The trust cost of climate change inaction

Contributed by Erik Lensch, CEO of Leyline Renewable Capital

You’ve likely seen the news: The Intergovernmental Panel on Climate Change (IPCC) recently released a report emphasizing humans’ extensive impact on global climate. The report outlined the devastating consequences of our actions and warned that we must make a rapid and unprecedented societal change to combat the perils of a world warmed by 1.5 and 2 degrees Celsius. We have long dragged our feet on making these transitions, particularly as it pertains to limiting fossil fuels used to produce electricity and for transportation. But what if we are undergoing it even more than we think, and the costs of inaction are more severe than we realize? What if the IPCC’s dire warning is based on information that underestimates the need for lightning-fast decarbonization?

A new study and economic model from the Grantham Research Institute on Climate Change and the Environment suggest just that. Most people understand the general impacts of climate change: sea-level rise, worsening weather events, severe heat, etc., but there are also concerns around climate tipping points: When temperatures reach a certain, yet-undefined level, we may cross thresholds of “no return” that cause sudden, more dramatic shifts in climate behavior. The Grantham study examined some primary IPCC tipping points. These include:

Thawing Permafrost: Permafrost is ground that remains frozen for a minimum of two consecutive years. As it thaws, it releases trapped greenhouse gases like carbon and methane, which in turn drive a vicious cycle of more warming and consequential thawing.

Dissociation of Ocean Methane Hydrates: Methane is stored on the seafloor in the form of solid methane hydrates. As the climate warms, these hydrates may destabilize, releasing more methane that in turn further accelerates climate change.

Arctic Sea Ice Loss: As the planet warms, less of the Arctic is remaining frozen through less of the year. Sea ice contributes to the Earth’s albedo and reflects energy back into the atmosphere. Thus, less sea ice results in less energy returning to space and more being absorbed into the ocean – triggering more warming and sea level rise.
Amazon Rainforest Dieback: The Amazon is an enormous carbon sink; as the forest is cleared and/or dies due to climate impacts, it is releasing more carbon dioxide back into the atmosphere.
Disintegration of the Greenland Ice Sheet and West Antarctic Ice Sheet: Melting ice sheets increase sea-levels and decrease albedo, resulting in more energy retention and warming.

Slowdown of Atlantic Meridional Overturning Circulation (AMOC): The AMOC is a large system of ocean currents that serve as a saline- and temperature-based “conveyor belt” circulating heat and nutrients throughout the ocean. The AMOC has an enormous impact on the climates of certain areas; for example, the Gulf Stream is part of the AMOC and contributes to mild climates on North America’s east coast. Melting ice sheets are slowing the AMOC, bringing us closer to a tipping point for climate instability.
Variability of the Indian Summer Monsoon: These unpredictable fluctuations would bring floods and droughts that affect GDP per capita in India and are significant enough to register at a global level.

The study linked the geophysical mechanisms of these tipping points to quantified economic damages. The conclusion? We are drastically underestimating the social cost of carbon (SCC) – the total social and environmental damage that will result per ton of carbon dioxide emitted. What’s more, the study noted that the examined phenomena are not the only possible tipping points and that even their findings are a “probable underestimate.” 

We use the SCC to weigh the costs and benefits of the actions we take to mitigate climate change, i.e., how much must we pay to alleviate X value of climate damage? As of right now, the United States values SCC at $51 per ton, a number which many argue does not account for uncertainty in climate risks, weight for environmental justice, or discount at a rate that will ensure intergenerational equity. $51 is only an interim value to replace the Trump Administration’s $1 to $7 rate, and the final calculation will be set by January 2022.

The Grantham study affirms that, while every SCC estimate requires assumptions and cannot be precise, our current number is extremely off the mark. Gernot Wagner, one of the leads on the report, notes that if the Biden Administration runs the same calculation from the Obama era, the SCC will come out around $125. The study’s new model still pegs that as an underestimate; “when modeled separately and then summed together, the individual tipping points increase the expected SCC by 24.5 percent.” This accounting for tipping point risk aversion places SCC somewhere closer to $250.

And yet, this number could still be too low. The tipping points’ 24.5 percent influence was the median estimate. Depicting the model’s trials on a bell curve produces a long right “tail” of possibility. The trials’ average percent change ran around 43 percent; the model also depicts a one in 10 chance that tipping point accounting could double the SCC.

Putting numbers aside, what does this all mean for our future? The IPCC already says we are on a catastrophic path without rapid change, and so far, the global community has not made strong enough moves to avert this future. We aren’t even close to accounting for climate change’s negative externalities – we aren’t even expending a value close to the grossly underestimated $51.

All is not lost, but we must act, and fast. The U.N. Secretary General called the IPCC report a “code red” for humanity that sounds a “death knell for coal and fossil fuels.” He couldn’t be more correct. We must adopt proper climate accounting, fast-track decarbonization, and transition to a clean global economy. There is no time to waste.

About the author:

Erik Lensch is the CEO of Leyline Renewable Capital, a team of former project developers that combat climate change by providing capital to accelerate the deployment of renewable energy projects. Erik is active in renewable energy advocacy, education, and advancement efforts and brings a sales, finance, and management background to Leyline. Previously, he was CEO and Managing Director at Entropy Solar Integrators, part of York Capital Management, a large global hedge fund. Prior to joining Entropy, Erik spent eight years as the CEO and Founder of Argand Energy Solutions, a commercial and utility scale solar company.