NGFS: COP26 climate pledges to put world on track for ‘hot house’ scenario

National climate targets adopted during COP26 would leave the world vulnerable to the effects of runaway climate change, according to new scenarios issued by global central banks.

Modelling shows that the Nationally Determined Contributions (NDCs) which were pledged at last year’s global climate conference would result in a “hot house world” by 2100, where temperatures have increased by 2.6C. Exposures to natural hazards are projected to rise fivefold at these levels, with the most pronounced increases expected for drought and heatwaves.

Assessments by the International Energy Agency and some academics are more optimistic regarding the effectiveness of NDCs to hold the rise in global temperatures to 2.0C or lower.

National pledges are the newest among six climate scenarios published by the Network for Greening the Financial System (NGFS) last week, and are described as the most detailed to have been issued so far. It is the first time that data on the potential losses resulting from extreme weather events – distinct from the long-term effects of climate change previously modelled – have been included.

The scenarios – now in the third iteration – also incorporate the latest trends in renewable energy and mitigation technologies, and have updated GDP and population data.

“The target of scenario analysis should not be to find a precise risk estimate that captures every aspect of future developments but to convey the scale of the unprecedented changes and choices we are facing,” said Julia Bingler, an academic with the Zurich-based Council on Economic Policies.

“There is now more than enough supporting data to foster a paradigm shift from risk assessments towards policies and market prices that reflect and support physical and transition resilience.”

As with previous editions, the latest scenarios show that enacting climate policies early and in an orderly fashion will be less costly then a sudden ramping up of climate action prior to 2050, although both approaches could theoretically achieve net-zero by this cut-off point. Relying on NDCs or current government policies would miss the climate target entirely.

A key takeaway is emissions pricing. The NGFS models suggest that prices of around $200/ton will be needed in the next decade to incentivise a transition towards net-zero by 2050. The metric is a general proxy to capture the impact of various government policies which would make it more expensive, or cheaper, to emit carbon.

But current carbon prices – $53.74 and $6.89 per tonne on average under the European and Chinese ETS in 2021, respectively – are much lower than needed to influence the business decisions of big emitters.

The latest scenarios continue to include fossil fuels in the energy mix for decades and a reliance on carbon dioxide removal technologies, in a blow to campaign groups which have described the measures as lacking credibility in comments on previous editions.

Climate scenario analysis is still an emerging area of central bank supervision but has almost entirely been driven by members of the NGFS. Exercises conducted by central banks in Europe, the UK, Japan, Singapore, Canada and others have used the network’s scenarios as a basis.

The scenarios were described by Bank of England executive director Sarah Breeden as “broader and deeper than its predecessors” and “a true public asset that will evolve with this most important of topics over time.”