Welcome to the EDHEC-Risk Institute. Today we are going to talk about the objectives of mitigation policies. Mitigation policies are those measures, those actions that we collectively take so as to help reduce carbon emissions globally in an attempt to slow down global warming. There's a very simple mathematical identity, which is known as Kaya identity, which allows us to understand the different objectives that mitigation measures can focus on. This Kaya identity is a very simple breakdown of carbon emission in a number of components. Here is what it looks like. On the left-hand side of the equation, you see E, which is total carbon emissions. Then we say E is equal to P. P is world population. Times Y divided by P. Y is a global income, so Y divided by P is per capita income, income per individual on the planet. Then it's multiplied by X divided by Y, where X is total energy consumed divided by Y, which is again total income. That tells us something like the consumption of energy per unit of economic activities. Then it's multiplied by last term, which is E divided by X. This E divided by X is known as carbon intensity. It's total carbon emission divided by X, which is total amount of energy used, whatever it's from. Carbon intensity gives us a sense of what is the fraction of the total energy that we're using, which is carbon-emitting. Now if you look at the equation, obviously, right-hand side of the equation, after simplifying the terms is equal to E, which is sitting on left-hand side of the equation. You may wonder what's the point of this mathematical tautology that we're introducing here. Well, the point of this identity is that we can do a very simple mathematical transformation, which is taking the log, and after taking a log, we differentiate this equation. If we do so, then we obtain the following equation, which actually can be very simply interpreted as follows. On the left-hand side, we look at the growth rate of emission, which is given by this derivative with respect to time of the log of emission. That can be interpreted as the growth rate of emissions. What we find is the growth rate of emission is equal to the growth rate of population plus the growth rate of per capita income plus the growth rate of energy intensity plus the growth rate of carbon intensity. That's pretty interesting because it's telling us that if we want to reduce emissions, so if we want to slow down the growth in carbon emissions, then we have four dimensions that we can hope to impact in a positive way. We can reduce population growth, we can reduce energy growth, we can save energy, and we can switch to different energy sources. These are the four possible ways to deal with slowing down carbon emission. Now, if you look at numbers and if you look at the total amount of carbon dioxide emitted, which is the solid black line here, we see that it is very closely related to two things: which is the population increase, which is the red dotted line, which itself is, of course, highly related to the increase in GDP per capita. As you can see, the GDP per capita is increasing faster than population increase, but both of these elements are fairly strongly connected with the growth of carbon emission. If you look at carbon intensity over time, it has remained somewhat stable, does not move a lot. Energy intensity, on the other hand, has gone down, which is good news. It's telling us that we need less and less energy for producing the same amount of goods and services. Let's think a bit more carefully about those four components. Component number 1, which suggests adaptation measure. Number 1, we need to reduce population growth. Reducing population growth would require a big adjustment with respect to social trends. We've seen one successful example of an attempt to slow down or reduce population growth in the context of the China's one child policy. But we understand that this is not a very simple measure to adopt in every single country around the planet. Adaptation measure number 2 is an attempt to reduce economic growth. If you think about economic growth in terms of gross domestic product per capita, the amount of wealth collectively created divided by the number of individuals, well, clearly this has kept going up. In particular, in Western countries where this increase has been dramatic. As we all know, in the US, in Western Europe, we've seen a massive increase in wealth per capita. In other countries like Western Asia or Eastern Europe, Latin America, even more so in Africa, this increase has been slower. These countries have enjoyed less enrichment of their population due to a lower level of economic growth per capita. Slowing down this increase in economic growth would require a big adjustment with respect to historical trends. We are used to be looking at improvement in income in most countries. Then the next step would involve the reduction of energy intensity. Well, it turns out that if you look at these graphs showing the evolution of total energy consumption ever since the 1980, in the 1990, what you find is energy consumption has increased and, if you look at the projections, will keep increasing if we keep on staying in high economic growth scenario. But if you look at energy intensity, energy intensity has gone down. In other words, we've been collectively able, throughout the advances of technologies, to produce the same amount of goods and services with a lower quantity of energy. When it comes to the quantity of energy which is being used, we have to acknowledge that in most developed countries, in particular, fossil fuel or coal and gas still make up for the majority of the energy which is being used. Renewable energy and nuclear energy in most countries still form a small component. That is a clear place for improvement where we hope that switching away from oil and gas and moving into renewable energy and perhaps nuclear energy, this is technically feasible, and that will help at least contribute to one of these four factors impacting the increase in carbon emissions. But as the discussion we've just had suggests, it's not going to be an easy path. Each one of these four dimensions is something that will come with a high cost.