Can climate and the economy be reconciled? Two studies from Bocconi will tell us
Researchers at the University of Milan, thanks to EU-funded grants, are tackling the issues of carbon credits and the social impacts of the climate crisis
Climate change is also altering the way economies define and manage risk. Over recent decades, institutions, businesses, insurers and markets have developed tools to forecast the costs of a warmer planet, transfer losses, finance emissions reductions or compensate those exposed to more hazardous environmental conditions. The way in which this risk is measured and distributed can have a profound impact on responses to climate change.
This is the common ground between the two new European Research Council (ERC) Starting Grants awarded to Matthias Rodemeier and Grace Ballor at Bocconi, two research projects that examine the relationship between climate and the economy from different perspectives. The first researcher, from the Department of Finance and the Baffi Research Centre, will test, through M4E – Market-Based Solutions for Environmental Challenges – test this question in the context of the markets, investigating whether instruments such as carbon credits and economic incentives linked to environmental exposure can actually work, and under what conditions. Ballor, from the Department of Social and Political Sciences and the Dondena Research Centre, with *Eurisk* – The History of Climate Risk Management in the European Union, will trace the history of climate risk management in Europe since the 1990s, examining how the growing focus on the economic costs of climate change has interacted with mitigation targets.
Measuring environmental benefits
Matthias Rodemeier’s M4E project will examine the increasingly significant role of private markets in sectors where environmental regulation remains incomplete. The focus is on two categories: mitigation markets, such as those for carbon credits, which are intended to channel capital towards activities capable of reducing emissions, and adaptation markets, which introduce economic incentives to tackle risks linked to pollution and heatwaves. The critical issue in both cases is the quality of the information available to those who buy, sell or accept an incentive.
In the case of carbon credits, for example, anyone purchasing a carbon offset must be able to verify that the declared reduction in emissions has actually taken place. On the adaptation front, however, some companies offer additional pay to workers willing to work during heatwaves or in conditions of high pollution. The risk, highlighted by trade unions and regulatory authorities, is that a financial incentive could encourage workers who lack adequate information about the health risks to accept excessive exposure.
M4E will seek to determine whether a different approach to market design – through greater transparency of information, monitoring systems and more effective contracts – can improve their environmental and social outcomes. One experiment will involve around 20,000 eco-friendly stoves and will use a blockchain-based monitoring system to verify the actual use of the devices and the real reductions in emissions associated with carbon credits. Other experiments will assess whether personalised advice, delivered via artificial intelligence, can help businesses and consumers distinguish between credits with greater impact and those that are less credible. The third strand, meanwhile, will analyse the Italian labour market using data from over seven million food deliveries. By combining information on the labour supply of delivery riders with real-time data on pollution and temperature, Rodemeier will develop a new algorithmic payment mechanism designed to fairly compensate workers for environmental health risks, without encouraging uninformed workers to expose themselves excessively to such hazards.
