Global changes: Physical and transition risks

We live at a time of increasing physical risk—exposure to detrimental climate change and/or weather extremes—as well as transition risk—particularly the financial impacts of fossil fuel assets losing their value in the needed rapid transition to a low-carbon economy aimed at stabilizing the climate. A better understanding of these risks could empower decision-makers in the public and private sectors to chart a more sustainable, equitable and prosperous future.

To that end, more than 100 attendees from industry, academia, government and NGOs attended the XLIII (43rd) MIT Global Change Forum on October 20-29. The Forum was presented in four two-hour Zoom sessions: Scenarios: Physical & Transition Risks (Oct. 20), Regional Hotspots for Climate Risks (Oct. 22), Sustainable Development Goals (Oct. 27) and Urban Transitions (Oct. 29). Facilitated by the MIT Joint Program on the Science and Policy of Global Change in an informal, “off-the-record” setting for independent assessment of studies and policy proposals, presentations and discussions explored efforts to quantify physical and transition risk and how such assessments could be used to inform decision-making.

“This year’s Forum brought together an outstanding group of presenters covering a wide range of critical research that has deepened our understanding of physical and transition risks, and of how to lower their impacts,” said MIT Joint Program Director Ronald Prinn, a professor at MIT’s Department of Earth, Atmospheric and Planetary Sciences. “Their insights will help inform our ongoing work at the Joint Program, where we are engaged in assessing the risks of climate change in the context of an evolving global economy that minimizes environmental damages while expanding access to clean, affordable, sustainable and reliable energy.”

Here we summarize key points that emerged at this year’s Forum.

Scenarios: Physical & Transition Risks

A presentation on climate-related stranded oil and gas assets showed that estimates vary widely on how much of these assets will end up unexploited, and how much revenue loss will be borne by oil and gas companies. The presenter noted that the magnitude of the impact of the energy transition on oil and gas assets will depend on geography, geology, the state of carbon emissions-reduction technology and alternative energy supplies, and the stringency of climate policy. While there are considerable risks to the value, business model and operations of hydrocarbon companies due to stranded assets and how investors, financial regulators and policymakers respond to climate concerns, some of that risk will likely be mitigated through oil extraction technology advances and market pricing mechanisms.

A presentation on physical risks in the national, managed and built environments emphasized the importance of probabilistic risk-based projections of physical risks that consider all plausible futures, and that account for not only climate change but also other factors influencing our interconnected Earth and human systems. Such projections are needed in order to discern salient global and regional changes that determine the likely magnitude and frequency of such risks. The presenter illustrated the use of such projections in assessing the risk of wildfires, water stress, flooding, and disruptions to the electric power grid. While some of these risks may be unavoidable, timely decisions informed by these projections could delay their onset by decades and/or reduce their ultimate impact. As they pose significant challenges and threats, these risks also present the business, financial and public sectors with opportunities to invest in sustainable solutions.

A presentation on food, agriculture and land use noted that nearly a quarter of global greenhouse gas emissions stem from agriculture and land use practices, and that climate change is likely to increase major crop-yield losses by up to 10 percent per decade and degrade livestock production, with rising threats to food security when all crops are considered. The presenter described modeling efforts to simulate potential environmental and economic impacts of three policy scenarios aimed at reducing deforestation in Brazil as part of a transition to a more stable climate, and how these projections could be used to inform government incentives to support farmers and other land-owners in protecting forest resources. Finally, the presentation showcased technology and “nature-based” solutions designed to reduce emissions and boost the resilience of agricultural systems to climate change. Further study is needed to obtain more precise assessments of the magnitude, scope, geography and timing of physical and transition risks to agri-food supply chains.

Regional Hotspots for Climate Risks

A presentation on community-based adaptation and locally-led adaptation focused on best practices in climate adaptation in Bangladesh and 46 other particularly vulnerable nations mainly in Asia and Africa that are known as the Least Developed Countries (LDCs). The presenter stressed the need for a paradigm shift away from top-down, donor-driven, Northern hemisphere-dominated, one-size-fits-all initiatives that view LDC communities primarily as beneficiaries, and toward bottom-up approaches that engage community stakeholders—and the local knowledge and experience that they bring to the table—in understanding and solving adaptation challenges and in co-designing, implementing and monitoring solutions. For LDCs, this shift—which values local context, culture, dynamics and aspirations—could lead to a transformational change over the next decade not only in developing enhanced adaptive capacity but also in cultivating greater local resilience.

A presentation on the impact of halting groundwater depletion on food security highlighted projections indicating that groundwater use for irrigation is expected to increase in the coming decades as affordable solar pumps become more widely available and climate impacts, population and food demand continue to grow. Rising groundwater extraction for irrigation will, in turn, accelerate groundwater depletion—beyond the point where it can be replenished in some locations. Efforts to slow the pace of groundwater depletion will be needed to conserve this resource, but those aimed solely at halting depletion are likely to raise the price of rice and other essential cereal crops, as well as that of fruits and vegetables, heightening the risk of food insecurity. Such price increases could, however, be mitigated by combining conservation measures with improved water management in rain-fed areas, investment in agricultural research and development, reduced meat consumption, and other options.

A presentation on advanced decision support for climate and extreme weather resilience emphasized the need to shift away from reactive approaches and toward proactive plans in confronting climate threats and extreme weather events. To illustrate how technology could be applied to enable this kind of shift in regional hotspots, the presenter shared three R&D examples. The first, a next-generation hurricane evacuation decision support system, is widely used in the United States. An integrated, analytics-based guidance and training system enables local emergency managers to make more informed evacuation decisions. The second, an advanced remote sensing system for disaster relief, applies advanced airborne sensing and analytics to U.S. national disaster and recovery operations. The system uses LiDAR technology to rapidly generate 3-D maps of impacted areas to enable targeted responses. The third, an early warning system for climate resilience, combines leading-edge climate forecasting and socioeconomic analysis with innovative resilience services to empower people to make and implement informed decisions about adaptation and relocation.

Sustainable Development Goals

Noting that the United Nations’ 17 Sustainable Development Goals (SDGs) are difficult to quantify, implement and monitor, a presentation on predicaments and strategies for SDGs emphasized that each goal cannot be understood in isolation. All SDGs are interlinked, with some reinforcing one another and others doing just the opposite. In fact, a recent study found that three environmental SDGs are in direct opposition to several other SDGs that center on social and economic objectives. Highlighting an assessment of the effectiveness of SDG policies around the world, the presenter observed that developing countries tend to be more successful when emphasizing social and economic factors, while developed countries are best off focusing more on environmental factors. Finally, while the Covid-19 pandemic has negatively impacted SDGs, it has underscored the critical need for pursuing them as a pathway to planetary and societal sustainability.

A presentation on climate change mitigation and SDGs highlighted a significant potential for co-benefits in pursuing both. In other words, this approach could lead to the simultaneous reduction of planet-warming greenhouse gas (GHG) emissions in alignment with the Paris Agreement and attainment of one or more environmental, social and economic objectives advanced by the SDGs. The presenter showed research results indicting that such complimentary climate mitigation policies that address multiple SDG objectives can avoid adverse consequences (e.g. increased biodiversity loss, water stress, food insecurity and poverty) likely to emerge from climate mitigation policies focused solely on GHG emissions reduction.

A presentation on fighting global poverty and climate change concluded that there are no silver-bullet solutions to complex global challenges such as ending extreme poverty (SDG 1) and mitigating/adapting to climate change (SDG 13), and that policymakers will need to draw from a more diverse playbook of effective solutions in order to put the world on track to meeting these interlinked SDGs. To produce that playbook will require a better understanding of the real-world human and environmental costs and benefits of various potential solutions. Policymakers can develop that understanding through evaluations of policies’ human and environmental impacts, including randomized evaluations that can reveal whether or not a proposed policy is likely to achieve its intended outcome, and why. This learning-by-doing approach to piloting potential climate solutions can help policymakers increase their effectiveness both in reducing GHG emissions and building climate resilience.

Urban Transitions

A presentation on the MIT campus as a testbed for managing urban climate risks showcased MIT’s efforts to boost the climate resiliency of a 170-building campus that serves about 24,000 faculty, researchers, staff and students. Since 2016 an MIT steering committee composed of climate scientists, urban planning experts, risk managers and facility stakeholders has advanced plans to protect that campus—essentially a small city—from risks occurring today (e.g. flash floods) and over the next 100 years (e.g. storm surges from the Charles River). To that end, the committee has developed strategies to address four interdependent layers of campus climate resiliency: people, buildings, utilities and site. Examples include work to: identify vulnerabilities to floods, extreme heat and other climate impacts in the MIT community, and inequalities in who bears the brunt; guide new building construction and renovations to provide sufficient flood protection; ensure that storm-water pipes are in working order; align campus flood-risk project models with the City of Cambridge’s model; and mitigate overall risk of on-campus storm-water flooding of buildings and utilities. The presenter emphasized five principles for growing a climate-resilient campus: protect people and community health; enable continuity of mission; make evidence-based decisions; implement no-regret strategies and standards; and pilot-test strategies at individual, unit, building, campus and city scales.

A presentation on using data analytics to help cities realize their carbon-reduction targets focused on efforts to decarbonize building energy systems. Noting three pressing uncertainties faced by cities today—rising air temperatures, population density and economic inequality—the presenter cited examples of several cities that have committed to reducing their greenhouse gas emissions by 80 to 100 percent by 2050. In the building sector, achieving carbon neutrality by 2050 entails increasing the annual retrofitting rate to five percent and making all new construction carbon-neutral within 10 years. To achieve these goals, building owners will need to take action ASAP. The presentation showed how providing clear information and long-term financial advantages backed by urban building energy modeling studies can entice building owners to shift to zero-carbon energy systems. Another approach is to enact a federal stimulus bill that incentivizes equitable carbon emissions-reduction in buildings.

A presentation on understanding urban risks in a changing world framed the Covid-19 pandemic as a once-in-a-generation opportunity to risk-proof infrastructure and socio-institutional safety nets around the world. The presenter emphasized that focusing only on exposure to risk is insufficient to understanding climate-related and other risks to an urban population. A more complete picture accounts for the population’s sensitivity to risk and capacity to adapt to it, two factors that contribute more to its overall risk. A case study of Mumbai, India showed how disparities in household income and adaptive capacity put segments of the population at greater risk to climate impacts such as storm surges and flooding. Those at highest risk have less access to assets (e.g. water and sanitation, and the Internet) that make it easier to recover and respond to these impacts. The presenter concluded that the social sciences are needed to help decision-makers better understand the complexities of risk vulnerability and response in urban settings.

Photo: The XLIII (43rd) MIT Global Change Forum was held on Zoom. (Source: MIT Joint Program)