The Economics of Climate Change

Αναδημοσίευση από άρθρο κένου οικονομικού τύπου

Repercussions are broad ranging and complex.Climate change will likely affect economies and financial markets by causing shocks to long-term growth prospects and shifts in the relative price of carbon-intensive goods. The effects will vary considerably among countries, based on their exposure to climate-related damage, their emission intensity and their ability to adapt to such damage and cut carbon emissions. In this report, we map out individual countries’ exposure to climate change.
Discounting the risks.Even though climate change is a long-term trend, financial markets need to price in the risks today. Investors therefore need to review their long-term growth, inflation and risk projections in light of climate change. The need to cut emissions is considerably greater in industrial countries although the adverse effects of climate change are likely to be larger in emerging markets where there is also substantial potential to avoid emissions. Globally, climate change will likely cause stagflationary pressure.
Gaining political momentum.Climate change is clearly moving up the political agenda. As politics is still mostly national, we discuss climate change from a country perspective. Decisive efforts to contain climate change could trigger a phase of faster technological and structural change. Countries aren’t equally well equipped for such creative destruction.
Uncertainty is pervasive.This study identifies a large number of risks and uncertainties starting with the process of climate change itself. In addition, the price dynamics of fossil fuels and carbon are important. Specific technological innovations could potentially make a difference, notably carbon capture and sequestration. Finally, the politics of climate change is a key factor because it sets caps for carbon emissions and chooses the policy instruments to achieve them, both of which are key to containing climate change.