How the World Is Dealing with the Climate Challenge

Extreme climate change events hamper productivity, thus affecting industries such as agriculture, fishing, energy, trade, transportation, and tourism.

VanEck - Author

Nov. 20 2020, Updated 4:57 p.m. ET

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The climate challenge and the role of green bonds

Discussions about climate change and carbon emissions can elicit debate and rhetoric around both the causes of and solutions to, global warming. However, there are some facts that can generally be agreed upon. First, the concentrations in the earth’s atmosphere of greenhouse gases such as carbon dioxide, methane, and nitrous oxide have increased since the industrial revolution, and began to increase exponentially since the middle of the 20th century (Source: Intergovernmental Panel on Climate Change AR5 Working Group 1: Climate Change 2013: The Physical Science Basis).

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Second, average temperatures have been increasing, particularly in the last 30 years, and 2016 went into the history books as our warmest year on record since modern recordkeeping began in 1880 [Source: NASA, NOAA Data Show 2016 Warmest Year on Record Globally. Earth’s 2016 surface temperatures were the warmest since modern recordkeeping began in 1880, according to independent analyses by NASA and the National Oceanic and Atmospheric Administration (NOAA)]. Lastly, as the effects of climate change have begun to have a more noticeable impact all over the world with more frequency, people are demanding action from their leaders. Governments around the world have begun to respond.

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Global climate challenge

Extreme weather changes have been occurring all over the world in the last few years. Losses from these events seem to be increasing. These events include droughts, tropical cyclones, floods, severe storms, wildfires, winter storms, and freezes. Global warming seems to be worsening the El Niño effect.

Average temperatures over all land and ocean surfaces have risen 0.74º Celsius (1.3º Fahrenheit) over the last century, according to data from the Intergovernmental Panel on Climate Change. The above graph shows the greenhouse gas emissions forecast under various global temperature scenarios.

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The damaging effect is no longer limited to just infrastructure. Developed economies (EFA) (DBEF) with better financial means and technology are also suffering. A 2014 study of US counties by Tatyana Deryugina and Solomon M. Hsiang revealed that the daily productivity of an economy falls 1.7% for each 1.0° Celsius (1.8º Fahrenheit) increase in average temperatures above 15.0° Celsius (59.0° Fahrenheit).

Extreme climate change events also hamper productivity, thus affecting industries such as agriculture, fishing, energy, trade, transportation, and tourism. Health-related risks also rise with an increase in temperature. The graph below by Mercer shows the impact of climate on industry returns in the next 35 years. Mercer’s Climate Change Study 2015 analyzed the impact on sectors under various climate scenarios.

The IEA (International Energy Agency) stated that each year of ignoring climate-related adverse effects could add $1.0 trillion to the cost of transitioning to a global low-carbon economy. To combat climate-related risks, 20 major countries committed in 2015 to an initiative to hasten public and private global clean energy (ICLN) (FSLR) (SCTY) innovation in line with global climate change. The initiative, known as the Mission Statement, includes an agreement by these countries to double their clean energy R&D (research and development) spending over the next five years.

Policymakers around the world are feeling the need to prioritize the adoption of a low-carbon economy and reduce dependence on fossil fuels.

Next, let’s look at the progress of the Paris Agreement.


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