Throughout this study, Amundi examine the consequences of climate risks on social inequality and seek evidence of a potential trade-off between environmental and social improvements.
In the first part, Amundi review the macroeconomic model of Dennig et al. (2015), an Integrated Assessment Model (IAM), to theoretically determine the interactions between physical risks, transition risks and social inequality at the regional level. By substituting the representative agent with income quintiles, the model illustrates the critical need to consider inequality in calculating the social cost of carbon, both within and between countries. Without considering these disparities, current IAMs are incompatible with an inclusive pathway toward decarbonisation.
While developed countries will benefit from a low carbon tax, emerging countries, such as China and African countries, will bear the brunt of the impact of climate change, not only due to physical damages but also social inequality. Furthermore, the model is used to understand the optimal social transfers, either between or within regions, required to decrease the vulnerability of highly exposed population to climate damages. Results suggest that such policies alone may have limited effect to completely reverse the vulnerability aspect.
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