Climate Change: A Paradigm Shift for Investments?

Abstract

Continuing with work of Rathee and Kapil (2013) on assessing the paradigm shift for investments due to climate change, this paper presents a review of the climate economics to add to the precious work on climate science. In its various sections the paper presents the economic treatment of climate problem as a market-failure from the perspectives of externalities and cost benefit analysis and reveals the dimensions of marginal abatement costs, and inter-generational equity. An assessment of likely total economic costs incurred due to climate change is presented to understand the scale of asset-value loss and economic risks faced by investors. We thereupon also investigate the various economic instruments that have been proposed by economists and implemented in policy for adaptation to and mitigation of climate change activity. In the penultimate section, a discussion is presented on challenges and opportunities for private investors in light of the climate economics revealed earlier in the paper. This research will add further to the work presented earlier in the series and adds another perspective of interdisciplinary dimension to the benefit of climate and economic researchers. For further action, the future researcher can build on this collective work to investigate for evidence on investable financial instruments that provide opportunities to allocate capital in the climate adaptation and mitigation related sectors.