While climate change and climate policies affect both physical capital and financial assets, their impacts on aggregate wealth and its distribution remain underexplored. Preliminary calculations suggest that climate change and climate investments could have substantial effects on global wealth inequality.
In a new perspective paper published in Nature Climate Change, Lucas Chancel, Cornelia Mohren, Philipp Bothe, and Gregor Semieniuk propose a new framework to analyze these intersections and their policy implications.
Key findings
Climate policies – Stylized simulations show that climate investments necessary in the next decades could have substantial impacts on the future distribution of wealth:
- Private wealth inequality: If the richest 1% of the global population made all required climate investments and owned the resulting assets, their wealth share could increase from 38.5% nowadays to 46% in 2050 (scenario A1). However, if all these investments are financed by a wealth tax on the top 1%, and then owned by the public sector, the global top 1% wealth share could fall dramatically, by around 13 percentage points, to 26% in 2050 (scenario A2).
- Public – private wealth ownership: If the public sector filled the climate investment gap between now and 2050 and owned the additional capital stock, the public capital stock to GDP ratio could shift from 80% in 2019 to more than 110% in 2050 (scenario B1). Conversely, if the private sector performed all additional climate investments, its capital position could rise to 216% as a share of 2050 GDP, while public wealth could stay at 80% of GDP (scenario B2).
Conceptual Framework – While a comprehensive body of literature has analysed the impacts of climate shocks on income inequality between and within countries, the effects of climate change on wealth have not been studied extensively. Given that the observed distributions of income and wealth exhibit important differences, a separate body of research is needed to understand climate-wealth interactions. This paper proposes a framework to outline and scrutinize the channels through which climate impacts and climate policies impact the distribution of wealth.
Research Agenda – Future research will need to integrate climate impacts on the distribution of wealth in both, theoretical and empirical work. This paper identifies key barriers and challenges that have prevented the emergence of such research in the past and proposes priority areas for research aiming to advance our understanding of the interplay between climate change and wealth inequality. This new research agenda is key to shaping and accelerating climate policymaking in the coming years. Identifying the potential winners and losers of mitigation and adaptation policies can help policymakers anticipate the perceived and objective interests of various groups of wealth owners in supporting or resisting the transition.
To read the paper, click here.
MEDIA CONTACT
- Alice Fauvel, Communications Manager, alice.fauvel[at]psemail.eu ; press[at]wid.world
AUTHORS
- Lucas Chancel, Sciences Po, Paris School of Economics, WIL
- Cornelia Mohren, Sciences Po, Paris School of Economics, WIL
- Philipp Bothe, Paris School of Economics, WIL
- Gregor Semieniuk, Department of Economics and School of Public Policy, University of Massachusetts Amherst, MA, United, States and The World Bank, Washington, DC, USA, WID Fellow
