EDHEC Climate Institute has published a study proposing a framework to assign probabilities to long-term climate outcomes, in response to what it sees as "a critical shortcoming in existing scenario analysis tools used in financial regulation and investment strategy".
Titled “How to Assign Probabilities to Climate Scenarios”, this study used a large meta-dataset of 5,905 Social Cost of Carbon (SCC) estimates drawn from 207 academic sources, applying two complementary methods: An elicitation-based approach, reflecting expert views and observed gaps between recommended and implemented abatement policies―a maximum-entropy approach, making minimal assumptions based only on available data. These approaches produce consistent estimates of the likelihood of different climate outcomes by 2100, according to the study authors.
Key findings include:
- A 35–40% chance that temperatures will rise beyond 3°C by 2100, a level with severe implications for global stability and risk management.
- The 1.5°C target is technologically feasible but highly improbable without rapid, radical policy shifts.
- A median warming estimate of 2.7°C, indicating significant departure from the Paris Agreement goals.
- Physical climate damages outweigh the economic costs of transition―underscoring the need for realistic climate finance frameworks.
The study also maps its probability model onto Oxford Economics’ scenario structure, assigning probabilities that align with political and macroeconomic feasibility. By aligning its model with the structure of the Oxford framework, EDHEC notes that it can estimate the likelihood of each scenario. More than 90% of the probability is assigned to three scenarios with limited or delayed emissions abatement: Climate Catastrophe, Climate Distress, and Baseline.
The study concludes that integrating probabilities into climate scenario analysis is essential for credible stress testing, regulatory planning, and asset valuation.
