Keeping global warming below 2°C will require substantial reductions in global greenhouse gas emissions over the next few decades.
This report highlights that leaving the transition to a low-carbon economy too late risks affecting the economy of the European Union in three ways:
- first, a sudden transition away from fossil-fuel energy could harm GDP, as alternative sources of energy would be restricted in supply and more expensive at the margin;
- second, there could be a sudden repricing of carbon-intensive assets, which are financed in large part by debt;
- third, there could be a concomitant rise in the incidence of natural catastrophes related to climate change, raising general insurers’ and reinsurers’ liabilities.
A gradual transition to a low-carbon economy is therefore seen as the best option; this choice would be better manageable and would prevent energy costs from rising abruptly. Furthermore, additional policy intervention and investments in low-carbon technology are likely to help in preventing greenhouse gases in the atmosphere from growing in the medium term.