Editing IPCC:AR6/WGIII/Chapter-4 (section)

=== 4.4.3 Risks and Uncertainties ===

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Shifting development pathways and accelerating mitigation are complex endeavours that carry risks. Some of these risks can be easily captured by quantitative models. Others are better understood via qualitative approaches, such as qualitative narrative storylines (told in words) and methods mixing qualitative and quantitative models ( [[#Kemp-Benedict--2012|Kemp-Benedict 2012]] ; [[#Hanger-Kopp--2019|Hanger-Kopp et al. 2019]] ). The following outline key risks and relevant hedging strategies identified in the literature.

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==== 4.4.3.1 Actions by Others Not Consistent With Domestic efforts ====

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The international context is a major source of uncertainty for national-level planning, especially for small- or medium-sized open economies, because the outcome of domestic choices may significantly depend on decisions made by other countries and actor, over which national governments have limited or no control ( [[#Lachapelle--2013|Lachapelle and Paterson 2013]] ). Availability of foreign financial resources in countries with limited domestic savings (Baum et al. 2017) and availability of technology transfers ( [[#Glachant--2017|Glachant and Dechezleprêtre 2017]] ) are some examples. Other external decisions with significant bearing on domestic action include mitigation policies in other countries ( [[#Dai--2017|Dai et al. 2017]] ), and especially in major trading partners, the lack of which can result in competitive disadvantage for sectors exposed to international competition (Alton et al. 2014). The international prices of the key commodities (notably energy), goods and services are important, notably when shifting development pathway is based on structural change (e.g., [[#Willenbockel--2017|Willenbockel et al. 2017]] for Ghana and Kenya).

Remedies include first devising policy packages that are, to the extent possible, robust to uncertainty regarding external decisions. For example, mitigation in the building sector is considered less problematic for competitiveness since the construction sector is less exposed to international competition. Remedies also include securing international cooperation to reduce the uncertainty that domestic decision-makers face about the international context. Shifting investments towards low-GHG solutions requires a combination of conducive public policies, attractive investment opportunities and financing of transitions ( [[IPCC:Wg3:Chapter:Chapter-15#15.6|Section 15.6]] ), which can enable shifting development pathways. Cooperation can generate positive spill overs through technology diffusion ( [[IPCC:Wg3:Chapter:Chapter-13#13.6.6|Section 13.6.6]] ). Third, cooperation is not limited to governments. As discussed in Section 4.2.3, international cooperative initiatives among non-state actors (cities, economic branches, etc.) can also provide know-how, resources and stable cooperative frameworks that reduce uncertainty for individual actors ( [[IPCC:Wg3:Chapter:Chapter-14#14.5.5|Section 14.5.5]] ).

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==== 4.4.3.2 Parts of Complex Policy Packages Fail ====

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As outlined in the examples in [[#4.4.1|Section 4.4.1]] above, shifting development pathways and accelerating mitigation are complex endeavours, on which there is limited experience and know-how from the past. An uncertainty is that parts of these policy packages may fail, in other words, under-deliver relative to the amount of mitigation and of transformations initially expected. For example, France has failed to meet its 2015–2018 carbon budget as housing retrofitting programs, in particular, have failed to deliver the expected amount of emission reductions ( [[#Haut%20Conseil%20pour%20le%20Climat--2019|Haut Conseil pour le Climat 2019]] ). There are two main options to tackle this risk. The first is to build in redundancy. The second is to anticipate that some parts of the policies will inevitably fail, and build-in monitoring and corrective mechanisms in a sequential decision-making process. To this regard, building institutions that can properly monitor, learn from and improve over time is critical ( [[#Nair--2017|Nair and Howlett 2017]] ).

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==== 4.4.3.3 New Information Becomes Available ====

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The science on climate change, its impacts and the opportunities to mitigate is continuously being updated. Even though decisions are no longer made ‘in a sea of uncertainty’ ( [[#Lave--1991|Lave 1991]] ), we know that new information will come over time, that may have significant bearing on the design and objectives of policies to shift development pathways and accelerate mitigation. New information may come from climate sciences (e.g., updated GWP values or available carbon budgets) ( [[#Quéré--2018|Quéré et al. 2018]] ), impact sciences (e.g., re-evaluation of climate impacts associated with given emission pathways) ( [[#Ricke--2018|Ricke et al. 2018]] ) or mitigation sciences (e.g., on availability of given technologies) ( [[#Lenzi--2018|Lenzi et al. 2018]] ; [[#Giannousakis--2020|Giannousakis et al. 2020]] ).

At the same time, economic and social systems are characterised by high degree of inertia, via long-lived capital stock or urban forms ( [[#Lecocq--2014|Lecocq and Shalizi 2014]] ), or more broadly mutually reinforcing physical, economic, and social constraints ( [[#Seto--2016|Seto et al. 2016]] ) that may lead to carbon lock-ins ( [[#Erickson--2015|Erickson et al. 2015]] ). Risks associated with long-lasting fossil-fuel power plants have been the object of particular attention. For example, [[#Pfeiffer--2018|Pfeiffer et al. (2018)]] estimate that even if the current pipeline of power plants was cancelled, about 20% of the existing capacity might be stranded to remain compatible with 1.5°C or 2°C pathways – implying that additional capital accumulation would lead to higher sunk costs associated with stranded assets (Ansar et al. 2013; [[#Johnson--2015|Johnson et al. 2015]] ; [[#Kriegler--2018|Kriegler et al. 2018]] ; [[#Luderer--2018b|Luderer et al. 2018b]] ).

In the presence of uncertainty and inertia (or irreversibilities), hedging strategies may be considered, that include selection of risk-hedging strategies and processes to adjust decisions as new information becomes available. The notion of hedging against risks is also prominent in the adaptation literature, as exemplified by the terminology of ‘climate resilient development’ ( [[#Fankhauser--2016|Fankhauser and McDermott 2016]] ) (AR6 WGII, Chapter18). There is also a growing literature on hedging strategies for individual actors (e.g., firms or investors) in the face of the uncertainties associated with mitigation (e.g., policy uncertainty or the associated carbon price uncertainty; e.g., Andersson et al. 2016 or [[#Morris--2018|Morris et al. 2018]] ). On the other hand, there is often limited discussion of uncertainty and of its implication for hedging strategies in the accelerated mitigation pathway literature. Exceptions include ( [[#Capros--2019|Capros et al. 2019]] ), who elicit ‘no-regret’ and ‘disruptive’ mitigation options for the EU through a detailed sensitivity analysis, and ( [[#Watson--2015|Watson et al. 2015]] ) who discuss flexible strategies for the UK energy sector transition in the face of multiple uncertainties.

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==== 4.4.3.4 Black Swans (Such as the COVID-19 Crisis) ====

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As the current COVID-19 crisis demonstrates, events happen that can derail the best-laid plans. Unexpected events beyond the range of human experience until then are called ‘black swans’, given the expectation that all swans are white. The only point to note here is that such events may also provide opportunities. In the COVID-19 case, for example, the experience of conducting many activities on-line, which reduces emissions from transport, may leave an imprint on how some of these activities are carried out in the post-COVID-19 world. Similarly, reduced air pollution seen during the pandemics may increase support for mitigation and strengthen the case for climate action. However, the emissions implications of recovery packages depend on choosing policies that support climate action while addressing the socio-economic implications of COVID-19 ( [[#Hepburn--2020|Hepburn et al. 2020]] ). Governments may be in a stronger position to do so due to their pivotal role in assuring the survival of many businesses during the pandemics. Given the magnitude of recovery packages and their implications ( [[#Pollitt--2021|Pollitt et al. 2021]] ), choosing the direction of recovery packages amounts to choosing a development pathway (Cross-Chapter Box 1 in Chapter 1).

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==== 4.4.3.5 Transformations Run Into Oppositions ====

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As noted above, shifting development pathways and accelerating mitigation involve a broad range of stakeholders and decision-makers, at multiple geographical and temporal scales. They require a credible and trusted process for reconciling perspectives and balancing potential side-effects, managing winners and losers and implementing compensatory measures to ensure an inclusive just transition ( [[#Newell--2013|Newell and Mulvaney 2013]] ; [[#Miller--2014|Miller and Richter 2014]] ; [[#Gambhir--2018|Gambhir et al. 2018]] ; [[#Diffenbaugh--2019|Diffenbaugh and Burke 2019]] ). Such processes are designed to manage the risk of inequitable or non-representative power dynamics ( [[#Helsinki%20Design%20Lab--2011|Helsinki Design Lab 2011]] ; [[#Boulle--2015|Boulle et al. 2015]] ; [[#Kahane--2012|Kahane 2012]] ). More generally, stakeholder processes can be subject to regulatory capture by special interests, or outright opposition from a variety of stakeholders. Information asymmetry between government and business may shape the results of consultative processes. Long experience of political management of change demonstrates that managing such risks is not easy, and requires sufficiently strong and competent institutions ( [[#Stiglitz--1998|Stiglitz 1998]] ). The next section on Just Transition ( [[#4.5|Section 4.5]] ) addresses this issue.

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