Climate change matters: environmental policy, inequality, rare disasters

The Thesis explores climate change matters from a variety of different angles, focusing on macroeconomic and econometric theoretical and empirical methodologies. Chapter 1(Monitoring the Environmental Transition) builds a dynamic general equilibrium model with endogenous technology and simulates an environmental policy to induce directed technical change and mitigation of climate change. The augmented model builds directly on the existing literature by integrating several established frameworks into a single unified structure which favours endogenous directed technical change, separably additive preferences, population growth and simplified carbon concentration traceability. Calibration reveals an environmental optimal policy under which the economy ultimately reverts to green and environmentally sustainable growth. Indeed, carbon tax and research subsidies are successful in inducing innovation in clean technologies which in turn implies significant growth in TFP and boost in output. Results predict considerable reduction of the share of the dirty sector in the economy and consequently a relief from heavy damages ensuing from carbon emissions. Chapter 2 (Measuring Climate Change-Induced Social Inequality) documents the relationship between annual average of daily temperatures and annual mortality rates using US county-level data. Specifically, this paper investigates the presence of social inequality embedded in the consequences of climate change-induced temperature increases on rates of mortality. Econometric applications using panel and quantile and spatial regression models indicate that the lowest income deciles are the more severely impacted than their highest income deciles. Considering spatial autocorrelation, findings show no evidence of clusters of severe mortality rates. Chapter 3 (Rare Climate Disaster Risk and Intergenerational Inequality) studies rare climate disaster risks that impact the capital stock in an economy. Specificially, the paper investigates inequalities of the impact of the rare climate disaster across generations. Thus, a time-varying rare disaster risk (Fernández-Villaverde and Levintal (2018)) is embedded in an overlapping generation model to quantitatively track the behaviour of a younger and an older generation of consumers. The model is calibrated and solved using Dynare, thus impulse responses are generated. Findings show that an increase in the probability of disaster shock causes a recession whereby, critically, the young generation bears the brunt of the impact. On the other hand, a rise in the disaster risk triggers precautionary behaviour leading to a stimulated economy.