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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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  • CILA 2022

    23 May 2022 - 24 May 2022

    Spaces available

    We continue to live in a world of global uncertainty. Survival depends on our ability to simultaneously navigate through the diverse root-causes, ranging from: the consequences of Climate Change; transitioning to Net Zero; increased inflationary pressures and supply chain issues; to self-imposed changes in regulatory requirements. CILA 2022 focuses on these challenges to ensure we continue to be informed and remain battle ready, as well as showcasing highlights of recent CMI outputs.

  • Spaces available

    In the spirit of fostering the IFoA’s vibrant, global community and enabling our members to participate, we have decided to hold our AGM virtually again this year. This allows for greater accessibility to this important annual event, and for greater accountability of our organisation.

    The Business of the AGM

  • The IFoA Conference 2022

    133 Houndsditch, London EC3A 7BX and Online
    22 June 2022 - 23 June 2022
    Spaces available

    We’re delighted to welcome you back to our first in-person conference since early 2020, also being delivered virtually in our first-ever hybrid event. The theme of our inaugural two-day conference is ‘Focusing on tomorrow’s actuary’ and will explore the contribution actuarial science is making to some of tomorrow’s biggest issues.

     

  • Spaces available

    This webinar will cover:

    • Some background on the risks of misselling in an ESG context, including the DWS case

    • Achieving positive impact is a strong antidote to the risks of greenwashing or ESG misselling, however this risks having a tension with fiduciary responsibilities

    • This tension can be resolved with a concept called Universal Ownership

    • Under Universal ownership, investors have an appetite to make a loss in order to achieve positive impact, and yet still have no compromise on their fiduciary responsibilities

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    This session will focus on the transformation roadmap of the healthcare sector in KSA and the role of actuarial capabilities in enhancing its evolution to the desired end stage as per the objectives of the Vision 2030. The discussion will focus how the system has evolved so far and shed light on  the expected future changes. Through examining  the transformation, we will highlight how the sector is and can use actuarial  expertise to not only assist with this transformation but also use basic actuarial principles to identify the key risks and their respective mitigation strategies.