The Real Economic Dimensions of Climate Change
Abstract
The impacts of COVID-19 and efforts to stimulate recovery from the pandemic have highlighted the need for information about how disasters affect the real economy: temporal and spatial dynamics, cascading risks of disruption to employment, debt, trade, investments, bond markets, and real estate markets, among others. This commentary explores what information on the economic dimensions of climate change is needed to inform decisions about adapting to and effectively averting, minimizing, and addressing climate risks. We review the economic information presented in special reports from the IPCC AR6 cycle (SR1.5, SROCC, and SRCCL). We find that the information presented in these reports expands beyond costs of mitigation options, and potential negative GDP effects of climate impacts to include real economic dimensions in food production and land use (forestry and agriculture), coastal areas and fisheries, among others. This reflects an emerging literature which addresses a wider spectrum of economic and financial aspects relevant to climate change and national and regional priorities. Five emerging areas of work related to climate impacts on the real economy and on financial services provide essential additional information for decisions about efforts at all levels to achieve the objectives of the Paris Agreement and the overall objective of the UNFCCC Convention. Insights from economic analysis of the coronavirus pandemic—a sustained, complex disaster with global consequences across the real economy and financial services—can help highlight useful areas of research and discussion for policy makers considering climate impacts, vulnerabilities, and risks.
References
- 2020] Economic uncertainty before and during the COVID-19 pandemic. Journal of Public Economics, 104274, https://doi.org/10.1016/j.jpubeco.2020.104274. Crossref, Google Scholar [
- 2020] Shock interactions, coping strategy choices and household food security. Climate and Development, 1–13, https://doi.org/10.1080/17565529.2020.1785832. Crossref, Google Scholar [
- Campiglio, E, Dafermos Y, Monnin P, Ryan-Collins J, Schotten G and Tanaka M (2018). Climate change challenges for central banks and financial regulators. Nature Climate Change. Nature Publishing Group. https://doi.org/10.1038/s41558-018-0175-0. Google Scholar
- 2020] Climate change and credit risk. Journal of Cleaner Production, 266: 121634, https://doi.org/10.1016/j.jclepro.2020.121634. Crossref, Google Scholar [
- 2020] Quantifying economic impacts of climate change under nine future emission scenarios within CMIP6. Science of the Total Environment, 703: 134950, https://doi.org/10.1016/j.scitotenv.2019.134950. Crossref, Google Scholar [
- 2019] Modelling the evolution of economic structure and climate change: A review. Ecological Economics, https://doi.org/10.1016/j.ecolecon.2018. 12.008. Crossref, Google Scholar [
- 2018] How to retool our concept of value. Nature, 556(7701): 300–301, https://doi.org/10.1038/d41586-018-04534-1. Crossref, Google Scholar [
- 2019] The sectoral and regional economic consequences of climate change to 2060. Environmental and Resource Economics, 72(2): 309–363, https://doi.org/10.1007/s10640-017-0197-5. Crossref, Google Scholar [
- 2019] Worrying about climate change: Evidence from mortgage lending. SSRN Electronic Journal, https://doi.org/10.2139/ssrn.3449696. Google Scholar [
- 2020] Extending ‘environment-risk weighted assets’: EU taxonomy and banking supervision. Journal of Sustainable Finance and Investment, https://doi.org/10.1080/20430795.2020.1724863. Crossref, Google Scholar [
- 2019] Sustainable portfolio management under climate change. Journal of Sustainable Finance and Investment, 9(1) https://doi.org/10.1080/20430795.2018.1522583. Crossref, Google Scholar [
- 2015] A third wave in the economics of climate change. Environmental and Resource Economics, 62: 329–357, https://doi.org/10.1007/s10640-015-9965-2. Crossref, Google Scholar [
- Feridun, M and Güngör H (2020). Climate-related prudential risks in the banking sector: A review of the emerging regulatory and supervisory practices. Sustainability (Switzerland), MDPI AG. https://doi.org/10.3390/su12135325. Google Scholar
- 2017] Simulating US agriculture in a modern dust bowl drought. Nature Plants, 3: 16193, https://doi.org/10.1038/nplants.2016.193. Crossref, Google Scholar [
- 2018] Impacts of 1.5∘C Global Warming on Natural and Human Systems. In: Global Warming of 1.5∘C. An IPCC Special Report on the impacts of global warming of 1.5∘C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty.
The Global Macroeconomic Impacts of COVID-19: Seven Scenarios . SSRN Electronic Journal, https://doi.org/10.2139/ssrn.3547729. Google Scholar [ - 2017] Estimating economic damage from climate change in the United States. Science, 356(6345): 1362–1369, https://doi.org/10.1126/science.aal4369. Crossref, Google Scholar [
- 2017] Cold- and heat-related mortality: A cautionary note on current damage functions with net benefits from climate change. Climatic Change, 142: 407–418, https://doi.org/10.1007/s10584-017-1956-6. Crossref, Google Scholar [
- 2020] Mortgage markets with climate-change risk: Evidence from wildfires in California. SSRN Electronic Journal, https://doi.org/10.2139/ssrn.3511843. Google Scholar [
- 2020] Underwaterwriting: From theory to empiricism in regional mortgage markets in the U.S. Climatic Change, https://doi.org/10.1007/s10584-020-02734-1. Crossref, Google Scholar [
- 2018] The effects of climate change on GDP by country and the global economic gains from complying with the Paris climate accord. Earth’s Future, 6(8): https://doi.org/10.1029/2018EF000922. Crossref, Google Scholar [
- Lamperti, F, Bosetti V, Roventini A and Tavoni M (2019). The public costs of climate-induced financial instability. Nature Climate Change. Nature Publishing Group. https://doi.org/10.1038/s41558-019-0607-5. Google Scholar
- 2020] Climate damage functions for estimating the economic impacts of climate change in the United States. Review of Environmental Economics and Policy, 14(1): 25–43, https://doi.org/10.1093/reep/rez021. Crossref, Google Scholar [
- 2019] The social cost of carbon revisited. Journal of Environmental Economics and Management, 94, https://doi.org/10.1016/j.jeem.2019.02.003. Crossref, Google Scholar [
- Rogelj, J, Shindell D, Jiang K, Fifita S, Forster P, Ginzburg V, Handa C, Kheshgi H, Kobayashi S, Kriegler E, Mundaca L, Séférian R and Vilariño MV (2018). Mitigation Pathways Compatible with 1.5∘C in the Context of Sustainable Development. In: Global Warming of 1.5∘C. An IPCC Special Report on the impacts of global warming of 1.5∘C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty. Masson-Delmotte, V, Zhai P, Pörtner H-O, Roberts D, Skea J, Shukla PR, Pirani A, Moufouma-Okia W, Péan C, Pidcock R, Connors S, Matthews JBR, Chen Y, Zhou X, Gomis MI, Lonnoy E, Maycock T, Tignor M and Waterfield T (eds.). In Press. Google Scholar
- 2020] Low-carbon transition risks for finance. Wiley Interdisciplinary Reviews: Climate Change, https://doi.org/10.1002/wcc.678. Google Scholar [
- 2020] COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach. International Review of Financial Analysis, 70, https://doi.org/10.1016/j.irfa.2020.101496. Crossref, Google Scholar [
- 2018] Recommendations for improving the treatment of risk and uncertainty in economic estimates of climate impacts in the Sixth Intergovernmental Panel on Climate Change Assessment Report. Review of Environmental Economics and Policy, 12(2): 371–376, https://doi.org/10.1093/reep/rey005. Crossref, Google Scholar [
- 2018] The economic impacts of climate change. Review of Environmental Economics and Policy, 12(1): 4–25, https://doi.org/10.1093/reep/rex027. Crossref, Google Scholar [
- Warner, K, Elbehri A, Guadalupe Rivera Ferre M, Mirzabaev A, Stringer L and Wreford A (2019). Economic dimensions of climate change and land. Cross Chapter Box 10 In: Shukla, PR, Skea J, Calvo Buendia J, Masson-Delmotte V, Pörtner H-O, Roberts DC, Zhai P, Slade R, Connors S, van Diemen R, Ferrat M, Haughey E, Luz S, Neogi S, Pathak M, Petzold J, Portugal Pereira P, Vyas P, Huntley E, Kissick K, Belkacemi M, Malley J (eds.). Climate Change and Land: An IPCC Special Report on Climate Change, Desertification, Land Degradation, Sustainable Land Management, Food Security, and Greenhouse Gas Fluxes in Terrestrial Ecosystems. Google Scholar
- WMO. 2020 on Track to be One of Three Warmest Years on Record. World Meteorological Organization, Press Release Number: 02122020, December 2, 2020, public.wmo.int/en/media/press-release/ [January 10 2021]. Google Scholar