IDEAS home Printed from https://ideas.repec.org/a/ris/jofitr/0822.html
   My bibliography  Save this article

Global financial structure and climate change

Author

Listed:
  • Whalley, John

    () (Department of Economics, University of Western Ontario, CIGI and NBER)

  • Yuan, Yufei

    (Wang Yanan Institute for Studies in Economics (WISE), Xiamen University)

Abstract

Little of the literature from economists on climate change has focused on how accelerating climate change will affect economic structure, and the consequences which follow. Here we analyze the medium- to long-term implications of global warming for global financial structure. Stern (2007) suggests that greenhouse gas emissions generated by human activities could lead to global temperature increases of between 1 and 5°C by 2050. This will result in a large increase in global risk of extreme weather events, changing crop yields, sea level rise, and adverse health effects. Part of this risk, while uncertain, is non-diversifiable; but the other part, while diversifiable, is difficult for conventional insurance arrangements to accommodate. No established pattern of location or feature specific risks exists that are comparable to annual mortality tables for life cover. Insurance arrangements regulated on a national basis pose further possible problems. The response, we suggest, will be global financial market innovation primarily in the area of insurance, but also in diversification of asset holdings. Pressures will also build for a very large increase in government provided insurance. We suggest in this paper that, even with modest climate changes of 1 to 2°C, global insurance markets will expand dramatically. Under more extreme climate change scenarios, the entire global financial structure will undergo major change, with a refocusing of major financial activity away from intermediation between borrowers and lenders and the facilitation of the accumulation of assets, towards a focus on insurance arrangements and the diversification of risks associated with climate change. This will likely involve new contingent instruments, new issuers and financial institutions, and extensive government involvement.

Suggested Citation

  • Whalley, John & Yuan, Yufei, 2009. "Global financial structure and climate change," Journal of Financial Transformation, Capco Institute, vol. 25, pages 161-168.
  • Handle: RePEc:ris:jofitr:0822
    as

    Download full text from publisher

    File URL: http://www.capco.com/files/pdf/1094/02_Part%202/10_Global%20financial%20structure%20and%20climate%20change.pdf
    File Function: Full text
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert J. Nicholls & Richard S.J. Tol & Athanasios T. Vafeidis, 2005. "Global Estimates Of The Impact Of A Collapse Of The West Antarctic Ice Sheet: An Application Of Fund," Working Papers FNU-78, Research unit Sustainability and Global Change, Hamburg University, revised Jul 2005.
    2. Arthur Charpentier, 2008. "Insurability of Climate Risks," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 33(1), pages 91-109, January.
    3. Erwann Michel-Kerjan & Frederic Morlaye, 2008. "Extreme Events, Global Warming, and Insurance-Linked Securities: How to Trigger the “Tipping Point”," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 33(1), pages 153-176, January.
    4. Mendelsohn, Robert & Nordhaus, William D & Shaw, Daigee, 1994. "The Impact of Global Warming on Agriculture: A Ricardian Analysis," American Economic Review, American Economic Association, vol. 84(4), pages 753-771, September.
    5. Richard S.J. Tol & Samuel Fankhauser & Richard G. Richels & Joel B. Smith, 2000. "How Much Damage Will Climate Change Do?," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 1(4), pages 179-206, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    climate change; global financial structure; insurance;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:jofitr:0822. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Prof. Shahin Shojai). General contact details of provider: http://www.capco.com/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.