气候冲击、气候政策和气候风险评估变化对全球经济影,响

　GLOBAL ECONOMIC IMPACTS OF CLIMATE SHOCKS, CLIMATE POLICY AND CHANGES IN CLIMATE RISK ASSESSMENT

　MARCH

　27,

　2021

　 ROSHEN FERNANDO The Australian National University and Australian Research Centre of Excellence in Population Ageing Research

　WEIFENG LIU The Australian National University and Australian Research Centre of Excellence in Population Ageing Research

　WARWICK J. MCKIBBIN The Australian National University, Australian Research Centre of Excellence in Population Ageing Research, The Brookings Institution and Centre for Economic Policy Research London

　 The authors did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. They are currently not an officer, director, or board member of any organization with an interest in this article.

　EXECUTIVE SUMMARY

　This study assesses the global macroeconomic consequences of changes in climate risk. We explore three broad areas: (1) the macroeconomic impacts of physical climate risk due to chronic climate change

　associated with global temperature increases and climate-related extreme shocks; (2) the macroeconomic effects of climate policies designed to transition to net zero emissions by 2050 (transition risk); and (3) the potential macroeconomic consequences of changes in risk premia in financial markets associated with increasing concern over climate events.

　To assess the macroeconomic consequences of climate change, we consider four widely used climate scenarios

　(Representative Concentration Pathways, or RCP), and identify the physical damage functions due to chronic climate risks from the literature. The chronic climate risks considered in this study include sea-level rise, crop yield changes, heat-induced impacts on labor, and increased incidence of diseases.

　We also identify methodologies to estimate the future incidence of climate-related extreme events from previous studies. Based on climate variable projections under the climate scenarios, we obtain probabilistic estimates for the future incidence of droughts, floods, heat waves, cold waves, storms and wildfires. Using historical occurrence of the extreme events, we estimate their impacts on labor force, agriculture and electricity generation sectors.

　After translating physical climate shocks into economic shocks to labor force and sectoral productivity, we investigate the macroeconomic consequences under the climate scenarios using the G-Cubed model. The results demonstrate that physical climate risk is likely to cause large economic losses in all the RCP scenarios, both through chronic climate change and extreme climate shocks.

　We explore the impact of country-specific economy-wide carbon taxes as a representative policy action to drive the global economy to achieve net-zero emissions by mid-century. Transition risks vary according to the ambition and the design of policies to reduce emissions. We do not calcuate a distribution of transition risks by comparing the range of alternative policies that might be used to reduce emissions. However, the results for the particular example chosen demonstrate that there can be potentially significant costs associated with policies to reduce emissions, and the costs differ across sectors and across countries.

　As shown by Bang et al. (2020), the costs can vary greatly depending on the specific design of climate policy.

　We also address whether changes in climate risk perceptions can significantly impact the real economy through changes in risk premia in financial markets.

　We calculate shocks to financial risk premia based on relationships between historical climate shocks and changes in financial market risk premia. We apply these shocks to risk premia under the RCP scenarios and find that the cost of rising risk premia can be of a magnitude consistent with historical

　experience. The cost appears to be smaller than the economic costs of changes in physical climate risk.

　We find that chronic climate change, extreme climate shocks, and economic policies implemented to reduce CO2 emissions can have significant economic consequences. Under RCP 2.6 scenario the GDP losses from physical climate risk range between 0.6% of GDP in Australia to 3.2% of GDP in developing countries by 2050. This rises under RCP 8.5 to between 1% for the ROCED economies and 5.7% of GDP for oil exporting countries by 2050. The costs could be amplified if financial markets re-price climate-related risks with additional GDP losses of between 0.5% to 1.5% per year for all countries except Russia which experiences larger GDP losses across all scenarios by 2030.

　Keywords: Climate change, Extreme events, Climate shocks, Climate risk, Macroeconomics, DSGE, CGE, G-Cubed

　JEL Codes: C51, C53, C54, C55, C68, F41, Q51, Q54

　1. INTRODUCTION

　Since the establishment of the United Nations Framework Convention on Climate Change (UNFCCC) in 1992, climate change has been receiving increasing attention. Both academia and governments across the world have been involved in understanding the potential impacts of climate change. There is a broad consensus that climate change is the biggest global challenge that has ever confronted humans. The increasing awareness has catalyzed worldwide action against climate change, particularly in the last decade. Almost 200 countries joined the Paris Climate Agreement in December 2015, and 58 countries accounting for 54% of global GHG emissions have communicated net-zero carbon emissions around mid-century, including some of the largest emitters (Europe, Japan, Korea, China, and the US). 1

　The worldwide commitment and action on decarbonization will significantly change the global economy in many ways. Economists and policymakers have long been discussing and investigating the economic impacts of various climate policies at the national and global levels. More recently, in the pandemic context, public investment in green energy has been extensively discussed as a win-win solution to boosting economies and mitigating climate change (e.g., Bang et al. (2020) and Jaumotte et al. (2021) ). In addition to the impacts in real economies, the financial sector has been concerned about how climate change and policy might affect asset valuation and market behavior. Many Central Banks have also become increasingly involved in understanding the impact of climate-related risk on financial stability. Carney (2015) highlights the risk of sudden changes in significant fossil fuel-intensive asset valuation. The formation of the Network for Greening the Financial System (NGFS) has accelerated this push for considering the impact of climate risk on the economy (NGFS 2020).

　Climate-related risks can be divided into two broad areas: physical risk and transition risk. Physical risks include chronic climate risks and climate-related extreme event risks. Chronic climate risks include the long-term gradual change in agricultural productivity, land stock (due to sea-level rise), human health, labor productivity, energy demand, etc.

　Climate- related extreme shocks include hurricanes, cyclones, floods, landslides, wildfires, droughts, heat and cold waves. Many studies that estimate the economic costs of climate risks focus on chronic risks which accumulate gradually but persistently over a long time (see Kompas et al. 2018). However, with future extreme weather events expected to become more frequent and intensive due to climate change, more studies have emerged to investigate their economic impacts.

　Climate risks pose challenges not only in real economies but also through financial markets. Over the last decade, the financial sector has radically increased the discussion of how climate change might affect asset valuation and market behavior (Bolstad et al. 2020). Although few natural disasters have had moderate impacts on global financial markets, extreme climate shocks in the future may have significant effects on financial markets. The

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　greater impact is likely given the damages from natural catastrophes worldwide are increasing, the exposure from the industrialization of developing nations, and the network of global industry and high-cost assets are growing (Mahalingam et al. 2018).

　In addition to physical climate risks, the world is faced with transition risks from moving to a carbon-neutral world. There are numerous transition paths with different degrees of ambition, speed, coverage, and instruments for climate policy and regulation. There is also uncertainty with technology change, especially energy- and carbon-related technology change. Furthermore, policies can accelerate technology advances towards low carbon activities. The worldwide commitment and awareness may also promote public sentiment and preferences about climate protection, which would change individual behavior. The transition risk also depends on asymmetric possibilities of climate policy and technology progress across countries and can generate significant distributional effects across countries and sectors. An extensive literature investigates the impacts of climate policy, particularly of the Paris Agreement in the last several years (Liu et al. 2020). The world is now moving towards net-zero emissions, and it is timely to investigate the impacts of net-zero climate policies.

　This paper explores climate-related risks and focuses on three aspects. Firstly, we assess the impact of physical climate risk on different sectors in different economies. We initially explore the effects on the labor supply and the productivity of the production sectors due to several chronic climate risks: rising sea levels, heat-induced impacts on the labor force, changes in the incidence of diseases and crop yield changes. We use the damage functions in the literature to create these shocks along with the climate variable projections under different climate scenarios. We then evaluate the historical impacts of climate-related extreme events on the labor force, agriculture- and energy-sector productivity. After estimating, using climate variables, the incidence of extreme events in t...