The world is facing a blunt reality. We’re falling far behind where we need to be in terms of investing in decarbonization to prevent climate change. We are already experiencing a world that’s starting to undergo climate change. This forces the question: What’s ultimately going to happen over the next several decades as climate change gets worse?

The last few years have seen the Paris Agreement and many large, developed countries starting to adopt some very ambitious targets by committing to eliminate their greenhouse gas emissions by 2050. But despite all this, we continue to see higher average greenhouse gas emissions than during the previous decade. We haven’t even come to a plateau yet. We are continuing to accelerate and just waiting to see when we’ll slow down, let alone plateau or decline. Except for the 1990s, every decade has seen higher greenhouse gas emissions and a higher atmospheric CO₂ concentration than the previous decade. We’ve been very consistent in that regard.

Climate Change: Where Are We Now?

Climate scientists normally refer to 450 parts per million as the atmospheric CO₂ concentration at which two degrees Celsius warming becomes inevitable. Two degrees Celsius is what climate scientists tend to categorize as catastrophic climate change. This is the point where it will be difficult to adapt to this new reality, and it will become very expensive. The Paris Agreement is a commitment to avoid this two-degree rise, a commitment to keep the atmospheric concentration below 450 parts per million.

To put this in perspective, we are currently at about 423 parts per million and we are currently increasing at approximately 2.5 parts per million each year. If we continue at the current rate, we’re likely to breach the 450-parts-per-million threshold by 2032.

Then there’s the concept of runaway global warming. We normally think about fossil fuels as being the main source of carbon. But tremendous amounts of carbon or other greenhouse gases such as methane are locked away in the rain forest or the tundra. As the planet warms and we pass that two-degree Celsius warming, we can expect those natural reservoirs of greenhouse gases to be released. Runaway global warming simply means the point at which we reach a threshold beyond which we can really do nothing to prevent continued warming.

The Amazon rain forest is probably just a few years away from a tipping point. Even if we stop slashing and burning it for agricultural purposes, it will probably die off on its own. We are already experiencing a great deal of melting in the tundra — especially in Siberia. So beyond two degrees Celsius is the point where we broadly expect, with all these currently sequestered gases in the atmosphere, to experience continued global warming, even if we get to net zero the following year.

An Existential Crisis

We frequently hear this referred to as an existential crisis. That’s not to say that humans will become extinct but rather the conditions that have allowed us to thrive over the last 10,000 years will no longer exist. We have not experienced two degrees Celsius warming in at least 800,000 years; human civilization — if we refer to it as sedentary behaviors, like starting to settle down and perform agriculture — goes back only, at most, about 10,000 years. So you have to go very far in the past to find a time when temperatures were last that warm. We are currently on a trajectory to hit somewhere between four and five degrees Celsius warming, and that’s where we ultimately would have to go back millions of years to find the last time the planet was that warm.

What Is to Be Done?

To avoid that outcome, changes must happen. If we want to have a high probability of staying below two degrees Celsius, we must begin reducing emissions immediately; we must start reducing very rapidly, and by midcentury, we need to sequester more carbon dioxide than we emit every year. By the end of the century, we need to have reduced emissions by 100% and then also sequester approximately one-third as much CO₂ every year as we currently emit annually.

It is no longer enough to completely decarbonize. Even eliminating all our fossil fuel emissions is no longer going to be enough. There’s so much carbon dioxide in the atmosphere now that to stay below two degrees Celsius, we’re going to need to reverse many of those legacy emissions.

The global community has not yet reached that point. Some smaller countries that are not major emitters have done so, but the world’s largest emitters, such as China, the United States, European Union countries, and India, are still working out what it’s going to look like. We are not investing nearly enough in decarbonization to stay below two degrees Celsius.

Paying the Climate Bill

Back in 2014, the International Energy Agency calculated that $50 trillion in capital would need to be invested just in decarbonization by 2050 to keep warming below two degrees Celsius. So it works out to about $1.3 trillion per year. The good news is that number is coming down a bit simply because the costs of solar PV and wind have dropped faster than anticipated. The bad news is it’s also gone up a bit because every year that we don’t hit $1.3 trillion, the overall expense increases by about $2 trillion a year, and we have not hit that target — we haven’t even come close to it. We’re currently spending roughly a quarter of what we need to on decarbonization to stay below two degrees Celsius.

I think we’ve seen, especially with the last year and concerns about inflation, that government spending is not going to be what it was in the past. This is really going to come down to the private sector, which does have abundant sources of capital to provide the financing needed to hit the necessary targets. It’s going to cost a great deal of money.

The Organisation for Economic Co-operation and Development (OECD) recently estimated that we need to spend approximately 5% of global GDP on this transition if we’re going to successfully decarbonize, but the alternative is much worse than that, and some of the more conservative estimates are that if we hit two degrees Celsius or go beyond that, the damages caused by climate change are going to be approximately 14% to 15% of global GDP.

This is where we see a large insurance protection gap. When insurers develop the models that they use to determine how much financial capacity is necessary to provide the insurance products that they provide, they ultimately are looking at the past. And because we expect to experience much worse climate change effects moving forward, the insurance sector is going to require a great deal more financing to provide coverage for all their current products.

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About Tristan Brown

Tristan Brown has held the title of Associate Professor of Energy Resource Economics at the State University of New York College of Environmental Science and Forestry since August 2018. Before this, he was an Assistant Professor of Energy Resource Economics. Tristan specializes in the energy market and researches and publishes academic articles on the biofuels and bioenergy markets.

This article is adapted from the GLG Teleconference “Climate Change.” If you would like access to this event or would like to speak with experts like Tristan Brown or any of our approximately 1 million industry experts, contact us.