Comments on “Climate Change, Development, Poverty and Economics” by Sam Fankhauser and Nicolas Stern June 7, 2016 Gaël Giraud Agence Française de Dloppement (AFD), Chief E. Chair Energy and Prosperity, Dir. Prof. Ecole Nationale des Ponts et Chaussées 0/32
� Outlines 1 I. A call for action now 2 II. New Climate Macro? 1/32
� I. A call for action now � Strong warning: economic damage caused by global warming might be considerably greater than current models predict. 2/32
� I. A call for action now � Strong warning: economic damage caused by global warming might be considerably greater than current models predict. � ⇒ more important than ever to take urgent and drastic action to curb climate change by reducing carbon emissions 2/32
� I. A call for action now � Strong warning: economic damage caused by global warming might be considerably greater than current models predict. � ⇒ more important than ever to take urgent and drastic action to curb climate change by reducing carbon emissions � “double inequity”. Cf. Shock Waves (WB report 2016). 2/32
Figure : Physical vulnerability to Climate Change (Guillaumont, AFD) 3/32
� I. A call for action now � “Mitigation, adaptation and development are intertwined” 4/32
� I. A call for action now � “Mitigation, adaptation and development are intertwined” � “The ‘horse-race’ between climate policy and development represents a false dichotomy". 4/32
� I. A call for action now � “Mitigation, adaptation and development are intertwined” � “The ‘horse-race’ between climate policy and development represents a false dichotomy". � Systemic aspect of the SDGs. 4/32
� I. A call for action now � Urban planning in Porto Novo (Benin) or in the Phillipines [rising of sea level]. 5/32
� I. A call for action now � Urban planning in Porto Novo (Benin) or in the Phillipines [rising of sea level]. � Building the thermic solar plant of Ouarzazate (Morocco) [Clean electrification] 5/32
� I. A call for action now � Urban planning in Porto Novo (Benin) or in the Phillipines [rising of sea level]. � Building the thermic solar plant of Ouarzazate (Morocco) [Clean electrification] � Agro-ecological micro-projects in Zimbabwe [Clean agriculture] 5/32
� I. A call for action now � Urban planning in Porto Novo (Benin) or in the Phillipines [rising of sea level]. � Building the thermic solar plant of Ouarzazate (Morocco) [Clean electrification] � Agro-ecological micro-projects in Zimbabwe [Clean agriculture] � Sanitary programmes for children suffering from leptospirosis in the “Barquita” slums (Santo-Domingo) [Adaptation to droughts and typhoons] 5/32
� I. A call for action now ◦ For low-income countries, Adaptation should be the priority. 6/32
� I. A call for action now ◦ For low-income countries, Adaptation should be the priority. ◦ For emerging countries, Mitigation and Adaptation are equally important. New Climate Economy Report. 6/32
� I. A call for action now ◦ For low-income countries, Adaptation should be the priority. ◦ For emerging countries, Mitigation and Adaptation are equally important. New Climate Economy Report. ◦ Funding strategies? The Green Fund... Corridor of carbon prices (COP21). 6/32
� I. A call for action now ◦ For low-income countries, Adaptation should be the priority. ◦ For emerging countries, Mitigation and Adaptation are equally important. New Climate Economy Report. ◦ Funding strategies? The Green Fund... Corridor of carbon prices (COP21). ◦ IDFC has a specific role to play (possibly in connection with the Green Fund). 6/32
� I. A call for action now ◦ Canfin-Grandjean Report (2015). 7/32
� I. A call for action now ◦ Canfin-Grandjean Report (2015). ◦ Clever use of the public guarantee (Basu). 7/32
� I. A call for action now ◦ Canfin-Grandjean Report (2015). ◦ Clever use of the public guarantee (Basu). ◦ Recycling (already existing) SDRs ? (Giraud, Grandjean, Leguet (2015)). 7/32
� I. A call for action now ◦ Canfin-Grandjean Report (2015). ◦ Clever use of the public guarantee (Basu). ◦ Recycling (already existing) SDRs ? (Giraud, Grandjean, Leguet (2015)). ◦ Green Securitization (ECB...?) Climate Policy Initiative (CPI), I4CE. 7/32
� I. A call for action now "This is why we call for a radical deepening of economic ◦ analysis, including a development economics that begins to understand and incorporate climate change. Standard growth theory, general equilibrium and marginal methods will, as ever, have much to contribute but they will be nowhere near sufficient. This is about immense risks and radical change where time is of the essence. We should seek a dynamic economics where we tackle directly issues involving pace and scale of change in the context of major and systemic risks." 8/32
� Outlines 1 I. A call for action now 2 II. New Climate Macro? 9/32
� II. New Climate Macro? � Modelling: � The macroeconomics: Non-linear Dynamical System with debt dynamics. � The climate feed-back loop taken from Nordhaus’ DICE model (2013). � Estimation � Calibration of the climate and public policy modules in line with Norhdaus’ DICE model (2013). � Macroeconomic module estimation at the world level (panel analysis for wider volatility). 10/32
� II. New Climate Macro? ◦ GEMMES model (GEneral Monetary Macro-dynamics for the Ecological Shift). 11/32
� II. New Climate Macro? ◦ GEMMES model (GEneral Monetary Macro-dynamics for the Ecological Shift). ◦ Stock-flow Consistency Grasselli and Costa-Lima (2012)... 11/32
� II. New Climate Macro? ◦ GEMMES model (GEneral Monetary Macro-dynamics for the Ecological Shift). ◦ Stock-flow Consistency Grasselli and Costa-Lima (2012)... ◦ Public, private debt dynamics. Debt-deflation (Krugman and Eggertson (2012)). Financial sector (Giraud and Kockerols (2016)). 11/32
� II. New Climate Macro? ◦ GEMMES model (GEneral Monetary Macro-dynamics for the Ecological Shift). ◦ Stock-flow Consistency Grasselli and Costa-Lima (2012)... ◦ Public, private debt dynamics. Debt-deflation (Krugman and Eggertson (2012)). Financial sector (Giraud and Kockerols (2016)). ◦ Why is debt important for the issue at stake? 11/32
� II. New Climate Macro? ◦ GEMMES model (GEneral Monetary Macro-dynamics for the Ecological Shift). ◦ Stock-flow Consistency Grasselli and Costa-Lima (2012)... ◦ Public, private debt dynamics. Debt-deflation (Krugman and Eggertson (2012)). Financial sector (Giraud and Kockerols (2016)). ◦ Why is debt important for the issue at stake? � today’s liquidity trap due to debt overhang. 11/32
� II. New Climate Macro? ◦ GEMMES model (GEneral Monetary Macro-dynamics for the Ecological Shift). ◦ Stock-flow Consistency Grasselli and Costa-Lima (2012)... ◦ Public, private debt dynamics. Debt-deflation (Krugman and Eggertson (2012)). Financial sector (Giraud and Kockerols (2016)). ◦ Why is debt important for the issue at stake? � today’s liquidity trap due to debt overhang. � the (possibly huge) cost of investment in green infrastructures. 11/32
� II. New Climate Macro? ◦ GEMMES model (GEneral Monetary Macro-dynamics for the Ecological Shift). ◦ Stock-flow Consistency Grasselli and Costa-Lima (2012)... ◦ Public, private debt dynamics. Debt-deflation (Krugman and Eggertson (2012)). Financial sector (Giraud and Kockerols (2016)). ◦ Why is debt important for the issue at stake? � today’s liquidity trap due to debt overhang. � the (possibly huge) cost of investment in green infrastructures. ◦ Non-neutral money + leverage cycle (Genakoplos). 11/32
� II. New Climate Macro? ◦ Endogenous monetary business cycles. 12/32
� II. New Climate Macro? ◦ Endogenous monetary business cycles. ◦ Multiple long-run equilibria. 12/32
� II. New Climate Macro? ◦ Endogenous monetary business cycles. ◦ Multiple long-run equilibria. ◦ No Say’s law Inventory dynamics. 12/32
� II. New Climate Macro? ◦ Endogenous monetary business cycles. ◦ Multiple long-run equilibria. ◦ No Say’s law Inventory dynamics. ◦ Short-run Phillips curve (with delay) (Mankiw (2010)). 12/32
� II. New Climate Macro? ◦ Endogenous monetary business cycles. ◦ Multiple long-run equilibria. ◦ No Say’s law Inventory dynamics. ◦ Short-run Phillips curve (with delay) (Mankiw (2010)). ◦ No rational expectations. Phenomenological viewpoint : aggregate investment, consumption, Phillips functions are empirically estimated. 12/32
� II. New Climate Macro? ◦ Endogenous monetary business cycles. ◦ Multiple long-run equilibria. ◦ No Say’s law Inventory dynamics. ◦ Short-run Phillips curve (with delay) (Mankiw (2010)). ◦ No rational expectations. Phenomenological viewpoint : aggregate investment, consumption, Phillips functions are empirically estimated. ◦ Link between inequality and inefficiency + Stiglitz “stylized facts" on inequality. Giraud and Grasselli (2016). 12/32
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