What To Expect From the Climate In 2022
Natural disaster events have doubled globally over the last thirty year
In 2021 we experienced unprecedented devastating climate events. These caused thousands of deaths and billions of dollars in economic loss. These disasters are evidence of how little we have done to build long-term societal and economic resilience. One of the costliest disasters in 2021, was the Texas cold front that affected the state during February 10-19 2021. According to the Electric Reliability Council of Texas (ERCOT) the cold front caused $195 billion in damage and losses. Over 90 per cent of these losses could have been avoided with basic prevention measures. This is called investing in resilience and proactive prevention. For every dollar invested in prevention, we could save at least $20 in emergency response which is how we deal we disasters today.
Climate disasters will cause more damage and losses in 2022
Natural disaster events have doubled globally over the last thirty year (World Bank), and in some regions such as the Middle East they have trebled. They are now happening in geographic locations that are typically not affected by disasters, and therefore the victim of these are less prepared to absorb the shocks they cause. In 2020, there were “22-billion-dollar climate disasters” across the US (as documented by NOOA), costing approximately 1 per cent of GDP (approximately $200 billion). If we account for all disasters and direct and indirect cost as done in Texas, the loss is much larger. 2021 is projected to be worse and the GDP total losses caused by climate event could be as high as 3 per cent. Globally speaking, according to Munich-Re (the European Re-insurance Group), the global monetary losses in 2020 were up 26.5 per cent compared to 2019’s losses, and based on the current data, in 2021 the total losses are likely to double. By 2050 Swiss-Re estimates that climate could cause $23 trillion in global GDP losses (in 2020 the global GDP was $84.5 trillion), corresponding to 11 to 14 per cent off global economic output per year.
Droughts will become more severe in 2022 everywhere
Drought is often overlooked as a climate disaster because its impacts are slow and measurable over a long-term period. However, given the growing water stress in the US, it is worth reflecting on this natural hazard. The Western US has been in a mega-drought for the last 10 years, and 2021 has been the worst in 500 years according to NASA. For the first time ever, over 95 per cent of the region is in severe and potentially irreversible drought. The state of Arizona lost about 20 per cent of water supply due to the extreme low level of the Mead water basin (one of the largest water reservoirs in the US). To be more specific the “global warming price tag” in the water sector in the US would be one of the hardest felt. By 2025, managing water stress in the US will cost about $200 billion (1.36 per cent of GDP) per year. By 2100, addressing water needs in the US will cost an estimated $950 billion more per year because of climate change. These mega-droughts will worsen across the globe and continue to cause devastating wild-fire. One of these that burned across remote Siberia (one of the coldest inhabited places on Earth) was larger than all the fires around the world combined. This wildfire caused 1 billion gigatons of Co2 into the atmosphere, which is larger than Germany (the third largest exporter in the world) annual carbon emission. More extreme wild-fire are likely to happen in 2022, reducing the possibility of keeping global temperature increase below 1.5 Celsius (as compared to pre-industrial time).
The climate crisis is now in everyone’s agenda
The climate summit COP26 in Glasgow, UK that took place in November 2021, was claimed to be the most important climate gathering since the Paris Climate Agreement in 2015. However, as expected the summit did not accomplish much but helped elevate the urgency to act to address the climate crisis. The net zero emission target to eliminate carbon emission by 2050 was watered down, as countries are still dealing with Pandemic recovery challenges, including unprecedented high energy prices, and inflation of 5-7 per cent. This makes coal and other cheap energy sources attractive for countries that are trying to recover from the $8.5 trillion economic loss of 2020. In other words, heads of state and head of delegations commited to steep carbon cutting during COP26 but were quick to urge OPEC to pump more oil to drive down energy prices as they returned to their home countries. Overall, however, regulations to curb carbon emission are coming, and PR pressure coupled with reputational risk will lead to more corporate actions to support decarbonization and green investment. Climate regulation will also foster divestment from fossil fuels in 2022 creating more headaches for oil and gas corporations. Expect a lot of “green-washing”, the practice through which a company provides misleading information about how a company's products are more environmentally sound.
Who are the climate winners?
Environmental Social and Governance (ESG) and green hydrogen have emerged as two strong themes that will receive significant policy and financial interest in 2022. ESG has expanded rapidly recently, and sustainable investment now tops $30 trillion. ESG is a strong corporate value driver and a tangible opportunity for investors. Additionally, the perceived cost and risk of not acting on ESG is becoming hard to ignore. Over the next five years, ESG will become a top priority for management, boards, and politicians, as it will drive long term competitive and inclusive success. To exaggerate my point, ESG is going to be the easiest way for politicians and corporations to play an active climate role and show positive impacts.
In terms of Green Hydrogen, its versatility and its climate friendly nature makes it highly competitive and timely. For Green Hydrogen to be scaled, costs must be driven down to $2/kg (hydrogen from renewable sources cost between $6 and $12 per Kg). Perhaps a way to get there, is to accelerate the production of the most cost-effective Blue Hydrogen (which cost $2.27/kg) to pave the way for a future dominated by Green Hydrogen. Saudi Arabia and United Arab Emirates are the leaders in Blue Hydrogen production, and they use Carbon Capture and Storage (CCS) recycling carbon dioxide for other uses, when hydrogen is produced from fossil fuels. These countries are investing massively in Blue Hydrogen to reach their decarbonization targets and shift their economies towards a more climate friendly focused approach.
In conclusion, while disasters will become more frequent and intense everywhere, the US, and the European Union will provide the legal framework and leadership, while the Gulf Oil producing countries will be investing massive resources to accelerate decarbonization, while building a cleaner energy future.
Andrea Zanon, is a global Environmental, Governance and Social expert and has advised over 15 ministers of finance, International Financial Institutions and global corporations on impact investments and resiliency.