International Macroeconomic Policy and Climate Change

This project supports public policymakers and private sector practitioners working on the international economic impact of climate change.

Climate change has profound implications for the way the global economy functions. There is an urgent need to understand what this means for international macroeconomic policy, to adapt existing policies, and devise new ones. Our research is focused on six core themes:

Climate Clubs

We are examining the idea of a Climate Club initially articulated in William Nordhaus’s paper for the American Economic Review: Climate Clubs: Overcoming Free-Riding in International Climate Policy (2015).

The German Government announced that it planned to use its 2022 G7 presidency “to drive forward and collectively pioneer the discussion on a cooperative global climate club that is open to all countries…”.

Our current research on this topic includes an examination of the potential benefits and challenges of a Border Carbon Adjustment Mechanism (BCAM) - the Climate Club membership criteria – as well as compatibility with international law, and also the potential political effects on wider cooperation to tackle climate change among member and non-member countries.

Private sector financial flows

We assess the implications of climate change (and related policies) for the pattern of international portfolio flows and foreign direct investment, and how asset allocation strategies based on Environmental, Social and Governance (ESG) indices may influence financial flows.

We also examine the impact of new official policies and guidance, including the transparency measures promoted by the Task Force on Climate-related Financial Disclosures (TCFD), new approaches to the implementation of monetary policy, and sustainable investment frameworks such as the EU taxonomy.

A policy brief linked to our work on this theme, Corruption Risks Loom Large over Financing of Green Infrastructure, was published on in September 2022. The brief identifies key corruption risks that threaten climate infrastructure financing and the best practices that can alleviate these risks.

Public sector finances

The implications of climate-related policies for public sector risk management and finances, and how this will impact on international debt management, global tax cooperation, and fiscal policy coordination.

International trade

How climate change affects the volume, volatility, and direction of international trade, given likely shifts in comparative advantage between countries and the potential for radical shifts in trade policy such as the introduction of border carbon adjustment mechanisms, or the conditioning of new free trade agreements on Paris Club compliance. 

Emerging and developing economies

How climate change and related policies impact on the macroeconomic conditions facing emerging and developing countries differently to the major advanced economies. We are also examining the implications of climate change for developing country debt management, including local currency funding, and for public financial accountability, including through global transparency standards. What are the implications for exchange rate policy and capital flow management?

Global economic architecture

Examining how climate change may affect the role, responsibilities, and governance of individual international economic organisations, such as the IMF, FSB, OECD and WTO  as well as their existing surveillance and policy instruments. What are the implications for the functioning of the international economic architecture as a whole.

Cross-cutting themes

Our research is drawing out cross-cutting themes, including the impact of ongoing developments in the science of climate change, the role of public narratives and political economy, implications for income and wealth inequality both within and between countries, and the relationship between international macroeconomic developments and geopolitical outcomes. We are also looking at the implications of climate change for macroeconomic forecasting and the role it plays in international economic policy.

A research paper linked to this project was published on on 3 November 2021: Priorities for the climate-trade agenda.

Chatham House’s Waddesdon Club seeks to equip future leaders with the necessary tools, concepts, language, and capacities for influence needed to advance a mainstream economic agenda for climate change and sustainable development.