to the detailed, multi-region, multi-sectoral, post-Keynesian environment-energy-economy model E3ME. 
Type Of Material Computer model/algorithm 
Year Produced 2017 
Provided To Others? No  
Impact Detailed policy scenarios relevant to meeting the Paris Agreement on climate change have been studied and elaborated, written up for publication and submitted to high-impact journals for input to the IPCC special report on 1.5C scenarios, which is being very closely followed by environmental policy makers worldwide. 
 
Title PLASIM-GENIE 
Description A new version of the Earth system model (ESM) PLASIM-GENIE has been developed by coupling the terrestrial and marine carbon cycle from the GENIE ESM into the existing PLASIM-GENIE model. The new model, although substantially more complete and complex, has been accelerated in computational speed by an order of magnitude through asynchronous coupling between the different system components. 
Type Of Material Computer model/algorithm 
Year Produced 2016 
Provided To Others? Yes  
Impact The model has been used to develop and test policy portfolios relevant to the Paris Agreement which are being written up and published as input to the IPCC special report on 1.5C scenarios. This will have important implications for environmental policy making in future. 
URL https://doi.org/10.5194/gmd-9-3347-2016
 
Description OU - Radboud - CE 
Organisation Radboud University Nijmegen
Country Netherlands 
Sector Academic/University 
PI Contribution During this project, in 2016-2017, the OU has developed climate modelling software specifically designed to be integrated with economic projection and analysis software developed by Radboud and the SME CE who are subcontractors on the award
Collaborator Contribution During this project, in 2016-2017, the Radboud team have developed a suite of models for analysing technology diffusion in different sectors for the purpose of modelling the macroeconomics of transformations to sustainability, these have been coupled to the environment and macroeconomic modelling tools to analyse policies for achieving the Paris climate agreement targets
Impact Outcomes from this collaboration during this project include new modelling tools in the future technology transformations (FTT) suite, namely FTT:heat. A number of articles currently in review. Follow on funding applications also in review. This is a strongly multi-disciplinary collaborations linking environmental, economic and social sciences.
Start Year 2013
 
Description 1.5C SH consulatation 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Policymakers/politicians
Results and Impact A consultation with a group of 5-10 key policy SH organisations ws help to provide input to policy modelling activities. SH were asked to identify parameter of interest to help design scenarios to explore in relation to modelling policies designed to meet the goals of the Paris Agreement on climate change.
Year(s) Of Engagement Activity 2017,2018