Preparing for the future: hedging risk using greenhouse gas forwards

Climate change science and modelling are now reasonably advanced, largely under the auspices of the Intergovernmental Panel on Climate Change (IPCC) – the UN intergovernmental body responsible for advancing knowledge of human-induced climate change. However, the way in which society will respond to climate change is still extremely uncertain, as are other factors, such as the speed with which carbon dioxide removal technology will be developed and commercialised.

Despite this uncertainty, there must be a best estimate for greenhouse gas (GHG) atmospheric concentration in watts per square metre (W/m2) at future points in time (2035, 2040, 2045 and so on). This might be thought of as a crowdsourced GHG atmospheric concentration ‘forward curve’.

The 2019 GHG atmospheric concentration reading, as per the most recent IPCC report, was 2.72; as we are now in 2022, it will be a little higher. A reading of 1.9 in 2100 would be considered ‘very low’, while a reading of 8.5 in the same year would be ‘very high’; the actual reading will presumably fall between these two figures. Figure 1 shows a fictitious GHG atmospheric concentration forward curve that sits between these high and low values.

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