What climate change risks will the resource sector face?
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Climate Change Risks in the Resource Sector
Fossil Fuel Industry Risks
The fossil fuel industry faces a myriad of climate change risks that vary significantly across different types of fossil fuels and between developed and developing countries. The coal industry is particularly vulnerable due to decreasing social acceptance and stringent financial regulations, while the oil industry is somewhat insulated due to the lack of viable substitutes1. Natural gas, on the other hand, has seen improved medium-term viability due to climate action1. The risks to the fossil fuel industry include government policies, financial restrictions, legal and shareholder actions, changes in demand, and new competitive forces1. These risks are not uniformly distributed across the sector, with shareholder-owned firms in developed countries likely to react sooner than state-owned firms in developing countries1.
Mining Sector Vulnerabilities
The mining sector is a significant contributor to greenhouse gas emissions and is highly exposed to climate change risks. These risks include physical damage to assets and infrastructure, disruptions to supply chains, and challenges in water and energy resource availability3. The sector's financial performance is also impacted, with different types of mining companies showing varying sensitivities to climate change risks8. Companies are encouraged to adopt low-carbon strategies and improve transparency in emissions reporting to mitigate these risks8.
Supply Chain Disruptions
Climate change significantly impacts global supply chains, particularly in the food, mining, and logistics sectors. Extreme weather conditions disrupt transportation networks and affect the availability of natural resources, leading to cascading effects across interconnected supply chains2. A systems theory-driven framework is proposed to manage these risks, emphasizing the need for comprehensive risk management strategies2.
Agriculture and Water Resources
Agriculture and water resources are highly sensitive to climate change, with risks including food insecurity, droughts, floods, and environmental degradation4. The complexity of these interactions necessitates a nuanced understanding of systemic social changes and scientific frameworks to guide sustainable transformations4. Vulnerability is particularly pronounced in less-developed countries due to limited resources for adaptation4.
Financial Sector Impacts
The financial sector is also affected by climate change risks, with natural disasters and climate-related events lowering insurer profitability, bank stability, and the returns and stability of stock and bond markets5. Factors such as income levels, financial regulations, and market diversification can mitigate these negative effects5. Future research is recommended to use forward-looking computational models to better assess these impacts5.
Multi-Sectoral Risks and Vulnerability
Climate change poses multi-sectoral risks that affect water, energy, and land sectors. These risks are exacerbated by socioeconomic factors, with the most vulnerable populations being those in poverty-stricken regions of Asia and Africa6. The exposure to these risks increases significantly with higher global mean temperature changes, highlighting the need for sustainable development and poverty reduction to mitigate these impacts6.
Regional Climate Risks in the UK
In the UK, climate change risks vary across different regions and sectors. Health, transport, energy, agriculture, and water sectors are all affected, with risks such as heat extremes, droughts, wildfires, and river floods expected to increase7. The demand for cooling energy will rise, while the demand for heating energy will decline7. Regional variability in these risks necessitates tailored resilience policies to address local priorities7.
Adaptation in Developing Countries
Developing countries face significant challenges in adapting to climate change due to their dependence on climate-sensitive resources like agriculture and fisheries10. These regions are particularly vulnerable to the risks posed by climate change, which can exacerbate existing social and economic challenges10. Enhancing adaptive capacity and promoting sustainable development are crucial for these countries to cope with both present and future climate changes10.
Conclusion
The resource sector faces diverse and significant risks due to climate change, affecting fossil fuels, mining, supply chains, agriculture, water resources, and financial stability. These risks are compounded by socioeconomic factors, particularly in developing countries. Effective risk management, sustainable development, and adaptive strategies are essential to mitigate these impacts and ensure resilience in the face of climate change.
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Most relevant research papers on this topic
Climate change and fossil fuel: An examination of risks for the energy industry and producer states
Climate change risks the fossil fuel industry differently, with heightened risk for coal and reduced risk for oil, due to the lack of viable substitutes.
Literature ReviewManaging climate change risks in global supply chains: a review and research agenda
Climate change significantly impacts global supply chains, requiring a systems-theoretical framework to manage climate change risks and mitigate its impact on food, mining, and logistics sectors.
Systematic Review
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The mining sector contributes to 11.6 per cent of Australia's greenhouse gas emissions and faces risks to physical assets, infrastructure, supply chains, water and energy resources, and employee health and safety.
On the risk of climate change on agriculture and water resources
Climate change risks to agriculture and water resources require complex adaptation strategies, with net-zero emissions and sustainable growth as key objectives.
A Review of the Financial Sector Impacts of Risks Associated with Climate Change
Natural disasters and climate change risks generally lower insurer profitability, bank stability, and credit supply, but factors like income levels, regulations, and market diversification can mitigate these negative effects.
Literature ReviewGlobal exposure and vulnerability to multi-sector development and climate change hotspots
Sustainable development can significantly reduce multi-sector climate risk for the most vulnerable, particularly in Africa and southern Asia.
Highly CitedChanging climate risk in the UK: A multi-sectoral analysis using policy-relevant indicators
UK climate risks, such as heat extremes, droughts, and river floods, will increase unless adaptation measures are implemented, highlighting the need for national and local resilience policies.
The impacts of climate change risks on financial performance of mining industry: Evidence from listed companies in China
Climate change risks have both positive and negative effects on the financial performance of China's mining companies, highlighting the need for low-carbon strategies and emission disclosure.
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Psychometric variables are the strongest predictors of perceived risk of climate change and policy preferences for climate change management, with demographic, knowledge, environmental values, and environmental values also playing a role.
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Adaptation to climate change is crucial for developing countries, particularly those dependent on sensitive resources like agriculture and fisheries, to address current and future risks.
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