screen-shot-2016-10-18-at-12-17-55-amIn a special 132-page report published in August 2015 entitled “ENERGY DARWINISM II: Why a Low Carbon Future Doesn’t Have to Cost the Earth,” Citigroup, one of the world’s largest financial insitutions, reported that it had studied the financial impacts and feasibility of whether we could afford to address climate change.   It found that, in fact, opting to address climate change and do what it takes to convert our economy to one using 100% clean energy and greatly increased efficiency, is not only feasible, it would save our economy $1.8 Trillion in energy costs over the long run out from a total tab that will run in excess of $190 Trillion.  The authors write:

We believe that that solution does exist. The incremental costs of following a low carbon path are in context limited and seem affordable, the ‘return’ on that investment is acceptable and moreover the likely avoided liabilities are enormous.  Given that all things being equal cleaner air has to be preferable to pollution, a very strong “Why would you not?” argument begins to develop.

Compascreen-shot-2016-10-18-at-12-18-10-amring what it called the “Action” scenario — which is investing in clean energy and converting our economy and our technologies to eliminate our use of fossil fuels — to the business-as-usual  “Inaction” scenario, the report found that on top of the relatively minor energy cost savings that would result, there would be additional benefits in avoiding what was estimated to be potential GDP damage from the effects of climate change which ranged from a low of $20 trillion for a 1.5 degree C rise in global temperature to as much as  $72 trillion for a average global rise of 4.5 degrees C.  One can only imagine how many lost lives are assumed by such a large decrease in GDP.

There is a lot to this well written report which provides quite a comprehensive overview of the current understandings about climate change, as well as a review of the costs both of action and inaction, a look at the drivers within the power markets and implications for change.  There is a lot more in this report than we can include in this post, so we providing a snapshot of the report’s own little precise of its contents and structure, as shown here.

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According to Madeleine Cuff writing at GreenBiz, Citi’s report is not the first to come to this conclusion:

The [Citi] analysis, released late last week, is the latest in a series of high-profile research papers which outline the high economic cost of failing to tackle escalating climate risks.

In July a report from the Economist Intelligence Unit warned the “tail risks” of climate change could cause $43 trillion worth of global assets to be wiped out, while the Grantham Institute released a paper demonstrating how nations financially will benefit from tackling climate change.

Meanwhile, Lord Stern, the U.K. economist who first argued that the economic benefits of tackling climate change outweighed the costs, recently released an update to his famous 2006 report reiterating how his analysis still stands.

More and more, as we look ahead to the 2016 elections, voters and investors will be looking at information that will help them understand the market impacts to the potential range of new presidential administrations that might take power beginning in 2017.

In answer to the rhetorical question posed by the authors, “Why would we not?” there are a multitude of political reasons that the Citi Report does not review.  Nevertheless, it is well worth the read, especially to have a better understanding of how one of the top financial institutions in the world thinks about the risks and returns associated with addressing climate change.  By all accounts, how the next president thinks about climate change and what they plan to do about it will have a huge impact not only on the U.S. and its investment markets, but also the global economy and the global climate.

Sources:

Citigroup:  ENERGY DARWINISM II: Why a Low Carbon Future Doesn’t Have to Cost the Earth, August 2015

GreenBIZ  Citigroup: Tackling climate change now could save $1.8 trillion,  Madeleine Cuff, August 24, 2015