Indicators on Economic Risk from Global Climate Change

Climate change mitigation requires a rapid decrease of global emissions of greenhouse gases (GHGs) from their present value of 8.4 GtC/year to, as of current knowledge, approximately 1 GtC/year by the end of the century. The necessary decrease of GHG emissions will have large impacts on existing and new investments with long lifetimes, such as coal-fired power plants or buildings. Strategic decision making for major investments can be facilitated by indicators that express the likelihood of costly retrofitting or shut-down of carbon intensive equipment over time. We provide a set of simple indicators that support assessment and decision making in this field. Given a certain emissions target, carbon allowance prices in a cap-and-trade plan will depend on the development of the global economy and the degree to which the target is approached on the global and national levels. The indicators measure the degree to which a given emissions target is approached nationally and assess risks for long-lived investments subject to a range of emissions targets. A comparative case study on existing coal-fired power plants with planned plants and utility-scale photovoltaic power-plants confirms that high risk for coal-fired power plants is emerging. New legislation further confirms this result.