Latest findings: New research, studies and white papers

This week: The ‘Climate Lehman Moment’, trade law and sustainability, and industrial energy efficiency.

The ‘Climate Lehman Moment’

U.S. financial regulators have argued that the risks that climate change poses for large financial institutions are outside of their core regulatory mandate, writes Graham Steele, director of the Corporations and Society Initiative at the Stanford Graduate School of Business. In his paper, Confronting the “Climate Lehman Moment”: The Case for Macroprudential Climate Regulation (via SSRN), he continues, “This article argues that oversight of the largest financial institutions’ financing of significant amounts of fossil fuels and other carbon-intensive businesses has implications for financial stability, and is therefore a central responsibility for financial regulators.

Steele writes: “Experts have been warning for years about the risks of a growing carbon bubble that, should it pop, would result in stranded assets and job losses — to say nothing of the climate impacts that it would have in the interim.

“As with the subprime mortgage crisis before it, there are voices warning that the potential carbon bubble will lead to a new global financial crisis. Meanwhile, business continues to largely proceed as usual, ignoring many of the potential risks and seeking to eke out any remaining profits before the bubble bursts. Despite the warnings, and despite the lessons learned from a global financial crisis that is just a little more than a decade behind us, the United States’ financial regulatory agencies have taken few concrete actions to intervene and preempt a potential climate change-driven financial crisis.

“On the 10 anniversary of the ‘Lehman moment,’ — the collapse of the investment bank Lehman Brothers that marked a tipping point in the global financial crisis — the regulators who sought to protect the safety and stability of the financial system compared themselves to ‘firefighters’ battling a rapidly spreading conflagration.

“Given the intuitive similarities between the natural and financial worlds, it is difficult to deny that there is a ‘cognitive dissonance’ between the potential threat posed by climate change and the intransigence of financial regulators in the U.S.”

More of the latest research:

Towards Sustainability in Trade, Energy and Climate

This paper aims at developing effective trade law and policy instruments for sustainable energy and environmental protection with a view to advance current legislation. In the past, trade law has been a very powerful instrument for change in other fields of science. My hypothesis is that trade law can be a tool to help mitigate climate change and enhance sustainable energy. And it is well known that, thanks to trade, countries grow economically. Hence, the triple benefit of trade, which can have a positive economic, environmental and social impact. This paper challenges the view that trade’s only impact on the environment is negative. On the contrary, it takes the unconventional view that the trading system goes beyond benefiting the economy and society in that it can also contribute to environmental protection, with a specific focus on decarbonization, which is one of the main challenges humanity faces today.

Author: Rafael Leal-Arcas, Queen Mary University of London School of Law (via SSRN)

The Roof is on Fire: Wildfires' Effect on Housing Prices

Victor Sierra, California State University, Los Angeles, writes that regression analyses have been commonly applied to studying the relationships between wildfires and housing prices in local markets. Sierra writes: “My study conducts a regression analysis on a panel of local markets using county-level data. It contributes to climate and housing literature by estimating the impact of wildfires on housing prices across the Western United States using a robust least squares regression. Most models estimate wildfire effects on housing prices using direct data from wildfire activities or acres burned due to wildfire as their variables of interest. Wildfire activity data is not easily accessible on the county-level; thus, this model utilizes average annual maximum temperatures to measure changes in climate over time which exacerbate and contribute to more frequent wildfire activities. My study finds that as the average maximum temperature increases within a county, the housing prices will generally decrease in value. The results of these effects are found to be statistically significant. Specifically, one percentage point increase in the growth rate of average maximum temperature reduces the growth rate of housing sales price by an average of 0.149 percentage point. These results can provide policymakers and researchers more information about land use in wildfire-prone areas and the impact wildfires have on housing markets.

Green Bonds: A Mini-Review

The globalization process continues to threaten various sectors due to the associated adverse effects of climate change. Financial management has been found to have a positive correlation with sustainable practice. With many institutions increasingly expressing concerns about the reality of global warming, sustainability has become a critical tool in responding to climate changes. The objective of this mini literature review was to explore the published literature to comprehend the role of green bonds in aiding sustainability. … The findings revealed that green bonds are obviously used by various agencies to achieve sustainable growth, thus addressing the problem of climate change. Notably, the effective execution of financial management has the potential to enhance sustainable business operations. Critical to achieving this objective is the issuance of green bonds to finance ecologically sound projects. Nonetheless, the feasibility of green bonds in contributing to sustainability is undermined by several challenges. Some of the significant impediments include the absence of appropriate organizational arrangements, the high cost of processing transactions, and the considerable volatility clustering. The role of green bonds in aiding sustainability can be significantly improved by addressing these critical limitations.

Authors: Wadima Al Mheiri, and Haitham Nobanee (Abu Dhabi University; University of Oxford; University of Liverpool)

Climate Change as Socioeconomic Threat: International Perspectives seeks to explore the impacts and perception of climate change nationally and internationally. Authors Ameera Adil, of the Centre for Aerospace & Security Studies (CASS); and Usman W. Chohan, of the UNSW Business School; Critical Blockchain Research Initiative and CASS, write, “The multidimensional nature and security implications of climate change are discussed, with a focus on impact reduction and the need for mitigation and adaptation. Pakistan has recurrently appeared in climate vulnerability lists and currently stands fifth in the long-term climate risk index. Regardless, the country’s share of carbon emissions at its current trajectory are set to increase four-fold by 2030, thus showing the need for implementation of both mitigation and adaptation strategies, particularly in terms of its effects on various socioeconomic strata. 

A Dynamic Analysis of Industrial Energy Efficiency and the Rebound Effect

Energy efficiency improvement (EEI) is known as a cost-effective measure to meet energy, climate change and sustainable development targets. However, behavioral responses to such improvements referred to as energy rebound effect may change the emission and energy saving gains expected from EEI. Despite broad consensus around the existence of energy rebound effect, significant divergence exists on how to measure this effect, which matters in order to set up realistic energy and climate policies. In this study, we propose a new approach to measure the energy rebound effect in both the short and the long run using a two-stage procedure, applied to a firm-level data set from Swedish manufacturing industry over the period 1997–2008. We show that in the short run, partial rebound effects exist within all manufacturing sectors, meaning that the rebound effect decreases, but does not totally offset, the potential energy and emission savings expected from EEI. In the long run, our results suggest that rebound effects decrease within most of the sectors. 

Authors: Golnaz Amjadi, Swedish University of Agricultural Sciences and the Center for Environmental and Resource Economics; Tommy Lundgren, Umea School of Business and Economics; Wenchao Zhou, SLU, CERE