I'm seeing fewer explicit references to IAMs in pension fund climate disclosures, and more to Climate Value at Risk (CVaR) analyses generally provided my MSCI or WTW. For example, Japan's GFIP, New Zealand Superfund, and Norway's NBIM all mention using CVaR.
My sense is that, partially due to your and others' critique of DICE models and other IAMs, the funds have stopped using them or at least they've stopped referring to them explicitly. I'm curious what you make of this CVaR approach. I am having a hard time finding specifics on how it works. It seems to sometimes produce larger negative impact projections (GFIP estimates up to -9.3% impact on its returns and NBIM up to -13% in a 3°C world). I'm sure this approach cannot account for all climate risks like migration, tipping points, etc. but I'm curious if you have any specific knowledge of the framework and what it may be getting wrong.
I'm a huge fan of your Loading the DICE report. Thanks in advance.
All those analyses are still, in the end, based on economic papers that purport to predict the impact of climate change by using current geographic data on temperature and GDP. Though some of that mob of economists (I saw once that the collective name for economists was "a smug of economists") are finally producing larger numbers than Nordhaus's original trivial estimates, they're still using the same methodology, and their predictions still amount to a small fall in the annual rate of economic growth--not the catastrophic collapse of human civilisation that scientists expect to see from "as little as" a 2C temperature rise.
BTW Nordhaus's latest DICE model, published in PNAS(!), predicts a 3% fall in GDP in 2100 from 3C of warming. Given that he concedes current warming is 1.5C, and his damage function is DGDP(DT)=-0.003467*DT^2, this amounts to a prediction that the annual rate of growth of GDP from 2020 till 2100 will be 0.03% smaller because of climate change! That is 1/3rd of the level of accuracy of measurement of the annual change in GDP now--so he is still predicting that the impact of climate change will be "too small to measure". Meanwhile in the real world, 2C may well destroy civilisation, and 3C definitely will.
I assume you've noticed that the UK OBR's Fiscal Risks and Sustainability Report (https://obr.uk/frs/fiscal-risks-and-sustainability-september-2024/) has a long section on the impact of climate change on UK Government finances, and concludes that 3 degrees of warming leads to GDP in 2070 only 5% below "no climate change", and only 2% worse than 2 degrees of warming (!?!). The only work they seem to cite is Tol's 2024 Meta-analysis.
They seem to be relying on Committee on Climate Change advice on this area, hoping for an updated view on this by 2026. Have you engaged with CCC? (In general I've found them thoughtful on a range of subjects).
I hadn't noticed--there's too much idiocy out there to keep track of all of it. So thanks for telling me about this one: relying upon Tol is a sure sign of madness (or ignorance). I will check it out.
I'm seeing fewer explicit references to IAMs in pension fund climate disclosures, and more to Climate Value at Risk (CVaR) analyses generally provided my MSCI or WTW. For example, Japan's GFIP, New Zealand Superfund, and Norway's NBIM all mention using CVaR.
My sense is that, partially due to your and others' critique of DICE models and other IAMs, the funds have stopped using them or at least they've stopped referring to them explicitly. I'm curious what you make of this CVaR approach. I am having a hard time finding specifics on how it works. It seems to sometimes produce larger negative impact projections (GFIP estimates up to -9.3% impact on its returns and NBIM up to -13% in a 3°C world). I'm sure this approach cannot account for all climate risks like migration, tipping points, etc. but I'm curious if you have any specific knowledge of the framework and what it may be getting wrong.
I'm a huge fan of your Loading the DICE report. Thanks in advance.
Hi Max,
All those analyses are still, in the end, based on economic papers that purport to predict the impact of climate change by using current geographic data on temperature and GDP. Though some of that mob of economists (I saw once that the collective name for economists was "a smug of economists") are finally producing larger numbers than Nordhaus's original trivial estimates, they're still using the same methodology, and their predictions still amount to a small fall in the annual rate of economic growth--not the catastrophic collapse of human civilisation that scientists expect to see from "as little as" a 2C temperature rise.
BTW Nordhaus's latest DICE model, published in PNAS(!), predicts a 3% fall in GDP in 2100 from 3C of warming. Given that he concedes current warming is 1.5C, and his damage function is DGDP(DT)=-0.003467*DT^2, this amounts to a prediction that the annual rate of growth of GDP from 2020 till 2100 will be 0.03% smaller because of climate change! That is 1/3rd of the level of accuracy of measurement of the annual change in GDP now--so he is still predicting that the impact of climate change will be "too small to measure". Meanwhile in the real world, 2C may well destroy civilisation, and 3C definitely will.
Dear Steve, the Climate Brink Podcast is making a valid point: we can't safe the climate (and ourselves) without pushing back corporate power. https://open.substack.com/pub/theclimatebrink/p/i-stand-with-unions?utm_source=share&utm_medium=android&r=bg9mo
I assume you've noticed that the UK OBR's Fiscal Risks and Sustainability Report (https://obr.uk/frs/fiscal-risks-and-sustainability-september-2024/) has a long section on the impact of climate change on UK Government finances, and concludes that 3 degrees of warming leads to GDP in 2070 only 5% below "no climate change", and only 2% worse than 2 degrees of warming (!?!). The only work they seem to cite is Tol's 2024 Meta-analysis.
They seem to be relying on Committee on Climate Change advice on this area, hoping for an updated view on this by 2026. Have you engaged with CCC? (In general I've found them thoughtful on a range of subjects).
I hadn't noticed--there's too much idiocy out there to keep track of all of it. So thanks for telling me about this one: relying upon Tol is a sure sign of madness (or ignorance). I will check it out.
Matt Kennard "silent coup", ISDS an corporate power. https://open.substack.com/pub/chrishedges/p/the-chris-hedges-report-show-with-da4?utm_source=share&utm_medium=android&r=bg9mo