A financial comparison of climate change impacts at 1.5C and 2C

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An article caught my eye recently: Scientists compare climate change impacts at 1.5C and 2C by Carbon Brief.

We have some insight into the interconnectedness of extreme weather events and climate change, so we decided to take a look at the effect a 1.5°C at 2°C world might have on the expected financial loss and damage arising from extreme weather events.

Here’s what our insurance algorithm PALCA has to say on the matter.  For the  temperature anomaly we reported of 1.03 at midday on 20th April, the carbon price was $21.84 per tonne of CO2 emitted.  Were the temperature anomaly to be 1.5 or even 2°C on that same day, then the price of carbon would have been predicted to be $33 or a staggering $47 respectively, and thats in todays terms.  In future terms, the price would be higher still as a result of economic growth factors.  The following figure shows the relationship in todays terms clearly.

relationship between an insurance loss based carbon price and temperature anomaly
The relationship between an insurance loss based carbon price and temperature anomaly

And in insurance terms – our carbon pricing algorithm is based upon losses arising from extreme weather events that are attributable to climate change – the 1.5 and 2°C worlds would equate to a 52% and – even worse still – a 112% increase in predicted losses.

Losses from natural disasters in 2015 were reported by Munich Re to be US$90bn, the lowest of any year since 2009.

Sobering stuff for insurance, pensions and banks so it would seem.

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Edward Coe

Author: Edward Coe

Edward Coe is Managing Director and co-founder of PAL. He has extensive experience of systems development and implementation for advanced derivative trading systems utilising a broad range of technologies supporting in house, bespoke and third party software. Edward developed the software behind PAL Carbon.

A financial comparison of climate change impacts at 1.5C and 2C was last modified: September 3rd, 2017 by Edward Coe