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A diverse community of
leading experts, policymakers
and practitioners

The Institute’s key research themes
are led by ten academic partners
spread across the UK.

We’re a UK-wide research
organisation exploring what
productivity means for business

Businesses are crucial to solving
the UK’s productivity problems.

Climate change and fiscal responsibility

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.

Authors Matthew Agarwala, Matt Burke, Patrycja Klusak, Kamiar Mohaddes, Ulrich Volz, Dimitri Zenghelis

Themes

  • Knowledge Capital

Published

13/09/2021

Cite

M. Agarwala, M. Burke, P. Klusak, K. Mohaddes, U. Volz, D. Zenghelis (2021) Climate Change and Fiscal Responsibility: Risks and Opportunities. Working Paper No. 008, The Productivity Institute.
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