Sustainable
Dynamic climate clubs: On the effectiveness of incentives in global climate agreements
William Nordhaus
Proceedings of the National Academy of Sciences, 9 November 2021
Abstract:
A proposal to combat free riding in international climate agreements is the establishment of a climate club — a coalition of countries in a structure to encourage high levels of participation. Empirical models of climate clubs in the early stages relied on the analysis of single-period coalition formation. The earlier results suggested that there were limits to the potential strength of clubs and that it would be difficult to have deep abatement strategies in the club framework. The current study extends the single-period approach to many periods and develops an approach analyzing “supportable policies” to analyze multiperiod clubs. The major element of the present study is the interaction between club effectiveness and rapid technological change. Neither alone will produce incentive-compatible policies that can attain the ambitious objectives of international climate policy. The trade sanctions without rapid technological decarbonization will be too costly to produce deep abatement; similarly, rapid technological decarbonization by itself will not induce deep abatement because of country free riding. However, the two together can achieve international climate objectives.
CEO exposure to abnormally hot temperature and corporate carbon emissions
Alexandre Garel & Arthur Petit-Romec
Economics Letters, forthcoming
Abstract:
This paper examines whether CEOs react to personal experience with global warming. Using a difference-in-differences setting, we find that CEOs’ exposure to abnormally hot temperature leads to a decrease in corporate carbon emissions intensity. Our results shed light on the role played by CEOs’ perception of the reality of climate change in reducing corporate carbon emissions.
Whither Weather?: High Temperature, Climate Change and Mortgage Default
Yongheng Deng et al.
University of Wisconsin Working Paper, May 2021
Abstract:
We investigate the relationship between temperature and residential mortgage default using fine-scale weather information and comprehensive loan performance data. Conditional on a rich set of default risk controls and fixed effects, we identify a significant high temperature-mortgage default relation. An additional day of mean temperatures above 90oF (32.2oC) in each month for the last 12 months is associated with a 3.2% and 3.5% increase in the probability of 30-day delinquency and foreclosure, respectively. To explain the effect, tests are specified to differentiate between three plausible channels: behavioural-psychological, income-liquidity, and rational belief updating. Evidence favors the belief updating channel as dominant. All three channels help explain the link between high temperature and 30-day delinquency, but, given the long lags from delinquency to foreclosure and the pronounced costs, belief updating best explains the effects of high temperature on foreclosure outcomes. High temperatures paired with higher rates of default indicate that borrowers mark down their own estimate of house value, perceiving a mismatch between their current home-location and their preferred home-location. Our findings have direct monetary and bank regulatory policy implications.
Upping the ante? The effects of “emergency” and “crisis” framing in climate change news
Lauren Feldman & Sol Hart
Climatic Change, November 2021
Abstract:
News organizations increasingly use the terms “climate emergency” and “climate crisis” to convey the urgency of climate change; yet, little is known about how this terminology affects news audiences. This study experimentally examined how using “climate emergency,” “climate crisis,” or “climate change” in Twitter-based news stories influences public engagement with climate change and news perceptions, as well as whether the effects depend on the focus of the news (i.e., on climate impacts, actions, or both impacts and actions) and on participants’ political ideology. Results showed no effect of terminology on climate change engagement; however, “climate emergency” reduced perceived news credibility and newsworthiness compared to “climate change.” Both climate engagement and news perceptions were more consistently affected by the focus of the stories: news about climate impacts increased fear, decreased efficacy beliefs and hope, and reduced news credibility compared to news about climate actions. No interactions with political ideology were found.
Building Consensus for Ambitious Climate Action Through the World Climate Simulation
Juliette Rooney-Varga et al.
Earth's Future, December 2021
Abstract:
Sociopolitical values are an important driver of climate change beliefs, attitudes, and policy preferences. People with “individualist-hierarchical” values favor individual freedom, competition, and clearly defined social hierarchies, while “communitarian-egalitarians” value interdependence and equality across gender, age, heritage, and ethnicity. In the US, individualist-hierarchs generally perceive less risk from climate change and express lower support for actions to mitigate it than communitarian-egalitarians. Exposure to scientific information does little to change these views. Here, we ask if a widely used experiential simulation, World Climate, can help overcome these barriers. World Climate combines an engaging role-play with an interactive computer model of the climate system. We examine pre- and post-World Climate survey responses from 2,080 participants in the US and use a general linear mixed model approach to analyze interactions among participants' sociopolitical values and gains in climate change knowledge, affect, and intent to take action. As expected, prior to the simulation, participants holding individualist-hierarchical values had lower levels of climate change knowledge, felt less urgency, and expressed lower intent to act than those holding communitarian-egalitarian values. However, individualist-hierarchs made significantly larger gains across all constructs, particularly urgency, than communitarian-egalitarians. Participants' sociopolitical values also shifted: those with individualistic-hierarchical values before the simulation showed a substantial, statistically significant shift toward a communitarian-egalitarian worldview. Simulation-based experiences like World Climate may help reduce polarization and build consensus towards science-based climate action.
Policy Opacity
Will Cassidy
University of Chicago Working Paper, October 2021
Abstract:
This paper studies how political agency affects financial markets. Policymakers aim to enact their preferred policies to minimize carbon emissions or maximize output subject to political constraints. When governments and voters disagree over the optimal policy, policymakers endogenously choose opaque policies. By making the learning problem harder for voters, governments can delay or avoid electoral discipline. Greater policy opacity concurrently increases investor uncertainty over future cash flows. I show empirically that these dynamics have tangible effects on asset markets. Option-derived proxies for policy uncertainty and stock price volatility are differentially elevated after environmental policy announcements by governments with preferences different from that of a voting majority of their constituents.
The Effects of Mutual Fund Decarbonization on Stock Prices and Carbon Emissions
Martin Rohleder, Marco Wilkens & Jonas Zink
Journal of Banking & Finance, forthcoming
Abstract:
This study seeks to determine whether mutual fund decarbonization affects the stock prices of divested firms and contributes to the reduction of these firms’ carbon emissions. Using a new methodology to identify equity mutual funds’ decarbonization trades, we calculate a metric of decarbonization selling pressure (DSP) on stocks. Controlling for endogeneity and selection bias, we find that high DSP sustainably pressures stock prices downwards. Furthermore, we find that divested firms experiencing a stock price decline subsequently reduce their carbon emissions compared to non-divested firms. This finding is consistent with theoretical predictions. Various tested alternative explanations, such as shareholder intervention and financial selling pressure, cannot diminish these results. Overall, our findings support the divestment movement's hope that a critical mass of investors is able to reduce carbon emissions.
Adapting to Natural Disasters through Better Information: Evidence from the Home Seller Disclosure Requirement
Seunghoon Lee
MIT Working Paper, November 2021
Abstract:
Flood damage is determined by a combination of flood intensity and the population size exposed to the risk, but the US flood policy has primarily focused on managing the former, with little success. This paper studies whether easing information friction in the housing market regarding flood risk could reduce the population in high-risk areas and thus flood damage. By exploiting staggered adoption of the Home Seller Disclosure Requirement and spatial discontinuity in flood risk information, I first show this policy lowers the average price of properties and the population in high-risk areas. Further, using a hydrological measure of flood intensity, I find that the policy reduces expected per capita damage from small to moderate-sized floods by at least 5%. The findings suggest that a policy that facilitates information flow can be a powerful adaptation tool for natural disasters.
Evolving Tropical Cyclone Tracks in the North Atlantic in a Warming Climate
Andra Garner, Robert Kopp & Benjamin Horton
Earth's Future, December 2021
Abstract:
Tropical cyclone (TC) track characteristics in a changing climate remain uncertain. Here, we investigate the genesis, tracks, and termination of >35,000 synthetic TCs traveling within 250 km of New York City (NYC) from the pre-industrial era (850-1800 CE) to the modern era (1970-2005) to the future (2080-2100 CE). Under a very high-emissions scenario (RCP8.5), TCs are more likely to form closer to the U.S. southeast coast (>15% increase), terminate in the northeastern Atlantic (>6% increase), and move most slowly along the U.S. Atlantic coast (>15% increase) from the pre-industrial to future. Under our modeled scenarios, TCs are more likely to travel within 100 km of Boston, Massachusetts, (p = 0.01) and Norfolk, Virginia (p = 0.05) than within 100 km of NYC in the future. We identify reductions in the time between genesis and the time when TCs come within 100 km of NYC, Boston, or Norfolk, as well as increased duration of TC impacts from individual storms at all three cities in the future.
Sequential Landfall of Tropical Cyclones in the United States: From Historical Records to Climate Projections
Dazhi Xi & Ning Lin
Geophysical Research Letters, 16 November 2021
Abstract:
In this study, we examine sequential landfalling tropical cyclones (TCs) along U.S. East and Gulf Coasts. We find that Florida and Louisiana are most prone to sequential landfall risk. The minimal time between sequential landfalling TC has decreased for most regions since 1979, although the trend is not statistically significant given limited data. A climate projection indicates a significant increase in sequential landfalls over the 21st century under the SSP5 8.5 scenario, with the chance of a location experiencing a less-than-10-day break between two TC impacts being doubled for most regions. The increases in sequential landfalls in the historical period and projected future climate are both related to increased landfall frequency, even though the storm season has been slightly expanding and may continue to expand. This study highlights a new type of TC hazard resulting from the temporal compounding of landfalls and urges the improvement of coastal resilience.
Globally resolved surface temperatures since the Last Glacial Maximum
Matthew Osman et al.
Nature, 11 November 2021, Pages 239–244
Abstract:
Climate changes across the past 24,000 years provide key insights into Earth system responses to external forcing. Climate model simulations and proxy data have independently allowed for study of this crucial interval; however, they have at times yielded disparate conclusions. Here, we leverage both types of information using paleoclimate data assimilation to produce the first proxy-constrained, full-field reanalysis of surface temperature change spanning the Last Glacial Maximum to present at 200-year resolution. We demonstrate that temperature variability across the past 24 thousand years was linked to two primary climatic mechanisms: radiative forcing from ice sheets and greenhouse gases; and a superposition of changes in the ocean overturning circulation and seasonal insolation. In contrast with previous proxy-based reconstructions our results show that global mean temperature has slightly but steadily warmed, by ~0.5 °C, since the early Holocene (around 9 thousand years ago). When compared with recent temperature changes, our reanalysis indicates that both the rate and magnitude of modern warming are unusual relative to the changes of the past 24 thousand years.
Global and regional aggregate damages associated with global warming of 1.5 to 4 °C above pre-industrial levels
Rachel Warren et al.
Climatic Change, October 2021
Abstract:
We quantify global and regional aggregate damages from global warming of 1.5 to 4 °C above pre-industrial levels using a well-established integrated assessment model, PAGE09. We find mean global aggregate damages in 2100 of 0.29% of GDP if global warming is limited to about 1.5 °C (90% confidence interval 0.09–0.60%) and 0.40% for 2 °C (range 0.12–0.91%). These are, respectively, 92% and 89% lower than mean losses of 3.67% of GDP (range 0.64–10.77%) associated with global warming of 4 °C. The net present value of global aggregate damages for the 2008–2200 period is estimated at $48.7 trillion for ~ 1.5 °C global warming (range $13–108 trillion) and $60.7 trillion for 2 °C (range $15–140 trillion). These are, respectively, 92% and 90% lower than the mean NPV of $591.7 trillion of GDP for 4 °C warming (range $70–1920 trillion). This leads to a mean social cost of CO2 emitted in 2020 of ~ $150 for 4 °C warming as compared to $30 at ~ 1.5 °C warming. The benefits of limiting warming to 1.5 °C rather than 2 °C might be underestimated since PAGE09 is not recalibrated to reflect the recent understanding of the full range of risks at 1.5 °C warming.