Climate alpha and the global capital market
Alexander Golub (American University and Climate Equity Research); Jon Anda (Climate Equity Research); Anil Markandya (Basque Centre for Climate Change); Michael Brody (George Mason University); Aldin Celovic (SA Consulting GmbH); Angele Kedaitiene (Lithuanian Environment Agency)
G11, G17, G18, Q54
Climate alpha, option value, abatement short squeeze, green transition
The way in which climate policy and climate risks are currently accounted for in financial and real investment decisions is inadequate. The paper demonstrates weaknesses in methods presently used and proposes an alternative that aims to bridge the duration gap between climate policy modeling and mitigation capital. The core tool is real options analysis combined with an Integrated Assessment Framework designed to capture the complex set of issues linking climate change, climate policy and the economy. The tools are meant for use in both capex decisions by corporations and portfolio decisions by investors. The tools will be a hedge against the risk of mitigation short squeeze occurring because investment is deferred beyond the 5 year or less timeframe of finance.
Suggested citation: A. Golub, J. Anda, A. Markandya, M. Brody, A. Celovic, A. Kedaitiene, ‘Climate alpha and the global capital market’, Nota di Lavoro 019.2022, Milano, Italy: Fondazione Eni Enrico Mattei