Climate change and fiscal sustainability: risks and opportunities

Agarwala, Matthew, Burke, Matt, Klusak, Patrycja, Mohaddes, Kamiar, Volz, Ulrich and Zenghelis, Dimitri (2021) Climate change and fiscal sustainability: risks and opportunities. National Institute Economic Review, 258. 28 - 46. ISSN 0027-9501

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Abstract

Both the physical and transition-related impacts of climate change pose substantial macroeconomic risks. Yet, markets still lack credible estimates of how climate change will affect debt sustainability, sovereign creditworthiness and the public finances of major economies. We present a taxonomy for tracing the physical and transition impacts of climate change through to impacts on sovereign risk. We then apply the taxonomy to the UK's potential transition to net zero. Meeting internationally agreed climate targets will require an unprecedented structural transformation of the global economy over the next two or three decades. The changing landscape of risks warrants new risk management and hedging strategies to contain climate risk and minimise the impact of asset stranding and asset devaluation. Yet, conditional on action being taken early, the opportunities from managing a net zero transition would substantially outweigh the costs.

Item Type:	Article
Official URL:	https://www.cambridge.org/core/journals/national-i...
Additional Information:	© 2021 The Authors
Divisions:	Grantham Research Institute
Subjects:	G Geography. Anthropology. Recreation > GE Environmental Sciences H Social Sciences > HC Economic History and Conditions
JEL classification:	H - Public Economics > H5 - National Government Expenditures and Related Policies > H50 - General H - Public Economics > H6 - National Budget, Deficit, and Debt > H60 - General H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit; Surplus J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J24 - Human Capital; Skills; Occupational Choice; Labor Productivity N - Economic History > N1 - Macroeconomics and Monetary Economics; Growth and Fluctuations > N10 - General, International, or Comparative Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q55 - Technological Innovation
Date Deposited:	17 Feb 2022 16:36
Last Modified:	30 Nov 2024 17:03
URI:	http://eprints.lse.ac.uk/id/eprint/113775

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