The sting of climate risk is in the queues

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Editor’s note: Mark Cliffe is a Visiting Professor at the London Institute of Banking and Finance and former Chief Economist of ING Group. The article reflects the opinions of the author and not necessarily the views of CGTN.

Scientists have long warned that climate change will negatively affect weather and living conditions around the world. These warnings are now turning into a painful reality. Worse still, the range of possible outcomes turned out to be increasingly “fat-tailed”: extreme weather events such as heat waves, severe storms, and floods are more likely than the distributions predict. normal statistics.

None of this bodes well for future political stability or economic prosperity. Our best hope is that the sharp sting of those tails will spur us on to take the necessary corrective action before things get even worse. But will he?

The public is increasingly aware that global warming is leading to more unstable weather patterns. There have been record-breaking heat waves around the world this year, not only in India – where temperatures reached 49.2 degrees Celsius (120.5 degrees Fahrenheit) – but also in places like the UK (40 .2 degrees Celsius). According to a new study supported by the World Food Program and Food and Agriculture Organization. Meanwhile, devastating storms and floods hit Madagascar, Australia, the United States, Germany, Bangladesh and South Africa.

These events cause hundreds of thousands of deaths and enormous economic and financial damage every year, making climate volatility an increasingly important factor in risk assessment. While temperature increases of 0.5 degrees Celsius here or there are barely noticeable, droughts, floods and other short-term weather fluctuations can wreak deadly havoc.

Moreover, extreme weather events can cause changes that last far beyond the immediate shock and damage, especially when they accelerate developments that would otherwise have taken many years. Scientists are increasingly concerned about ‘tipping points’ – such as melting polar ice caps – that would push us past thresholds of irreversible change. This could create damaging feedback loops between interconnected climate risks, all of which would ripple through the real economy, leading to defaults, job losses that disproportionately harm disadvantaged communities, and political unrest.

In addition to damage to the physical environment, extreme weather conditions can therefore trigger abrupt and sometimes permanent changes in social attitudes and public policies. When people start losing their homes, their livelihoods or even their lives, politicians must respond.

Surprisingly, while we are all keenly aware of extreme weather, forecasters still largely overlook its role in accelerating structural change. Climatologists and mainstream economists tend to focus on the longer-term effects of climate change caused by global warming, emphasizing scenarios involving increases in global average temperature of the order of only 1 .5 to 2 degrees Celsius – the targets enshrined in the Paris climate agreement. And even in higher temperature scenarios, it is assumed that the effects – on sea levels and agricultural production, for example – will only accumulate gradually, implying that the final calculation is several decades away.

But a recent paper – “Climate Endgame: Exploring Catastrophic Climate Change Scenarios” – shows that this conventional scenario analysis seriously underestimates long-term risks, as it fails to tune in to the most extreme climate outcomes (the big tails ) the attention they deserve. As statistician Nassim Taleb has pointed out in the context of financial markets, conventional models struggle to deal with the consequences of fat-tailed events, creating a dangerous blind spot in their outlook.

Higher temperature pathways would trigger what the authors call the “four horsemen” of the climate end game: famine and malnutrition, extreme weather, conflict, and vector-borne disease. It doesn’t take much imagination to see how this herd of apocalyptic precursors could create social and political chaos, especially when they all gallop together – as is already happening today with the global food crisis, a new war in Europe and the pandemic. Worse still, the mention of the second horseman suggests that the most immediate risks of climate change are still underestimated. After all, extreme weather is also a driver for the other three riders, making it arguably the most important.

Climate shocks cause suffering that attracts much more societal attention than abstract (but no less justified) warnings of long-term catastrophe. Polls show that support for climate action is greatest for those who have personally experienced extreme weather. Although the current surge in inflation means people are less enthusiastic about measures that would harm their own finances, the growing incidence of disasters is reducing the minority who remain skeptical of climate change or climate change. climate policies.

That way, the fat tails of weather—rather than the fat tails of long-term climate change—are much more likely to spur action in the shorter time horizons that politicians and businesses are concerned about. Hopefully, as bites from these tails become more common and painful, they will inspire us to maintain the policies necessary to keep climate horses in their stables.

Copyright: Project union2022.

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