Extreme Climate Risks and Financial Tipping Points

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Gaël Giraud, Professor, McCourt School of Public Policy, Director of the Environmental Justice Program, Georgetown University

Speaker Biography

A former senior researcher in mathematical economics at CNRS, and a former chief economist of the French Development Bank, GG is the founder of the Environmental Justice Program at Georgetown university. His research is dedicated to stock-flow consistent macroeconomics, climate change and natural resources. 


Designing climate change policies requires considering the feedback loops between mitigation and adaptation, since more mitigation efforts today will trigger lower adaptation costs. In this framework, carbon taxes are often seen as promising tools but at the risk of financially overburdening the private sector, depriving it of important economic resources. However, analyzing the financial feasibility of mitigation-adaptation policies using conventional Integrated Assessment Models (IAM) is limited, as they do not simultaneously endogenize economic growth, emissions, and damages. Here, we present IDEE (Integrated Dynamic Environment-Economic), a new IAM based on the coupling of an Earth Model of Intermediate Complexity and a non-linear macroeconomic model in continuous time. We analyze the simultaneous effects of carbon taxes and public spending, both on climate and on the world economy. We show that, above a warming about +2.3 C, damages drastically foster the need for additional investments in productive capital---an adaptation necessity---that potentially leads private firms to a debt overhang and a worldwide cascade of defaults. This suggests that the Paris Agreement target should not only be motivated by the climatic non-linearities and tipping points arising beyond the \degC{+2} threshold, but also by the emergence of financial tipping points. We also show that, provided public subsidies are high enough, a tax of US$ 300~per~tCO2-eq by 2030 enables reaching net-zero emissions in 2050, preventing firms from suffering global bankruptcy.


Date and Time
April 11, 2023, 12:30 to 1:30 p.m.
Event tags
UT Energy Symposium