J.P. Morgan: Risky business – the climate and the macroeconomy

# Climate change is a slow-moving process, but it is no less danger-
ous for that. It is likely to be one of the key defining features of the
coming decades. The longer action is delayed the more costly it will
be to deal with the issues. Moreover, a delayed policy response
opens us up to potentially catastrophic outcomes, which might be
impossible to reverse.
# This report examines climate change in three sections: the mechan-
ics of climate change; the impact of climate change; and the re-
sponse to climate change.
# The mechanics of climate change considers the journey from hu-
man activity to CO2 emissions, from CO2 emissions to atmospheric
CO2 concentrations, from atmospheric CO2 concentrations to the
global temperature and from the global temperature to the global
climate. The climate system is complex, non-linear and dynamic.
There is considerable inertia in the system so that emissions in the
coming decades will continue to affect the climate for centuries to
come in a way that is likely to be irreversible. Uncertainty is en-
demic, not just about modal effects but also about the shape of the
probability distributions, especially how fat the tails are.
# The impact of climate change is broad based covering GDP, the
capital stock, health, mortality, water stress, famine, displacement,
migration, political stress, conflict, biodiversity and species surviv-
al. Uncertainty is endemic here as well, trying to evaluate the im-
pact of a climate that the earth hasn’t seen for many millions of
years. Empirical estimates based on the variability of the climate in
recent decades likely massively underestimate the effects.
# The response to climate change should be motivated not only by
central estimates of outcomes but also by the likelihood of extreme
events (from the tails of the probability distribution). We cannot
rule out catastrophic outcomes where human life as we know it is
# To contain the change in the climate, global net emissions need to
reach zero by the second half of this century. Although much is
happening at the micro level, it is hard to envisage enough change
taking place at the macro level without a global carbon tax.
# But, this is not going to happen anytime soon. Developed econo-
mies, who are responsible for most of the cumulative emissions,
worry about competitiveness and jobs. Meanwhile, Emerging and
Developing economies, who are responsible for much less of the
cumulative emissions, still see carbon intensive activity as a way of
raising living standards. It is a global problem but no global solu-
tion is in sight.

Rapporten, daterad 14/2 2020, är på 20 späckade sidor, detta är en sammanfattande inledning. Den inte officiellt publicerad utan avsedd för investmentbankens kunder. Sök på ”Risky business the climate and the macroeconomy



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