Working paper by CESifo, January 2025.
This paper studies the economic effects of the interaction of nature loss and climate change.
Economists are increasingly interested in better understanding the many interactions between economic activity and the health of our planet. The two main areas of focus have been the economics of climate change and of nature and biodiversity loss. Due to the conceptually distinct economic effects of climate change and nature loss, previous research has largely explored them independently. Yet, there are important feedback loops between climate change and nature loss, prompting policy makers to refer to them as “twin crises”. Indeed, climate change causes nature loss, and nature provides both a carbon sink and adaptation tools to reduce climate damages.
Using a model that incorporates important aspects of both processes, the authors study the interaction of nature loss and climate change. It captures the distinct ways in which they affect economic activity—with nature constituting a key factor of production and climate change destroying parts of output—but also the many ways in which they interact. The analysis of these feedback loops reveals a novel amplification channel—the Twin-Crises Multiplier—that systematically affects optimal climate and nature conservation policies.
These are extracts from a working paper written by Stefano Giglio, Theresa Kuchler, Johannes Stroebel and Olivier Wang, January 2025. To read the full paper, follow the link here.
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