Page 37 - WEF Reoprt 2020

BOX 3.1
Transition Risks
Infrastructure materials. Technology is playing a
role in developing low-carbon alternatives for iron,
steel, glass and cement.
Technological
Mining and metals. The solar industry will
Across many sectors, technological change is increase demand for aluminium. Copper,
already transformative and, in moving towards lithium and cobalt demand will increase
lower carbon technologies, risks could include multiple times by 2040.
stranding assets, reducing investment returns
and reducing market capitalization.
Mobility. The shift from fossil
fuels to hybrid, plug-in hybrid, fully
electric and hydrogen fuel cells is
already well underway.

Energy. The shift from oil
to gas, electrification,
renewables, nuclear and
hydrogen will require novel
storing technologies and
reforms in the production
of hydrogen.

Societal Economic
Transition to a low-carbon economy A dramatic shift in the price of carbon—broadly seen as necessary to tackle climate
raises profound issues around the change—implemented in a short time frame without taking into account wider economic and
future job market, health and safety, equity issues could be viewed as a politically unpalatable transition risk for many decision-makers.
and the broader fate of This is particularly the case given economic vulnerabilities already in place such as high debt,
communities. For both investors negative interest rates, rising income inequalities and elevated geopolitical risks. International
and workers, transitioning quickly, initiatives such as the Carbon Pricing Leaders Coalition and national bi-partisan coalitions like the
effectively and equitably will be this Climate Leadership Council in the United States are working on practical solutions—such as
generation’s challenge. reallocating dividends from carbon pricing and adjusting border taxes—to these challenges. More
comprehensive transition policy packages, which recognize these economic transition risks, such
as the European Green New Deal, are also being explored.

PHOTOS: REUTERS/MARCELO DEL POZO; WORAPUT/GETTY IMAGES; KEVIN YOUNG/UNSPLASH

non-action is not an option. More common current oil reserves, 50% of gas reserves
30
extreme weather events could make and 80% of coal reserves into stranded
insurance unaffordable or simply unavailable assets for extractive companies and their
for individuals and businesses: globally, investors (see Box 3.1). Pension funds may
33
31
the “catastrophe protection gap”—what face catastrophic shortfalls as industries
should be insured but is not—reached consolidate and transition. Climate risk
34
US$280 billion in 2018. The transition may also cause disruption to the mortgage
32
to a low-carbon economy also creates market, particularly in vulnerable regions
potential challenges that will need to be such as Florida where 30-year mortgages
managed. For example, action to reduce could default en masse if homes become
emissions could turn approximately 30% of uninsurable over time. 35

32 A Decade Left