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Climate change poses severe systemic risks to the financial sector through multiple transmission channels. In this paper, we estimate the potential impact of different carbon taxes (€50, €100, €200 and €800 per ton of CO2) on the Italian banks' default rates at the sector level in the short term using a counterfactual analysis. We build on the micro-founded climate stress test approach proposed by Faiella et al. (2022), which estimates the energy demand of Italian firms using granular data and simulates the effects of the alternative taxes on the share of financially vulnerable agents (and their debt). Credit risks stemming from the introduction of a carbon tax - during periods of low default rates - are modest for banks: on average, over a one-year horizon, the default rates of firms increase but remain below their historical averages. The effect is heterogeneous across different sectors and rises with the tax value; however, even assuming a tax of €800 per ton of CO2, the default rates are below their historical peaks. [ABSTRACT FROM AUTHOR]

Abstract: This paper argues that the problem with the targets and timetable approach to climate policy is that it ignores uncertainty about costs. An alternative approach on coordinating short run prices within a long run emissions targeting framework is outlined. A global economic model is used to demonstrate the nature of the economic uncertainty about climate policy and the gains to be achieved by equalizing carbon prices across countries. The paper also shows that although price and quantity-based systems appear to be similar they can fundamentally change the international transmission of economic shocks. [Copyright &y& Elsevier]

Abstract: It is widely recognised that the coming into force of the Kyoto Protocol will be insufficient in achieving climate change control. Therefore, research on climate policy is focussing on the forthcoming negotiations on the policy architecture and abatement commitments that will be adopted after 2012. This paper adopts a game-theoretic approach to model climate policy and provides some results on the implications of alternative emission reduction targets beyond 2012. In particular, six scenarios are discussed and their impacts on the main economic variables are assessed. Most importantly, the paper will focus on the relationship between future emission targets and participation incentives, namely, it will examine whether there exist future emission targets that could be accepted by the US, China and other major emitters of greenhouse gases. Some suggestions for the design of future negotiation targets will also be put forward. [Copyright &y& Elsevier]

In this paper we consider some of the economic implications of climate change scenarios as described in the Shared Socioeconomic Pathways (SSPs). By comparing potential water demand with estimates of (sustainable) water availability in different regions, we identify regions that are likely to be constrained in their future economic growth potential by the scarcity of water resources. We assess the macroeconomic impact of water scarcity under alternative allocation rules finding that, by assigning more water to sectors in which it has a higher value, shifting production to less water intensive sectors, and importing more water intensive goods, constrained regions can effectively neutralize these water related climate risks and adapt to a changing water environment. However, this adaptation effort is likely to imply some radical changes in water management policies. [ABSTRACT FROM AUTHOR]

Abstract: This paper develops and applies a simple “conditional growth” framework to make long-term GDP projections for the world economy, taking as a starting point the recent empirical evidence about the drivers of existing cross-country income disparities. Human capital is projected by cohorts, and allowance is implicitly made for the impact of ageing and potential labour market and pension reforms on employment growth. Leaving aside deeper sources of uncertainty such as model and parameter uncertainty, projections are found to be sensitive to future economic policies in the areas of education, pensions, labour markets and climate change mitigation, and even more so to total factor productivity and population trends. A baseline scenario projects fairly stable world GDP growth of about 3.5% annually on average (in PPP terms) over 2005–2050. [Copyright &y& Elsevier]