Faced with the uncertainties surrounding climate change, policymakers and investors need to know what can happen and how likely these outcomes may be. Unfortunately, current scenarios answer only the first question – and at that, only partially. Research carried out at the EDHEC Risk Climate Institute tries to provide approximate but “actionable” answers to the second.
Climate stress testing dates back to the 1990s, when teams of scientists collaborated to create a scenario framework that was to set the analytical standards for decades to come.
They did so by sketching out a handful of narratives about how the world may evolve, socially and economically. These are now referred to as shared socioeconomic pathways (SSPs). The narratives were combined with a range of projected carbon emissions, known as representative carbon pathways (RCPs). Each narrative was run through every emission projection using process-based integrated assessment models (IAMS), which were fine-tuned on a case-by-case basis to reflect as closely as possible each of the narratives. At this point, the only degree of freedom left to match the narrative with the emission projection was the social cost of carbon – roughly speaking, the tax that should be levied on the “consumers” of carbon emissions, and whose proceeds should be channeled to emission reductions.
