Addressing climate change post-coronavirus | McKinsey - 0 views
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Addressing climate change in a post-pandemic world
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the coronavirus outbreak seems to indicate that the world at large is equally ill prepared to prevent or confront either.
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By contrast, financial shocks—whether bank runs, bubble bursts, market crashes, sovereign defaults, or currency devaluations—are largely driven by human sentiment, most often a fear of lost value or liquidity.
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Physical shocks, however, can only be remedied by understanding and addressing the underlying physical causes. Our recent collective experience, whether in the public or the private sector, has been more often shaped by financial shocks, not physical ones. The current pandemic provides us perhaps with a foretaste of what a full-fledged climate crisis could entail
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Pandemics and climate risk also share many of the same attributes. Both are systemic, in that their direct manifestations and their knock-on effects propagate fast across an interconnected world.
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They are both nonstationary, in that past probabilities and distributions of occurrences are rapidly shifting and proving to be inadequate or insufficient for future projections.
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Both are nonlinear, in that their socioeconomic impact grows disproportionally and even catastrophically once certain thresholds are breached
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They are both risk multipliers, in that they highlight and exacerbate hitherto untested vulnerabilities inherent in the financial and healthcare systems and the real economy
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Both are regressive, in that they affect disproportionally the most vulnerable populations and subpopulations of the world.
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Finally, neither can be considered as a “black swan,” insofar as experts have consistently warned against both over the years
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They also require a present action for a future reward that has in the past appeared too uncertain and too small given the implicit “discount rate.” This is what former Bank of England Governor Mark Carney has called the “tragedy of the horizon.”
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addressing pandemics and climate risk requires the same fundamental shift, from optimizing largely for the shorter-term performance of systems to ensuring equally their longer-term resiliency
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The coronavirus pandemic and the responses that are being implemented (to the tune of several trillion dollars of government stimulus as of this writing) illustrate how expensive the failure to build resiliency can ultimately prove
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In climate change as in pandemics, the costs of a global crisis are bound to vastly exceed those of its prevention.
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both reflect “tragedy of the commons” problems, in that individual actions can run counter to the collective good and deplete a precious, common resource.
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Neither pandemics nor climate hazards can be confronted without true global coordination and cooperation
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A global public-health crisis presents imminent, discrete, and directly discernable dangers, which we have been conditioned to respond to for our survival.
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The risks from climate change, by contrast, are gradual, cumulative, and often distributed dangers that manifest themselves in degrees and over time.
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What lessons can be learned from the current pandemic for climate change? What implications—positive or negative—could our pandemic responses hold for climate action?
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the timescales of both the occurrence and the resolution of pandemics and climate hazards are different.
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What this means is that a global climate crisis, if and when ushered in, could prove far lengthier and far more disruptive than what we currently see with the coronavirus (if that can be imagined).
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Finally, pandemics are a case of contagion risk, while climate hazards present a case of accumulation risk.
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Contagion can produce perfectly correlated events on a global scale (even as we now witness), which can tax the entire system at once; accumulation gives rise to an increased likelihood of severe, contemporaneous but not directly correlated events that can reinforce one another.
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For example, rising temperatures can create favorable conditions for the spread of certain infectious, mosquito-borne diseases, such as malaria and dengue fever, while disappearing habitats may force various animal species to migrate, increasing the chances of spillover pathogens between them.
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Third, investors may delay their capital allocation to new lower-carbon solutions due to decreased wealth.
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For starters, certain temporary adjustments, such as teleworking and greater reliance on digital channels, may endure long after the lockdowns have ended, reducing transportation demand and emissions
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Second, supply chains may be repatriated, reducing some Scope 3 emissions (those in a company’s value chain but not associated with its direct emissions or the generation of energy it purchases)
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Third, markets may better price in risks (and, in particular, climate risk) as the result of a greater appreciation for physical and systemic dislocations.
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There may, additionally, be an increased public appreciation for scientific expertise in addressing systemic issues.
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there may also be a greater appetite for the preventive and coordinating role of governments in tackling such risks
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Simultaneously, though, very low prices for high-carbon emitters could increase their use and further delay energy transition
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A second crosscurrent is that governments and citizens may struggle to integrate climate priorities with pressing economic needs in a recovery
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he environmental impact of some of the measures taken to counter the coronavirus pandemic have been seen by some as a full-scale illustration of what drastic action can produce in a short amount of time.
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Finally, national rivalries may be exacerbated if a zero-sum-game mentality prevails in the wake of the crisis.
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Second, devote a portion of the vast resources deployed for economic recovery to climate-change resiliency and mitigation
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Fourth, reinforce national and international alignment and collaboration on sustainability, for inward-looking, piecemeal responses are by nature incapable of solving systemic and global problems.
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For companies, we see two priorities. First, seize the moment to decarbonize, in particular by prioritizing the retirement of economically marginal, carbon-intensive assets
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For all—individuals, companies, governments, and civil society—we see two additional priorities. First, use this moment to raise awareness of the impact of a climate crisis, which could ultimately create disruptions of great magnitude and duration.
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That includes awareness of the fact that physical shocks can have massive nonlinear impacts on financial and economic systems and thus prove extremely costly.
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Second, build upon the mindset and behavioral shifts that are likely to persist after the crisis (such as working from home) to reduce the demands we place on our environment—or, more precisely, to shift them toward more sustainable sources.
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Moving toward a lower-carbon economy presents a daunting challenge, and, if we choose to ignore the issue for a year or two, the math becomes even more daunting.
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it is also critical that we begin now to integrate the thinking and planning required to build a much greater economic and environmental resiliency as part of the recovery ahead.