Climate Change and Government Borrowing Costs: A Triple Whammy for Emerging Market Economies

Benedict Clements, Sanjeev Gupta, Joao Jalles and Bernat Adrogue
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Benedict Clements: Universidad de las Américas
Sanjeev Gupta: Center for Global Development
Bernat Adrogue: Center for Global Development

No 660, Working Papers from Center for Global Development

Abstract: Climate change is a systemic risk to the global economy. While there is a large body of literature documenting the potential economic consequences of climate change, there is relatively little research on the link between vulnerabilities to climate change, the buildup of climate debt by countries with historically large carbon dioxide emissions, and how well financial markets incorporate (or not) these risks to sovereign governments. This paper investigates the impact of both climate debt and climate vulnerabiities/resiliency on sovereign bond yields and spreads in advanced and emerging market economies, using a novel dataset. We find that changes in climate debt are an important determinant of spreads, but only in emerging market economies. Countries with high vulnerabilities and low resilency to climate change also pay higher spreads. This implies a triple whammy of challenges for emerging market economies as they confront the economic damages of climate change, the high fiscal costs of climate adaptation, and high borrowing costs.

Keywords: climate change vulnerability; government bond spreads; sovereign risk; panel data; social cost of carbon (search for similar items in EconPapers)
JEL-codes: C23 E21 H5 H63 H74 Q54 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2023-10-24
New Economics Papers: this item is included in nep-ene and nep-env
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Related works:
Working Paper: Climate Change and Government Borrowing Costs: A Triple Whammy for Emerging Market Economies (2023)
Working Paper: Climate Change and Government Borrowing Costs: A Triple Whammy for Emerging Market Economies (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:cgd:wpaper:660

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