Vivid Economics Update: COP Special

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COP21 Special: Read our contributions to major pieces of work in the lead-in to the COP

Dear <<First Name>>,

The annual Conference of the Parties (COP) held under the UN's Framework Convention on Climate Change has begun in Paris. Vivid Economics completed a number of projects of relevance to some of the key issues under discussion in the negotiations and side events. This newsletter highlights several of our major contributions.

An assessment of the investment and finance community’s action on climate change for the UN Secretary-General's Climate Change Support Team: Vivid Economics looked at how the finance community has emerged as a critical actor in the response to climate change. We found a number of major 'inflection points' that signal a significant scaling up of private investment and insurance activities, and point out how some leading financial institutions are bringing climate action into the heart of their business strategies. Nevertheless, gaps in private sector climate finance remain: many institutions have still not priced climate risks and opportunities into their investment strategies, various innovative investment and insurance mechanisms have yet to achieve widespread adoption and scale, and absolute investment and insurance levels in many countries and sectors remain below what might be deemed economically optimal. In this context, policy makers have an opportunity to both deepen and broaden their partnership with private financial institutions to accelerate the sectors’ contribution to a low carbon, climate resilient transformation.

Below you'll find some of the other projects we have delivered in the past few months in relation to the COP. For more information on these, or for details on our many private sector projects not mentioned here, please email us.

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The cost of inaction: Recognising the value at risk from climate change
Vivid Economics modeled the impact of climate change on financial assets for this high profile report sponsored by Aviva. These first-of-a-kind estimates were only possible due to our world-leading knowledge of climate change economics and the application of innovative modelling techniques.

Our modelling finds that the average value at risk from climate change to assets under management is US$4.2 trillion, in present value terms —3 per cent of their current value. The tail risks are more extreme; 6°C of warming could lead to a present value loss worth US$13.8 trillion, using private-sector discount rates. From the public-sector perspective, 6°C of warming represents present value losses worth US$43 trillion —30 per cent of the current value of the world’s manageable assets.The report is available for download here.

Carbon Leakage: Theory, Evidence and Policy Design
Vivid Economics prepared a technical report on carbon leakage in collaboration with the World Bank Group’s Partnership for Market Readiness (PMR). The report provides an overview of the issue, discussing the theory, evidence and policy design. The technical note addresses three broad questions:

How to evaluate the expected competitiveness and carbon leakage impacts, both negative and positive, due to carbon pricing policies for different sectors and the entire economy;
How to mitigate the risk of carbon leakage through instrument design or complementary policies in the short and long term, and for different levels of expected decarbonisation, and;
How to manage the process of dialogue between a government, business and civil society on the implications for competitiveness and risks of carbon leakage, and their mitigation.

The full report can be found h ere, and workshop proceedings and materials can be found here.

Understanding Patterns of Climate-Resilient Economic Development
The UK’s Department for International Development commissioned Vivid Economics, in conjunction with the Overseas Development Institute (ODI), to help it understand how patterns of development impact climate resilience.

Drawing on case studies in the countries of Rwanda and Senegal, as well as the cities of Cagayan de Oro and Maputo, the study finds that without deliberate policy intervention, development tends to increase exposure and sensitivity to climate events, while at the same time increasing underlying adaptive capacity to respond to those events. The study also finds that increased exposure and sensitivity can be locked in for long periods of time. As a result, it highlights a number of important policy actions to incorporate climate exposure and direct development patterns so as to avoid the long-run negative impacts on climate risks. Find more details here.