Laurence Kotlikoff, Felix Kubler, Andrey Polbin, Simon Scheidegger, 27 October 2021

The replacement of positive with normative economics has left climate policy in its sorry state – as a fight between generations, across regions, and even among economists over climate justice. This column uses a multi-region, overlapping generations model of climate change to study climate policy as an externality whose resolution can uniformly and equally benefit all humankind, regardless of year or place of birth. The optimal uniform welfare-improving policy, implemented via a time-varying global carbon tax plus region- and generation-specific net transfers, can materially limit global emissions, dramatically shorten the use of fossil fuels, and raise the welfare of all current and future agents by over 4%.

Beatrice Weder di Mauro, 12 October 2021

Governments will need to impose more carbon taxes, but central banks need to deliver price stability. So what is the effect of these taxes on inflation and economic activity? New research examines three decades of data from Canada and Europe.
 

Read more about the research discussed and download the free discussion paper:

Giovanni Peri, Frédéric Robert-Nicoud, 11 October 2021

Climate change is a defining challenge of our times. This column introduces a special issue of the Journal of Economic Geography on climate change, which provides foundations for well-informed policymaking by addressing two main themes of the economic geography of climate change. First, climate change yields heterogeneous effects across space. Second, a crucial aspect of human adaptation to climate change is geographic mobility. As a consequence, limitations to mobility will worsen the socioeconomic costs of climate change. Other margins of adjustment covered in the issue include fertility, specialisation, and trade.

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Finance, money and climate change

As fighting climate change becomes the world’s top post-pandemic priority, financial intermediaries, their regulators and central banks have all been called to contribute. A major new research report exploring the scope and limits of green finance and the possibility of ‘greening’ monetary policies will be launched at an online panel discussion hosted by Europe’s leading economic policy journal on Thursday 21 October 2021 at 17:00 CEST.

Markus Brunnermeier of Princeton University and CEPR, who has co-authored the study with former top French and international policy-maker Jean-Pierre Landau of Sciences Po, will present a new framework for thinking about finance, money and climate change – identifying the trade-offs and key choices to be made.

His presentation will be followed by a discussion with Anna Breman, deputy governor of Sveriges Riksbank, the central bank of Sweden, and Adam Tooze, Kathryn and Shelby Cullom Davis Professor of History at Columbia University, moderated by Tim Phillips, presenter of CEPR’s Vox Talks Economics podcast.

For more information visit the Economic Policy journal website.

Register now

Francesco Caselli, Alexander Ludwig, Rick van der Ploeg, 08 October 2021

The target for global warming agreed on in the 2015 Paris Agreement implies that effective policies must be implemented to reduce emissions for the whole planet as soon as possible and reach net zero in the second half of the 21st century. The contributions in a new CEPR eBook aim to identity, for each of the featured nations, which climate change policies will have the fastest and/or largest cumulative impact, and which are the most technically, financially, or politically feasible. Although the low-hanging fruit in climate policy vary across countries, this does not mean that one country cannot learn from the debates taking place in another.

Patrick Bolton, 05 October 2021

Do financial markets penalise firms that emit a lot of carbon, and is this an incentive for them to reduce emissions? Patrick Bolton of Columbia Business School has analysed the financial returns to estimate how carbon risk is priced.

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Friday 8 October

10h00 - 12h00 EDT (New York)
15h00 - 17h00 BST (London)
16h00 - 18h00 CEST (Paris)

Introduction:

  • Rick van der Ploeg (Oxford University and CEPR)

Panellists:

  • Ottmar Edenhofer (Director, Potsdam Institute for Climate Science)
  • Christiane Grefe (Die Zeit)
  • Mar Reguant (Northwestern University and CEPR)

Moderator:

  • Alexander Ludwig (Goethe University Frankfurt and CEPR)

Closing remarks:

  • Francesco Caselli (London School of Economics and CEPR)

Register online: https://cepr-org.zoom.us/webinar/register/1916333567294/WN_7eb90PpxSj21Q...

We are in the midst of a process of unprecedented climate change, which is already wrecking severe damage to the livelihoods of billions around the globe. Greenhouse gas emissions around the globe should be reduced as fast as possible and reach net-zero in the second half of the 21st century. To ensure that the world’s climate goals are met, effective policies must be implemented. The golden prescription of economists is to price carbon uniformly across the globe and compensate any losers, but the reality of implementing climate policies is fraught by pragmatic and political obstacles which differ from country to country.

The aim of this eBook is therefore to offer contributions to each of the featured nations’ debates over the climate-change policies to fast track. Which policies will have the fastest and/or largest cumulative impact? Which ones are the most technically or financially feasible? Which are least likely to hit prohibitive political-economy obstacles to their implementation? Which ones are cheapest in abating emissions?

Join us on Friday 8 October at the online launch of this eBook, where the editors of this eBook, Francesco Caselli, Alexander Ludwig and Rick van der Ploeg, will present an introduction to the book.

They will be joined by panellists Ottmar Edenhofer, Director of the Potsdam Institute for Climate Science; Christiane Grefe of Die Zeit; and Mar Reguant, Professor at Northwestern University and IO Programme Director of CEPR for an open discussion, which will be followed by questions from the floor.

Maria Chiara Paoli, Rick van der Ploeg, 04 October 2021

Despite climate justice advocates continuing to highlight climate inequities along racial, gender and class dimensions and policymakers’ vague statements in support of a ‘just transition’, there are few concrete plans. This column uses microsimulations of household behaviour from UK data to investigate the efficiency and equity impacts of different ways of recycling carbon tax revenue, focusing on both horizontal and vertical equity dimensions, and their implications for political feasibility. The authors find that rebating carbon tax revenues through social security payments renders the policy progressive and benefits the highest share of households in their sample.

Christian Gollier, Maureen Cropper, 27 September 2021

The Fourth CEPR/EAERE Webinar on Climate Policy takes place on 30 September 2021. The subject is carbon pricing, and to preview the session Maureen Cropper of the University of Maryland and Christian Gollier Toulouse School of Economics and RPN director talk to Tim Phillips about the issues for economists – and how COP26 can help. Register for the webinar: cepr.online/carbonpricing.

Davide Furceri, Michael Ganslmeier, Jonathan D. Ostry, 07 September 2021

The call for stricter climate change policies is gaining momentum in many countries. But despite rising public awareness, there could be political obstacles to adopting the measures needed to combat climate change. This column argues that policy design and timing are critical to overcoming political costs to climate mitigation policies, as is the need to provide effective social insurance policies. An implication is that political realities may often dictate the need to sacrifice some efficiency in climate mitigation policies in order to secure political buy-in. 

Lucrezia Reichlin, Klaus Adam, Warwick J. McKibbin, Michael McMahon, Ricardo Reis, Giovanni Ricco, Beatrice Weder di Mauro, 01 September 2021

The ECB signalled an historic shift in its 2020 strategy review. This column introduces a new CEPR report which argues that the review has moved the ECB in the right direction but leaves some key issues unaddressed. The report focuses on the definition of the ECB’s inflation target, its operational framework, fiscal and monetary policy interactions, and the implications for monetary policy of climate change and related mitigation initiatives. The authors identify topics to be addressed in future strategic reviews and provide a framework as a basis for this ongoing analysis.

Jasmien De Winne, Gert Peersman, 29 August 2021

The world is expected to see a significant rise in the frequency, duration, and intensity of extreme weather events. This column examines the macroeconomic effects of global food commodity price increases that are caused by global harvest and weather disruptions, and finds that the decline in economic activity is substantial and greater in advanced than in low-income countries. The findings suggest that the consequences of climate change for advanced countries may be greater than previously thought, and the strong rise in food prices since the outbreak of COVID-19 could seriously impede the recovery.

Ghassane Benmir, Ivan Jaccard, Gauthier Vermandel, 20 August 2021

Climate change is one of the most pressing issues of our time. The challenge for policymakers is that climate policies could have a negative impact on the economy in the short term. This column discusses how this trade-off between fighting climate change and ensuring a stable business cycle affects the design of environmental policies. The authors argue in favour of a time-varying carbon tax that is increased during booms and decreased during recessions.

Luke Bartholomew, Paul Diggle, 12 August 2021

Central banks are increasingly considering their role in meeting climate objectives. Often, they justify this by arguing that climate considerations directly impact on their primary objectives of price and financial stability. This column argues that a stronger case is that the urgency of climate risks is such that standard neutrality-based objections to central bank involvement in economic allocation are obviated. Indeed, neutrality-based arguments look especially weak when it is realised that neutrality is essentially impossible for central banks to achieve.

Glenn Rudebusch, 09 August 2021

The Intergovernmental Panel on Climate Change has just published its sixth report, warning of “unprecedented” effects and “irreversible” damage. For more than a year, the Federal Reserve Bank of San Francisco has been running its Virtual Seminar on Climate Economics to help economists estimate, model, and propose policies to mitigate the extent of the crisis. Glenn Rudebusch of the FRBSF tells Tim Phillips that “the economics profession as a whole has been slow to grapple with climate change”, and so the seminars are bringing fresh, interdisciplinary research to a wider audience.

Alexandra Avdeenko, Onur Eryilmaz, 03 August 2021

Sudden floods across Central Europe have led governments to initiate bailouts, putting decades-old debates on how to respond to future natural disasters back on the policy agenda. Using a representative longitudinal dataset, this column provides evidence that the 2013 floods in Germany reduced willingness to take risks among men living close to the flooded areas, but had no such effect on women. It also finds that affected households were significantly more likely to hold life insurance after the floods. The findings suggest that a portion of the costs associated with natural disasters is likely to be internalised by households at risk, with implications for governments seeking to provide incentives for household-level adaptation measures such as insurance or better building standards. 

Derek Lemoine, 28 July 2021

In order to limit global climate change, the world may eventually need to remove more carbon from the atmosphere than it puts in ('negative emissions'). Economists almost universally recommend pricing carbon emissions via a tax or cap, but this policy cannot achieve negative emissions unless paired with potentially massive government spending. This column argues that an alternate type of policy, called 'carbon shares', can limit emissions as efficiently as carbon taxes or caps while also properly incentivising negative emissions.

Paul Hiebert, 13 July 2021

Climate change will impact those parts of the financial system most exposed to its disruptive effects. This column analyses a new financial stability risk mapping for the EU financial system, linking financial exposures of thousands of banks, insurance companies, and investment funds to millions of firms subject to climate risk. It highlights a high level of risk concentration, both in European regions subject to climate hazards as well as economic sectors with diverse carbon emission intensities. Long-term scenario analyses suggest that the risks will be best addressed through proactive policies that directly contain global temperature rises. 

Derek Lemoine, 09 July 2021

If economists are going to be able to offer clear guidance about the appropriate ambition of climate change policy, we need firmer damage estimates. This column introduces a new model that prices farmers’ ex-post and ex-ante adaptations to weather changes and forecasts. When applied to US agriculture, the model shows a much more pessimistic outcome than currently expected, and encourages the consideration of substantial changes to agricultural policies.   

Timo Löyttyniemi, 08 July 2021

Financial stability is at the core of central banking. This column assesses the various risks to financial stability stemming from climate change, which arise from physical risks, transition risks, and the chosen transition path towards a net zero economy. Additional risks arise from the changes in government policies, risks in green investments, mispricing of assets, and potential changes in metrics. The channels for financial instability are, as usual, the sustainability of government debt, the vulnerability of banking, and the volatility and liquidity of securities markets. Awareness of these additional financial stability risks could increase financial stability.

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