Climate change: Risky business?

Abstract

The recently released IPCC report states that climate change is unequivocal, unprecedented and anthropogenic in origin. Climate change is a three-pronged global externality with environmental, socio-economic and political consequences.. It may unleash 'catastrophic' losses in welfare if tipping points are crossed. Actions to avert catastrophic outcomes should arguably resemble insurance decisions rather than investment decisions. Early recommendations from the economics community on a climate policy ramp have been partially upended by stronger calls for action based, inter alia, on severe tail events. Efforts by the international community to respond to more urgent calls for action have so far failed to materialise. Future research on severe tail events, environmentally sound technologies and the establishment of more acceptable burden sharing agreements may improve the current grim prospects for effective and efficient climate action.