Climate change scenario analysis

The application of RCPs and SSPs in climate scenario analysis

Responding to the challenge of climate change will require a transformation across all of society. Both government and organisations have a critical role to play. By understanding the risks and opportunities of climate change, and their potential impacts, organisations can gain a better understanding of how different climate futures might affect their operations, supply chains, and importantly their customers.

Why do organisations need to take action?

As the impacts of climate change are becoming clearer, the economically “optimal” amount of warming is edging closer and closer to zero (where the costs of decarbonising are balanced against the costs of not). Organisations need to understand the risks they face in a changing climate, not least the opportunity cost of falling behind as we do the urgent work of decarbonising our economy.

When it comes to understanding how climate change might affect your organisation, trying to predict the future is fraught with uncertainty. That is why scenario analysis and planning is essential. It typically involves considering three or more scenarios to capture a broad range of plausible futures. Scenario analysis is a key requirement of Aotearoa New Zealand’s Climate Related Disclosures (NZ CS 1).

Scenario analysis is a tool that allows us to see how risks might evolve under climate change. But how do you navigate the entirety of climate science to find robust and relevant projections to inform your analysis?

A scenario analysis should assess a broad range of risks, from the transition risks of a disruptive, rapid decarbonisation, to the dire physical consequences of continued delay in reducing emissions.

It is central to Climate Related Disclosures reporting. This approach synthesises multiple sources of climate information relevant to your organisation and develops narratives that describe a range of plausible futures to stress test your strategy. For example: if your organisation wants to include projections for both heat waves and floods, you might find studies that assess each of these risks, but unless they are based on the same future climate, you will not be comparing ‘apples with apples’.

Representative Concentration Pathways (RCPs) and Shared Socioeconomic Pathways (SSPs) are a core element of many climate scenarios. They are extremely useful, but can be misused if not well understood. It is important to understand the science behind these tools, where they come from, and hence how they should be used.

RCPs and SSPs are projections that allow different studies using various climate models to align their inputs, to give a more cohesive picture of the future. RCPs are projections of greenhouse gas concentrations over time, while SSPs include a wider range of socioeconomic factors, like population and GDP. The RCPs show where we might be going, and the SSPs show how we might get there.

The Representative Concentration Pathways (RCPs) were developed around 2010 by the global climate science community. They provide a common set of “concentration pathways”: descriptions of the amount of carbon dioxide in the atmosphere, both historically and into the future by year - from 2005 through to 2300. In addition to carbon dioxide, aerosols and other greenhouse gases like methane, nitrous oxide, and organic compounds are also specified.

RCP8.5 is the high emissions scenario, and RCP2.6 is the low one, with RCP4.5 and RCP6.0 sitting in the middle, so there is a big range across the pathways. By 2100, RCP2.6 projects around 1.6°C of global warming (compared to around 1.1°C today), while RCP8.5 projects a terrifying warming of more than 4°C.

This coordinated approach is powerful. For example, if one study calculates sea level rise under RCP4.5 and a different study calculates extreme rainfall under the same conditions, then you can (carefully) combine data from the two to assess your own flood risk. However, the RCPs are limited. They provide information on the state of the atmosphere, but not any information about the socioeconomic drivers that lead to these different outcomes. That’s where the Shared Socioeconomic Pathways (SSPs) come in.

The Shared Socioeconomic Pathways (SSPs) are a set of five scenarios which were developed by the global climate science community around 2015. Models that use these represent best practice in global climate modelling. They provide harmonised, global narratives of the kind of world we might be living in in the future. Each scenario is characterised by how difficult adaptation and mitigation could be. For example, SSP1 has low barriers to both adaptation and mitigation because it assumes a world with a strong regulatory response to climate change and a rapid shift to a low-emissions economy. SSP3, on the other hand, has high barriers to both adaptation and mitigation in a world with little international cooperation, slow progress on healthcare and education equity, and high emissions.

The complicated aspect

To be used as inputs for climate models, the SSPs also have greenhouse gas concentration pathways that are specified. These pathways get attached to the SSPs, resulting in names like SSP2-4.5 (a medium emissions pathway in a world that follows SSP2) and SSP5-8.5 (a very high emissions pathway in a world that follows SSP5). You can have more than one concentration pathway for each SSP (as in SSP1-1.9 and SSP1-2.6) or pathways with different SSPs but similar warming (as in SSP4-3.4 and SSP5-3.4). This approach means that there are several SSP pathways in total, many more than the four RCP ones, but some are used much more often than others. These new concentration pathways are also sometimes still referred to as RCPs (e.g. RCP1.9), but this is not recommended because of the common numbering between four of the RCP and SSP pathways: 2.6, 4.5, 6.0, and 8.5.

So, are RCP8.5 and SSP5-8.5 the same, then? Not quite. Firstly, the balance of CO2, methane, aerosols, and other chemicals is different between each of these scenarios. Secondly, the RCPs diverge from historical emissions in 2006, while the SSPs do so in 2015. Thirdly, climate change under the SSPs has been simulated using a newer generation of climate models. These factors all lead to different climate change projections, particularly at the regional level (as shown in research by one of our climate scientists here at PwC, Hunter Douglas, published here). In general, it is advisable to use SSP projections over RCP ones, when they are available, as models that use these represent our most up-to-date understanding of the climate.

CO₂ concentrations in the corresponding RCP and SSP pathways - similar, but not the same.

Unfortunately, none of this tells us anything about which of these pathways is most likely. That depends entirely on the actions we take globally to reduce our emissions given a set of ever-changing social, political, economic, and technological conditions. A well-informed scenario analysis that draws on the latest science is one of the best ways to equip your organisation to be resilient in the face of change and to be part of the solution to decarbonising our global economy.

How can PwC help?

We help clients understand their exposure to climate-related risks and opportunities, and improve their strategic decision-making, enabling organisations to thrive in the face of change and uncertainty.

Core service offerings:

CRD readiness and work plan assessment to prepare organisations for disclosure requirements

Strategy & transition planning

Climate change risk and opportunity assessment

Quantification of climate change impacts

Climate change scenario analysis