SA: What companies & investors should know about COP28

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Published on SEEKING ALPHA, by Gerben Hieminga, Senior Sector Economist; Coco Zhang, ESG Research:

COP déjà vu?

Do you remember the first COP meeting held in Berlin in 1995? We don’t, so we won’t blame you either. We definitely remember the epic 2015 meeting, however, when the Paris Climate Agreement was signed. It was this meeting that put climate change on the agenda of corporate decision-makers and investors. So, what can they find out from this year’s meeting in Dubai?

COP28 puts the climate challenge in the spotlight once again

The fight against climate change consists of three pillars. Climate mitigation, or bending the global emissions curve towards net zero emissions by 2050, is the first pillar and first priority as global warming continues as long as the concentration of carbon dioxide in the atmosphere increases. So, mitigation policies to reach the Paris Climate Goals will be a central theme for this year’s COP as a warning against insufficient ambition and a call to close the cap.

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Climate change adaptation

Adaptation to climate change is the second pillar and is all about minimising climate costs from extreme weather events such as droughts, floods, storms and tropical cyclones. Countries in the global south are expected to be severely impacted, and the 2023 UN Climate Adaption Report expects adaptation costs for developing countries to be around $400bn per year up to 2030.

Even if these mitigation and adaptation policies get financed and are able to materialise, the world will experience loss and damage from climate change – which for developing countries are of equal size as the adaptation costs. So, addressing the loss and damage from climate change is the third pillar of the fight against climate change.

Policymakers, corporate leaders and investors are likely to leave COP28 with the task of increasing investment in low-carbon technologies. Think of more renewables in the power sector, carbon capture and storage in industrial clusters, energy efficiency measures in housing, manufacturing and transportation, and the growth of the hydrogen economy. They will also leave COP28 with the task of speeding up climate-friendly behaviour. This could include increasing recycling rates, sharing cars, getting more people in trains and on bicycles as their primary way of transport, and even encouraging them to eat less meat. Both technology and behavioural changes are crucial in averting loss and damage from climate change and will require about $5,500bn in investment per year globally up to 2030, according to Bloomberg New Energy Finance.

The $400bn annual damage and loss from climate change by 2030 in developing countries represents about 1% of the size of their economies. This number increases to 2-3% by 2100 if global warming is limited to 1.5 degrees Celsius, which seems a manageable cost. However, this number increases to 10-15% if global warming reaches 2.5-3.0 degrees Celsius by 2100 (the current pathway for global warming). Not only is this a large economic loss, but it also requires profound changes in the economy as similar amounts of spending on healthcare or education need to go towards restoring loss and damage from climate change. Not as a one-off, but year after year – and this is a conservative estimate as it does not include the costs of climate tipping points that could accelerate global warming. It also only focuses on CO₂ emissions, not a loss of biodiversity or other forms of pollution…

The full post is here.