Overview Governance Strategy Risk Management Metrics and Targets Appendices 41 2023 CLIMATE REPORT ROYAL GOLD SHADOW CARBON PRICING A key indicator of the level of transition risk is the shadow carbon price, a proxy for government policy intensity and changes in technology and consumer preferences, which is the approach used by NGFS. • Transitioning away from fossil fuels and carbon- intensive production and consumption requires a significant shift towards emissions-neutral alternatives in all sectors. Policymakers can induce this transition by increasing the implicit cost of emissions. As it takes time to develop and deploy alternative technologies, climate policies may lead to higher costs in the interim. 1 NGFS Scenario for central banks and supervisors, November 2023. • In the Integrated Assessment Models used to produce the NGFS scenarios, a higher shadow carbon price is a proxy for more stringent emissions policies and regulations. Models suggest that a shadow carbon price of around $200/tCO 2 would be needed in the next decade to incentivize a transition towards net zero by 2050. Except for Current Policies, shadow carbon prices rise in all scenarios and models. Prices tend to be lower in emerging economies as policy stringency is lower and there tends to be a greater number of low-cost abatement options still available. • The increase in shadow carbon price translates into more ambitious emissions reductions. In other words, in the NGFS scenarios, carbon prices are shadow prices that: 1) represent the marginal cost of abatement of carbon emissions and 2) are a proxy for overall climate policy ambition and effectiveness, accounting for a variety of real-world climate policies (carbon tax, subsidies, environmental standards, etc.) 1 NGFS updated the integrated assessment models that support their climate scenarios in 2023 from Phase III to Phase IV. As ambitious transition efforts at the global level are delayed and levels of emissions remain elevated, the carbon budget runs out, and more rapid and stringent action is needed to achieve the same emission reductions over a shorter period. Since our 2022 scenario analysis (Phase III scenarios), a delay in political action makes it more and more difficult to reach climate targets in an orderly way, leading to higher transition risks in the form of higher shadow carbon prices for the Net Zero 2050 scenario and a shadow carbon price reduction in the Delayed Transition scenario for our climate scenario analysis update. A visualization of shadow carbon pricing associated with each of our three scenarios reflects estimates from the three Integrated Assessment Models used by NGFS and is responsible for the range of outcomes. GLOBAL AVERAGE SHADOW CARBON PRICING NET ZERO 2050 SCENARIO $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 2020 2030 2040 2050 2060 Source: NGFS Climate Scenario Database, Phase IV (average of REMIND, GCAM 5.3, MESSAGEix models). (US$/tCO 2 ) DEL AYED TR ANSITION SCENARIO $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 2020 2030 2040 2050 2060 (US$/tCO 2 ) CURRENT POLICIES SCENARIO $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 2020 2030 2040 2050 2060 (US$/tCO 2 ) NGFS  Phase  IV  Mean  Estimates  (2023) NGFS  Phase  III  Mean  Estimates  (pre-2023) Range  of  Phase  IV  Estimates