Citi: Investors should brace for climate change

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It’s always interesting to get beyond the politics and look at what the money is doing when it comes to climate change. Citi has a note out today doing just that:

Conference Call — Today, Citi hosted a client conference call with Professor David Karoly, an expert in climate science from Melbourne University, who has been heavily involved with the Intergovernmental Panel on Climate Change, and is a member of the Australian Climate Change Authority. The call discussed the latest science and talked about implications for Australia. The Q&A session delved deeper into several aspects of the science.

  • Science Overview — The latest IPCC report found that warming is unequivocal.
  • Graphs of observed changes showed some variability around the warming trend seen in global surface temperatures (explored further in the Q&A session), and smoother trends in upper ocean heat content and in global average sea level change (Figure 1, Figure 2). It was explained that most of the heat that has been added is contained in the oceans, whereas surface temperatures are more dependent on variations including volcanic activity and El Nino/La Nina events.
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  • IPCC Modelling — In a “Business As Usual” type of scenario, greenhouse gas emissions continue to rise, and global average temperatures would increase by around +/-4°C relative to year 2000 levels (Figure 3). Conversely, in a scenario of rapid emissions reductions, warming is limited to less than 2°C. In the BAU scenario, the land tends to warm faster than the oceans, with most warming in midcontinents including Australia. Sea level rise of +/-70-80cm above year 2000 levels is modelled, compared with +/-40cm in the low emissions scenario. The lower scenario would require rapid reductions in emissions, with perhaps up to 80% of fossil fuel reserves unable to be produced, unless the associated emissions can be captured and stored. Implications for Australia’s emissions targets, as a fair and equitable contribution to the global task, were discussed (Figure 5).
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  • Climate Change Risks — The Climate Commission identified risks to Victoria (Figure 4), and similar risks would be expected more broadly across Australia. Many of these impacts have been seen in the past decade, eg declines in snow cover, rainfall decrease, streamflow decrease, increased dangerous bushfire weather, higher sea levels, and more hot days.
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  • In Conclusion — Unless we see more rapid progress towards reducing global greenhouse gas emissions, we believe investors will need to more actively factor climate change impacts into their investment decisions. If we do see rapid progress on emissions, this would have implications for fossil fuel producers.

Just as well it’s all bullshit.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.