This paper explores climate-related risks and focuses on three aspects. Firstly, the impact of physical climate risk on different sectors in different economies has been assessed. Initially, the effects on the labor supply and the productivity of the production sectors due to several chronic climate risks: rising sea levels, heat-induced impacts on the labor force, changes in the incidence of diseases, and crop yield changes have been explored. The damage functions in the literature to create these shocks along with the climate variable projections under different climate scenarios have been used. The historical impacts of climate-related extreme events on the labor force, agriculture- and energy- sector productivity have been evaluated. Using climate variables, the incidence of extreme events in the future, we estimate the economic shocks and their spill-over effects on other production sectors under the climate scenarios have been estimated. These shocks together were enabled to estimate the economic impact of climate change through the G-Cubed model. Finally, the impact of transition risks on sectoral and aggregate outcomes in the global economy, if countries implement effective policies to achieve zero net emissions by 2050, has been explored.
Keyword: Climate change, Extreme events, Climate shocks, Climate risk, Macroeconomics, DSGE, CGE, G-cubed
ROSHEN FERNANDO WEIFENG LIU WARWICK J. MCKIBBIN