Climate Change Economics

We find evidence of negative returns, greater volatility, higher turnover, and lower liquidity around a tropical cyclone. Before the land warnings are issued, there is significant under-reaction by investors. Throughout the storm, market volatility increases with negative returns. This leverage effect is similarly present in liquidity before and after the storm. The abnormal returns, volatility, and activities are not related to the characteristics of the storm and exist after the weather effect and various determinants have been accounted for. These findings strongly suggest that underlying all the negative market reaction is the prevalent emotional distress, anxiety, and fear among investors evoked by the destructive and deadly forces of the storm. These negative emotions presumably are stronger when faced with stronger storms and may be managed with better preparedness. This is indeed the case given that we find evidence of more significant market reaction to moderate and severe typhoons and in the early years than in recent years.

This paper presents the overall and distributional welfare effects of alternative multi-regional emissions trading coalitions relative to unilateral action. It focusses on meeting Paris Agreement pledges and more emissions reduction targets consistent with 2^∘C and 1.5^∘C temperature pathways in 2030. The results from seven computable general equilibrium (CGE) models are compared. Across all models, welfare gains are highest with a global market and increase with the stringency of targets. All regional coalitions also show overall welfare gains, although lower gains than the global market. The models show more variability in the gains by a participant. Depending on the model, participants may benefit more from some regional arrangements than from a global market or face modest losses compared to the domestic reductions alone, due to interactions between carbon targets and fossil fuel markets. The scenario with a joint China–European Union emissions trading system in all sectors is consistently favorable for participants and provides the highest economic gains per unit of emissions abated.

Climate science suggests that moving to a zero-carbon economy will not immediately halt the environmental and economic damage caused by anthropogenic greenhouse–gas (GHG) emissions. Whereas air temperature increase will (almost) stop when the CO₂ concentration in the atmosphere is stabilized, ocean temperature will continue to increase for decades. In this paper, we introduce an environmental dynamic general equilibrium model with a natural transition from fossil to renewable fuels and then use that model to explore this temperature disconnect. We find that the transition to nonfossil energy is accelerated when damages due to persistent ocean temperature rise are taken into account. Sensitivity analysis reveals that (i) economic growth increases energy consumption but accelerates the transition; (ii) energy-augmented technological change does not accelerate the transition; (iii) emissions efficiency technological change has perversely harmful effects on the energy transition; and (iv) the elasticity of substitution between dirty and clean energy sources and the discount factor are key in determining optimal energy transition path.

Following the UK’s hosting of the United Nations Convention of the Parties Climate Summit in 2021, political targets for reducing greenhouse gas emissions — “Net-Zero” — have gained momentum. We address the gap in how public preferences are accounted for in climate decision-making by applying Contingent-Valuation techniques which ask people to state their Willingness-to-Pay (WTP) for the UK’s 2050 Net-Zero target. Mean WTP is £37.57/household to support Net-Zero (median £11.25), with a present-value of £2.3 billion across UK households. While younger people are more likely to experience the long-term impacts of climate change, older generations are willing to pay more to support it, suggesting that public support for Net-Zero is largely based on “nonuse” benefits, rather than direct “use” benefits to oneself. The COVID-19 epidemic affected WTP bids in a quarter of respondents. Finally, we explore how choice of positive or normative discount rate affects policy conclusions when monetizing consumer preferences.

This paper investigates the employment impacts of British Columbia’s revenue neutral carbon tax. Using the synthetic control method with firm-level data, we find considerable heterogeneity in employment responses to the policy. We show that firm size matters. In particular, the carbon tax had a negative impact on large emission-intensive firms, but simultaneous tax cuts and transfers increased the purchasing power of low income households, substantially benefiting small businesses in the service sector and food/clothing manufacturing. Furthermore, we find that aggregate employment was not adversely affected by the policy. Our results provide additional insight for the “job-shifting hypothesis” of revenue neutral carbon taxes.

Weather and climate information services (WCIS) are recognized as a powerful tool to support the management of climate risk in the context of climate variability. However, the picture of its value for agriculture is not yet well evaluated. This study used the Average Treatment Effect (ATE) framework to assess the impact of WCIS use on yield, income and technical efficiency of cowpea and sesame production in Burkina Faso. The study involved 170 farmers from 17 villages including 11 experimental villages exposed to WCIS and 6 control villages not exposed. The study found that farmers exposed to WCIS changed their crop management’s practices. A significant number of farmers used forecasts of the rainy season’ length and the onset date to choose which crop and variety to grow, which location and size of plots to crop. Daily forecast information was used for farm crop operations (choosing the date of land preparation, sowing, fertilizing, weeding, etc.), while the seasonal forecast was used for strategic decision (selection of crop and production site location). The use of farm inputs and labor requirements are different between climate-informed farmers and non-exposed farmers, the latter farmers tending to use more labor. The study showed that cowpea producers using WCIS obtained significantly higher yields (848kg/ha on an average compared to 675kg/ha for non-WCIS users); higher gross margin (34% higher than non-users). However, the impact of WCIS was not significant for sesame production. This may translate the strong linkage and dependence of the effectiveness of using WCIS with other factors than just climate variability, particularly the ability of the farmer to understand and apply relevant agro-met-advisories and crop–soil–water attributes.