What are the long-term socio-economic implications of climate change?
Johannes Breckenfelder and his co-authors show in their latest European Central Bank working paper how climate change may adversely impact our lives and the opportunities it opens up to reshape the economy.
They highlight the implications and responsibilities for market participants, central banks and regulators to manage this transition while mitigating its negative externalities:
- Carbon tax and emission permits will have significant fiscal implications for states and firms, with an estimated carbon cost ranging from $26 to $250 per tonne of CO2-equivalent emissions.
- People's well-being may be impacted by a wide range of factors including labour productivity, working and living conditions, food security, access to water and natural resources, consumption of electricity, health outcomes, destruction of assets, crime, political tensions, and instability.
- Variations in these factors will likely heighten inequalities between countries, regions and socio-demographic groups, in particular raising poverty in developed countries.
- Large-scale migration involving 45 to 97 million working-age migrants of all education levels will be triggered by 2100 as a consequence of climate change, impacting GDP repartition and urbanisation rates in liveable countries.
- Climate change is also expected to foster violence, from crime-related to large-scale conflicts, through its influence on income and because of direct psychological effects.
The authors add that the consequences of climate change should not be underestimated in their scale nor their complexity, but European institutions are most likely able to manage it.
The scenario of an orderly transition is by far the least costly one from a financial and social point of view, but it requires the implication of all public and private stakeholders: firms, policymakers, investors, central banks, civil society…