If governments get an early start on efforts to limit global temperature rise to less than 2 degrees Celsius, “the transition to a low-carbon economy would be gradual, allowing adequate time for the physical capital stock to be replenished and for technological progress to keep energy costs at reasonable levels,” according to a new report by the Advisory Scientific Committee of the European Systemic Risk Board.
However, the paper says, there is a significant risk involved in delaying decarbonization efforts. “First, a sudden transition away from fossil-fuel energy could harm GDP, as alternative sources of energy would be restricted in supply and more expensive at the margin. Second, there could be a sudden repricing of carbon-intensive assets, which are financed in large part by debt. Third, there could be a concomitant rise in the incidence of natural catastrophes related to climate change, raising general insurers’ and reinsurers’ liabilities,” the Feb. 11 paper explains.
