Asset diversification versus climate action

Frederick (Rick) van der Ploeg, Christoph Hambel and Holger Kraft

No 14863, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Asset pricing and climate policy are analyzed in a global economy where consumption goods are produced by both a green and a carbon-intensive sector. We allow for endogenous growth and three types of damages from global warming. It is shown that, initially, the desire to diversify assets complements the attempt to mitigate economic damages from climate change. In the longer run, however, a trade-off between diversification and climate action emerges. We derive the optimal carbon price, the equilibrium risk-free rate, and risk premia. Climate disasters, which are more likely to occur sooner as temperature rises, significantly affect asset prices.

Keywords: Climate finance; Decarbonization; Diversification; Carbon price; Asset prices; Green assets; Disaster risk (search for similar items in EconPapers)
JEL-codes: D81 G01 G12 Q5 Q54 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-ene, nep-env and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Related works:
Journal Article: ASSET DIVERSIFICATION VERSUS CLIMATE ACTION (2024)
Working Paper: Asset Diversification versus Climate Action (2020)
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