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Climate change mitigation measures such as carbon pricing

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The World Bank’s State and Trends of Carbon Pricing 2020.

Earth ’s climate is a complex adaptive system interconnected to the atmosphere, oceans and land surface. Our emissions of greenhouse gases – primarily CO2 due to burning fossil fuels and deforestation but also methane, nitrous oxide and some other industrial chemicals – jeopardise the balance within the system. Droughts, fires, storms and floods are hugely disruptive risks to our lives, livelihoods and landscapes. Mitigating these climate change risks means radically reducing emissions 
… but how … when carbon is so embedded in our current economies?

It is crucial to decouple economic growth from emissions growth. Carbon pricing is an effective instrument to guide production and investment decisions towards mitigating emissions and can be implemented using a tax, an emissions trading system, or a combination of the two.

Economists have made a strong case for carbon (CO2) pricing for many years. Carbon (carbon emissions) are an externality. They are often unpriced, even though priced research shows that price levels are below what is needed to support the changes the world needs to transition to a low carbon economy. Carbon pricing increases the cost of CO2 emissions and implements the polluter pays principle. It does this by increasing costs and, if sufficiently high and rising over time, making carbon- intensive energy carriers unprofitable. Coal is the most carbon-intensive fossil fuel we burn so carbon pricing can effectively counteract the global renaissance of coal.

The World Bank’s State and Trends of Carbon Pricing 2020 is the latest in their annual reports which gives a comprehensive update on carbon pricing around the world. The Foreword to the report says: “A well-designed carbon price embedded in a broader package of climate, energy and development policies and measures remains critical to solving the climate challenge and advancing the achievement of sustainable development aspirations.”

For some years the UK has been a member of the European Union Emissions Trading Scheme (ETS). At the time of writing the Department for Business, Energy and Industrial Strategy (BEIS) has consulted on a UK ETS, operative after the UK leaves the European Union (UK ETS).

ETS allowances were designed as part of industrial strategy, but investors have started to consider them as investible entities.

Energy policies urgently need to promote energy efficiency while embracing clean energy sources to make things move, heat up and cool down. The energy transition is a pathway towards transformation of the global energy sector from fossil-based to zero-carbon by the second half of this century. At its heart is the need to reduce energy-related CO2 emissions to limit climate change. The Energy Transitions Commission is a global coalition of leaders from across the energy landscape committed to achieving net-zero emissions by mid-century.

Afforestation is another mechanism for climate change mitigation. It is considered a cost-effective and readily available climate change mitigation option.

Appropriate policies for agriculture, forestry and other land use are also needed as these sectors account for about a quarter of net emissions mainly from deforestation, agricultural emissions from soil, and nutrient management and livestock. The most cost-effective mitigation options in forestry are afforestation, sustainable forest management and reducing deforestation, with large differences in their relative importance across regions. In agriculture, the most cost-effective mitigation options are cropland management, grazing land management, and restoration of organic soils. Demand-side measures, such as changes in diet and reductions of losses in the food supply chain, have a significant, but uncertain, potential to reduce emissions from food production.

These climate change mitigation measures are closely related to broader concepts of sustainability. The circular economy aims to redefine growth, focusing on positive society-wide benefits. It entails gradually decoupling economic activity from the consumption of finite resources and designing waste out of the system. Underpinned by a transition to renewable energy sources, the circular model builds economic, natural, and social capital. It is based on three principles:

  • Design out waste and pollution
  • Keep products and materials in use
  • Regenerate natural systems

The Doughnut Economy has balance as its central theme. The theory postulates that a thriving human existence is only possible by considered use of available resources. Use too much, and we risk catastrophic effects that are harmful to human life. However, using earth’s resources unwisely can also lead to a shortfall, with humans existing in danger and hardship. The ‘doughnut’ is the safe zone between these two extremes. It represents the ability to thrive economically, with 12 social foundations, such as water, food, health and income, being met for all people.

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  • The Growth Mindset for Actuaries

    13 October 2021 - 8 December 2021

    Fully booked.

    This practical course is aimed at actuaries at any stage of their career who want to develop their own growth mindset and apply it to their work setting and personal or professional lifelong learning. The content of the course builds on the lecture given by Dr Helen Wright on Growth Mindset as part of the President’s 2021 Lecture series, and will be delivered over a period of 2 months, from mid-October to early December.

  • Spaces available

    The role of actuaries within the health sector varies considerably from one country to another, due to differences in the local evolution of health systems and the funding models for health services. 

  • Spaces available

    This paper outlines key frameworks for reserving validation and techniques employed. Many companies lack an embedded reserve validation framework and validation is viewed as piecemeal and unstructured.  The paper outlines a case study demonstrating how successful machine learning techniques will become and then goes on to discuss implications.  The paper explores common validation approaches and their role in enhancing governance and confidence.

  • Spaces available

    Content will be aimed at all actuaries looking to understand the issues surrounding mental health in insurance and in particular those looking to ensure products and processes widen access for, and are most useful to, those experiencing periods of poor mental health.
     

  • Spaces available

    The IFoA Policy Briefing 'Can we help consumers avoid running out of money in retirement' examined the benefits of blending a lifetime annuity with income drawdown. Panellists, including providers and advisers, will look at the market practicalities of taking the actuarial theory through into the core advice propositions used by IFAs and Fund Managers. They will share a number of practical issues such as investment consequences before and after retirement and the level of annuity that is appropriate and answer questions from the audience.

  • Speech from the Governor of the Bank of England, Andrew Bailey

    Lincoln's Inn The Treasury Office, London WC2A 3TL
    1 December 2021

    The IFoA is pleased to be hosting the Governor of the Bank of England, Andrew Bailey, to deliver a speech on delivering policyholder protection in insurance regulation.

    The speech will be presented to an in-person audience, and simultaneously live-streamed, at 14.00 on Wednesday 1st December.

  • The Many Faces of Bias

    2 December 2021

    Spaces available

    This webinar looks at the many types of biases, both conscious and unconscious and the impacts they can have in the workplace.  Raising our own awareness and understanding of the issues can help us avoid the pitfalls of unconscious bias in particular.  We’ve all heard the phrase ‘office banter’ but are we sure that’s how those on the receiving end perceive it and is it ok to go along with it?

  • Spaces available

    Actuaries need to take action now - but how?  With a focus on climate change, this session will provide informed insight to enable you to improve your knowledge and understanding of the issues involved, demonstrate how it will impact advice to your clients, and highlight prospective opportunities for actuaries within pensions and wider fields.

  • Spaces available

    Pension scams have become more prevalent as a result of the pandemic, and Trustees have increased responsibilities to protect members, which means that actuaries need to be in a position to provide advice in this area. Our specialist panel will include a professional trustee, an IFA and head administrator, two of whom are members of PASA.

  • Spaces available

    The covid-19 pandemic creates a challenge for actuaries analysing experience data that includes mortality shocks.  To address this we present a methodology for modelling portfolio mortality data that offers local flexibility in the time dimension.  The approach permits the identification of seasonal variation, mortality shocks and late-reported deaths.  The methodology also allows actuaries to measure portfolio-specific mortality improvements.  Results are given for a mature annuity portfolio in the UK

  • Spaces available

    In this webinar, the authors of the 2021 Brian Hey prize winning paper present a new deep learning model called the LocalGLMnet. While deep learning models lead to very competitive regression models, often outperforming classical statistical models such as generalized linear models, the disadvantage is that deep learning solutions are difficult to interpret and explain, and variable selection is not easily possible.

  • Spaces available

    The dominant underwriting approach is a mix between rule-based engines and traditional underwriting. Applications are first assessed by automated rule-based engines which typically are capable of processing only simple applications. The remaining applications are reviewed by underwriters or referred to the reinsurers. This research aims to construct predictive machine learning models for complicated applications that cannot be processed by rule-based engines.

  • Spaces available

    With the Pension Schemes Act 2021 requiring a long term strategy from Trustees and sponsors, choosing a pensions endgame strategy has become even more critical. However, it is important that the endgame options available are adequately assessed before choosing one. With an ever-increasing array of creative and innovative options available, this decision may not be straightforward.