Stefano Ramelli, Alexander Wagner, Richard Zeckhauser, Alexandre Ziegler, 29 October 2018

President Trump’s election and the nomination of Scott Pruitt to lead the Environmental Protection Agency changed expectations of US climate change policy. This column uses movements in US stock prices to show that firms with high carbon intensity benefited, as expected, but so did firms with ‘responsible’ strategies on climate change. A significant group of investors raise the value of firms taking a long-term perspective. 

Gail Cohen, Prakash Loungani, 23 October 2018

At first glance, emissions and economic activity appear to be positively linked. This column refutes this by re-examining emissions and real GDP data using trend/cycle decompositions. The evidence clearly demonstrates decoupling of emissions and real GDP in many richer nations. Furthermore, although decoupling does not yet appear in emerging markets, data from China show that trend elasticities initially increase with per capita real GDP but then decline, thus holding out the hope that the relationship between emissions and GDP growth will weaken as emerging market countries get richer.

Kevin Bryan, 11 October 2018

The 2018 Nobel Prize in Economic Sciences has been awarded jointly to William Nordhaus for ‘integrating climate change into long-run macroeconomic analysis’, and to Paul Romer for ‘integrating technological innovations into long-run macroeconomic analysis’. This column outlines their work and the connections between them. Both have at their core the longstanding problem of economic growth: why are some places and times rich and others poor, and what is the impact of these differences?

Klaus Desmet, Dávid Krisztián Nagy, Esteban Rossi-Hansberg, 02 October 2018

Assessments of the economic cost of a rise in sea-level are often limited to estimating the current value of structures and output in low-lying coastal areas. This column argues that understanding how economic activity will move when faced with flooding is key to correctly evaluating the cost of permanent inundation. When using a high-resolution dynamic spatial model of the world economy, combined with state-of-the-art local projections of sea-level rise for the next 200 years, the cost is substantially lower than when ignoring adaptation through moving. There is huge heterogeneity across space though, with some low-lying coastal areas hit particularly hard. 

Thomas Longden, 09 September 2018

During the last 15 years, various regions around the world have been struck by some very strong heatwaves. This column uses examples of heatwaves in Australia to argue that a lack of acclimatisation is a key factor that influences how deadly these extreme temperature events are, and identifies thresholds for hotter temperatures that capture the temperature-related mortality relationship for such events. 

David Newbery, 20 July 2018

The cost of supporting the production of renewable energy seems eye-watering. This column argues, however, that the alternative of a future energy system lacking the benefits of low-cost zero-carbon technologies is even more costly. While most renewable technologies are not yet competitive on cost with mature carbon-intensive technologies, support for renewables can be justified by learning spillovers.

Adrien Vogt-Schilb, Guy Meunier, Stéphane Hallegatte, 29 March 2018

Traditional climate economics models recommend capturing the cheapest opportunities to reduce emissions first and keeping the most difficult options for later. This column argues that when the fact that reducing emissions takes time and requires investments in long-lived goods and assets is taken into account, the most cost efficient strategy overall is to act immediately in the sectors that are the most expensive and difficult to decarbonise, even if this means investing in options that have a higher cost right now than available alternatives. Actions on urban planning and urban transport systems are especially urgent.

Rüdiger Bachmann, Gabriel Ehrlich, Dimitrije Ruzic, 24 January 2018

There has been limited research on how groups’ collective reputations are affected by the misbehaviour of individual members. This column uses the Volkswagen emissions scandal as a natural experiment to explore group reputation externalities. German auto manufacturers that weren’t implicated in the scandal suffered significant declines in sales, stock returns, and public sentiment in the US. Volkswagen’s malfeasance appeared to materially harm the group reputation of German car engineering.

Rick van der Ploeg, Armon Rezai, 05 January 2018

Trump’s election has brought climate change deniers to the centre of global policymaking. This column uses Pascal’s wager as a model to explore optimal policy given uncertainty over the fundamental causes of global warming. This agnostic approach finds that assigning even a high probability to climate change deniers being correct has insignificant effects on policy. Pricing carbon is shown to be optimal in either case, and robust to whether policymakers want to maximise global welfare, or minimise regret in the worst case.

Eli P Fenichel, Matthew Kotchen, Ethan T Addicott, 20 August 2017

How the future is discounted in cost-benefit analyses is a contested issue, with economists disagreeing on whether approaches to discounting should be prescriptive or descriptive. This column presents a new way to model individuals’ discounting based on a demographic approach. The advantages of a purely mortality-based approach are transparency, an empirical basis, and broad data availability.

Gregory Casey, Oded Galor, 23 March 2017

Most policies that target climate change – such as carbon taxes and cap-and-trade programmes – have long-term benefits but short-term economic costs. This column argues that population policies may not be subject to this trade-off. In particular, policies that reduce population growth can have a direct positive effect on income per capita as well as lowering growth of carbon emissions. Such policies could play an important role in the portfolio of actions aimed at mitigating climate change.

Ric Colacito, Bridget Hoffmann, Toan Phan, 28 October 2016

Policy proposals to offset the effects of global warming would be strengthened if we knew more about the net economic benefits of climate action relative to business-as-usual. This column argues that estimates may understate the future costs of business as usual because of heterogeneous seasonal effects, and because more business sectors than previously assumed suffer a negative impact from increased summer temperatures. The cost of inaction may be equal to one-third of the growth rate of US GDP over the next 100 years.

, 14 October 2016

What could the solutions for the global energy challenge be? In this video, Michael Greenstone discusses three aspects of this challenge. The video was recorded at the International Growth Centre.

Larry Levin, Matthew S. Lewis, Frank Wolak, 13 October 2016

A consensus that the demand for gasoline is price inelastic means that policymakers have opted to disregard price instruments when addressing gasoline consumption and climate change. This column analyses daily citywide data on gasoline prices and consumption to show that demand for gasoline is in fact substantially more elastic than previously thought. This is a major argument in favour of the effectiveness of price-based mechanisms in reducing greenhouse gas emissions.

Bridget Hoffmann, 07 October 2016

What is the impact of climate change on the US economy? In this video, Bridget Hoffman compares summer temperatures to make predictions about future GDP growth. This video was recorded during the European Economic Association's Congress held in Geneva at the end of August 2016.

Achyuta Adhvaryu, Namrata Kala, Anant Nyshadham, 27 August 2016

Energy-efficient technologies are an increasingly relevant policy priority, given growing consensus on the need to tackle climate change. This column examines the productivity benefits of adopting one such technology – LED lighting – for manufacturing firms in India. It finds that improved productivity resulting from LED lighting’s lower heat emissions makes adopting such technology far less costly than previous anticipated, particularly for labour-intensive firms in hot climates. 

Garth Heutel, Juan Moreno-Cruz, Katherine Ricke, 04 June 2016

At the the Paris Climate Conference in December 2015, it was agreed that annual global temperature increase must be kept below 2 degrees, and a target of a 1.5 degree annual increase was set. Most environmental policies currently focus on emissions reductions and adaptation. This column discusses a new set of technologies collectively known as climate engineering, and explores their potential effectiveness and role in climate change economics. A lot of uncertainty surrounds the costs and effects of climate engineering tools, but it is clear that they would change the optimal levels of emissions reduction currently discussed in literature.

Stefano Giglio, Matteo Maggiori, Johannes Stroebel, Andreas Weber, 23 January 2016

While some of the costs of climate change won’t be incurred for centuries, the actions to mitigate them need to be taken today. Over such a long timespan, small changes in discount rates can drastically change the attractiveness of such investments. This column presents estimates of appropriate discount rates for very long time horizons. The long-run discount rate for one important risky asset class – real estate – is estimated at 2.6%. This provides an upper bound on long-run discount rates for climate change abatement, one that is substantially lower than some of the rates currently being employed.

Adriana Kocornik-Mina, Thomas McDermott, Guy Michaels, Ferdinand Rauch, 21 January 2016

During the past couple of months alone, floods have displaced 100,000 people or more in Kenya, in Paraguay and Uruguay, and in India, as well as more than 50,000 people in the UK. And rising sea levels due to climate change loom. This column assesses the risk and the challenges for policymakers. It details the effects of flooding in cities around the world, showing that economic activity is concentrated in low-elevation urban areas, despite their much greater exposure to flooding. And worryingly, economic activity tends to return to flood-prone low-lying areas rather than relocating.

Stefano Giglio, Matteo Maggiori, Johannes Stroebel, Andreas Weber, 29 November 2015

The optimal investment to mitigate climate change crucially depends on the discount rate used to evaluate the investment’s uncertain future benefits. The appropriate discount rate is a function of the horizon over which these benefits accrue and the riskiness of the investment. In this paper, we estimate the term structure of discount rates for an important risky asset class, real estate, up to the very long horizons relevant for investments in climate change abatement. We show that this term structure is steeply downward-sloping, reaching 2.6% at horizons beyond 100 years. We explore the implications of these new data within both a general asset pricing framework that decomposes risks and returns by horizon and a structural model calibrated to match a variety of asset classes. Our analysis demonstrates that applying average rates of return that are observed for traded assets to investments in climate change abatement is misleading.

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