This paper studies the implications of distortions in intertemporal margins for the conduct of climate policy. We do so by introducing a framework that combines a standard two-period overlapping generations (OLG) model with a tractable model of household heterogeneity, in which over-accumulation of capital arises from uninsurable idiosyncratic labor income risk. We illustrate that market-based climate policies must be adjusted when the government cannot provide full insurance to households by taxing only capital and is constrained to transfer resources across generations for risk-sharing. In a numerical exercise, we find that idiosyncratic risk leads to an optimal capital income tax rate of 35 per cent and a carbon price 7.5 per cent lower than its first best.

This article argues that banks should adopt animal welfare policies in the light of the growing acceptance of the need for ‘responsible banking’, which incorporates environmental, social, and governance analysis into credit risk and due diligence processes. The responsibility of banks for animal welfare is underscored by the drive towards greater investment in animal agribusiness, and the vicious cycle through which animal agribusiness can both contribute to, and be impacted by, climate disruption. The article evaluates, through a desktop review, how leading Australian retail banks and agribusiness lenders are addressing animal welfare and climate disruption in animal agribusiness lending. We find that although most banks have made a commitment to animal welfare and climate policies, these often amount to little more than greenwashing. We call for an ecosystem of industry, regulatory, and civil society action to address this danger.

This article focuses on the correlation between the secondary objectives of the European Central Bank (ECB) and the right to a healthy environment. Whereas the primary mandate of the ECB is maintaining price stability, the applicable law also envisages secondary objectives, such as supporting economic growth and sustainable development. Crucially, however, there is an emerging scientific literature suggesting a trade-off between economic growth and environmental sustainability. This results in a balancing problem: To what extent environmental protection and sustainability can be balanced with economic growth within the ECB’s monetary policy? This article aims to analyse this issue with a specific focus on legal implications in terms of the right to a healthy environment. This study reveals the failure of the member states to comply with the international obligations under the right to a healthy environment in shaping the law of the ECB.

Combating climate change requires large economic adjustments with significant distributional implications. To build coalitions of support, scholars and policy makers propose compensating individuals who will bear decarbonization’s costs. What are the determinants of public opinion regarding climate compensation and investment? We theorize that climate policy vulnerability and climate change vulnerability induce support for distinct types of climate policy. Fielding original surveys in the United States and India, we show that people who reside in coal-producing regions prefer compensation for lost jobs. The general public privileges diffuse redistribution mechanisms and investments, discounting compensation to targeted groups. Those who are both physically and economically vulnerable have cross-cutting preferences. Nevertheless, there is considerable support across our samples for policies that compensate different coalitions of climate-vulnerable citizens, in line with theories of “just energy” transition and embedded liberalism. We trace the distinctive compensatory preferences of fossil fuel communities to a logic of shared community identities.

This paper illustrates the potential impacts of climate change on financial markets, focusing on their long-term significance. It uses a top-down modelling tool developed by Ortec Finance in partnership with Cambridge Econometrics that combines climate science with macro-economic and financial effects to examine the possible impacts of three plausible (not extreme) climate pathways. The paper first considers the impact on gross domestic product (GDP), finding that GDP is lower in all three pathways, with the most severe reduction in the Failed Transition Pathway where the Paris Agreement climate targets are not met. The model then translates these GDP impacts into financial market effects. In the Failed Transition Pathway, cumulative global equity returns are approximately 50% lower over the period 2020–2060 than in the climate-uninformed base case. For the other two pathways where the Paris Agreement targets are met, the corresponding figures are 15% and 25% lower returns than in the base case. Results are provided for other asset classes too. These demonstrate that climate change represents a significant market risk, with implications for financial planning, modelling and regulation.

This paper demonstrates how climate scenario analysis can be used for forward-looking assessment of the risks and opportunities for financial institutions, using a case study for a UK defined benefit pension scheme. It uses a top-down modelling tool developed by Ortec Finance in partnership with Cambridge Econometrics to explore the possible impacts of three plausible (not extreme) climate pathways of the scheme’s assets and liabilities. It finds that the funding risks are greater under all three climate pathways than under the climate-uninformed base scenario. In the absence of changes to the investment strategy or recovery plan, the time taken to reach full funding is increased by three to nine years. Given that most models currently used by actuaries do not make explicit adjustments for climate change, these modelled results suggest it is quite likely that pension schemes are systematically underestimating the funding risks they face.

Indigenous peoples throughout the circumpolar north have made significant progress in terms of securing self-determination through greater political autonomy. Although such change is important, it must be accompanied by greater economic control aimed at reducing state dependencies. Using an analytical framework developed by Norwegian political scientist, Stein Rokkan, this article explores the interplay between economy, territory, and identity among the Inuit in Canada and the Sámi in Norway. It reveals that the economic destinies of both groups have been profoundly influenced by both domestic and international factors that determine the focus and type of economic development they undertake. While the Inuit have pursued a balance of modern and traditional forms of economic development that is grounded in a regionally based model of self-rule, the Sámi have opted for an economic development model that emphasises traditional economic activities and is supported by Norway’s international commitments to the rights of Indigenous peoples.

Although a carbon value has often been integrated in the frameworks established to guide public decision-making, benefit-cost analysis (BCA) has played no more than a minor role in the design of climate policies. It is urgently necessary to promote BCA in this area, and there is currently a unique opportunity for doing so. Major countries are designing new packages in order to meet their commitments, as illustrated by the European Green Deal, recent decisions on the part of the Biden Administration, and the creation of a Chinese national carbon market. These constructive processes must be based on BCA. BCA is absolutely necessary in order to achieve net-zero emissions by 2050 at a reasonable cost. Indeed, abatement costs across and within sectors, and across and within countries, are extremely heterogeneous, and many of the policy instruments in use (subsidies, feed-in tariffs, technical standards, etc.) overlap inefficiently. The instrumental debate between carbon pricing and other instruments is sterile if it merely remains at the level of stating principles. BCA can help on this point too, by specifying comparisons between alternatives, identifying complementarities, and selecting the most relevant combinations of instruments. Its scope should therefore range from setting benchmarks for carbon pricing to assessing, e.g., green investments or measures to enhance carbon sinks. When applied to decarbonization policies, BCA requires firstly the selection of a carbon value, in order to monetize the climate benefits of investments and policies. However, the whole assessment framework must be updated, including the time horizon, the discount rate, the cobenefits of climate mitigation actions, and the pricing of climate risks. We show that such an updated framework leads to an upward revision in the assessment of the climate benefits of mitigation actions, and that combining the valuation of damages and cost-effectiveness approaches is necessary in order to meet the needs of policy assessment. Finally, there is a need to extend analysis beyond the efficiency criterion in order to deal with other dimensions of climate policies, particularly their distributive impacts. This requires specific analyses, which should be articulated with BCA and carried out at an early stage for a better implementation of climate policies than we have seen to date.

Carbon taxes are likely to play a key role in meeting greenhouse gas emission targets that are consistent with the Paris Agreement. In this article, we assess the macroeconomic effects of a carbon tax on the global economy, paying particular attention to the terms-of-trade implications for importers and exporters of fossil fuels. We use a modified version of the National Institute’s Global Econometric Model, NiGEM. In the stylized scenarios, all countries and regions impose a permanent and uniform carbon tax immediately. Our simulations show that demand for fossil fuels falls substantially in response to the tax, global (pre-tax) prices of fossil fuels decline, and the tax can raise substantial revenue for the government. The overall impact on GDP growth and inflation in each country depends on the fossil fuel intensity of output, the net losses/gains in terms of trade and the macroeconomic policy reaction.

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.

A four-pronged approach to climate policy is presented consisting of carbon pricing, subsidies for renewable energies, transformative green investments and climate finance and engendering flywheel effects. Then, a variety of societal and political challenges and obstacles faced by such a climate policy and what can be done to overcome them are discussed. These range from stranded assets, the very long time scales needed to adapt and deal with global warming, intergenerational conflict, international free-rider problems, carbon leakage, green paradoxes, policy failure and capture, adverse income distributional effects and spatial scarcity to the problem of climate deniers and sceptics. The paper also discusses the various tools that are needed for the analysis of both ideal and workable climate policies, and the need to collaborate with complexity scholars, political scientists, sociologists and psychologists.

Growth-dependent welfare states contribute to climate emergency. The ecological economics, degrowth, and sustainable welfare literatures demonstrate that to re-embed Western production and consumption patterns in environmental limits, an encompassing social-ecological transformation would need to be initiated very soon. This article focuses on the potential roles of the welfare state and social policy in this transformation, applying the concepts of ‘sustainable welfare’ and ‘safe-operating space’. Based on two Swedish studies, it also provides an empirical analysis of the popularity of selected eco-social policies designed to steer the economy and society towards this space: maximum and basic incomes, taxes on wealth and meat, as well as working time reductions. In analogy to the historical role of the state in reconstituting the welfare-work nexus in the post-WWII era and its present engagement in the context of the Covid-19 crisis, it is argued that a more interventionist state is required to grapple with climate emergency.

Shocks related to weather variations have strong effects on developing countries’ economies. Climate change is expected to increase the occurrence and magnitude of extreme weather events such as droughts, floods or hurricanes that strongly affect agriculture and other activities. This special issue gathers literature reviews and case studies that aim to better understand heterogeneous impacts and their transmission channels, as well as to evaluate the impact of such weather shocks on developing economies, including Sub-Saharan African countries, India and Brazil.