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Economic downturn derailing the fight against climate change

WEF has warned that climate change is placing increasing amounts of stress on global economies

Climate change is placing increasing stress on economies and the environment at a time when governments have limited funds to invest in risk-prevention, the World Economic Forum (WEF) warned.

While developed economies have, so far, avoided major financial risk - the eurozone remains intact and the US has avoided the fiscal cliff - global economic fragility remains, and this threatens the climate, WEF warned in a new report, Global Risks 2013, released on 8 January.

WEF surveyed a range of environmental and financial experts for the report, asking them to rate 50 risk factors most likely to negatively affect global economies. The risk factors were categorised in terms of their likelihood and the severity of their impact.

“Two storms – environmental and economic – are on a collision course. If we don’t allocate the resources needed to mitigate the rising risk from severe weather events, global prosperity for future generations could be threatened,” one of respondent, John Drzik, chief executive of financial consultancy Oliver Wyman Group, said. “Political leaders, business leaders and scientists need to come together to manage these complex risks.”

High risk

The report identified wealth disparity and “unsustainable government debt” as the top two risks in terms of likelihood. Rising greenhouse gas emissions from fossil fuel consumption were seen as the third most likely global risk overall, while the “failure of climate change adaptation” is seen as the environmental risk with the most knock-on effects for the next decade.

Extreme weather events, such as Hurricane Sandy which hit the US east coast last year, are likely to increase in both severity and frequency, the report said. But there are ways to mitigate these risks by investing in resilient infrastructure. This would reduce the costs associated with repair in the event of a severe weather event. However, the report noted “persistent global economic fragility continues to divert our attention from longer-term solutions” to climate change, limiting the availability of public funds creating for strategic investment projects.

The International Monetary Fund projects sluggish annual growth for developed economies of between 1.3% and 2.6% between 2012 and 2017. This, combined with looming sovereign debt levels will continue to put a strain on government finances, WEF said.

WEF added that if the current commitments to limit global temperature rises remain unmet, the Earth’s temperature could rise by an average of 4 degrees Celsius by the 2060s. If this occurs, it would increase the frequency of high-intensity tropical cyclones and droughts, and cause the inundation of coastal cities as sea levels rise. This would lead not just to economic losses but also to mass displacement of populations and scarcity of food and water. 

While WEF makes no forecasts for the economic cost of more frequent natural disasters, it says that despite the current economic challenges we should invest now in ways to mitigate climate change to manage global economic risk in the future. 

Meanwhile, global demand for fossil fuels is set to increase significantly over the next 20 years. Global natural gas demand will rise by 50% by 2035 to 5 trillion cubic metres a year, according to the International Energy Agency (IEA). 

Two storms – environmental and economic – are on a collision course

 Fossil fuels are set to remain the mainstay of global energy supply, supported by government subsidies that increased last year by almost 30% last year alone to $523bn, according to IEA figures. Such subsidies were one of the main obstacles to increasing energy efficiency and reducing carbon emissions worldwide, the IEA said.

In its Efficient World Scenario (EWS) the IEA says that by adopting certain energy efficiency measures, growth in global energy demand could be cut by half, reducing greenhouse gas emissions. In the EWS, global oil demand would peak at 91m barrels a day (b/d) before 2020 and decline to 87m b/d by 2035.    

By increasing energy efficiency now, the IEA says, the world could buy itself time to develop new technology to control emissions. The report also said that social media was posing an increased threat to the oil industry’s reputation. Executives interviewed for the report placed social media and “digital wildfires” among the greatest risks that corporations face. Many pointed to the fake twitter accounts set up to parody BP’s public relations machine and then chief executive, Tony Hayward, after the Macondo blowout and oil spill in 2010.

Almost three years on from the spill the fake twitter account, @BPGlobalPR, still has more than 140,000 followers, almost three times the number for BP’s official twitter PR account, @BP_America.

While the rise of digital media was in many ways a force for good, the spread of false information, or “digital wildfires”, could have volatile and unpredictable consequences, WEF said.

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