Climate Financing of Ongoing and Intensified Climate Change: Evidence from Tropical Cyclones in the Coastal Cities in China

Ongoing climate change is resulting in intensified tropical cyclones, which are rapid-rotating storm systems with strong winds and heavy rains. Intensified climate change will also affect fiscal policy, government budgets, and public debt; therefore, governments need sufficient information on the costs associated with various climate change events in order to better prepare for climate change and strengthen government financial management systems to use external financial resources efficiently. However, there is little information in the literature on how to monetarize the physical impact of tropical cyclones for climate financing. Overall, the increasing climate vulnerability calls for a deep understanding of the climate-economy relationship.This project takes a new approach and proposes a quantitative framework for bridging climate science and economics by incorporating detailed fine-scale climatic information about tropical cyclones into econometric models. This allows us to characterize intensified climate change and provide precise quantification of the climate-economy relationship. With interdisciplinary collaboration, this project will (1) construct a climate-economy framework to study the economic impacts of tropical cyclones along the coast of China, (2) uncover the mechanisms through which tropical cyclones affect the economy, (3) evaluate the effectiveness of adaptation strategies that have been used by cities and explore the best strategy for maintaining urban sustainability by tackling risks related to climate change, and (4) predict future tropical cyclones using machine learning techniques and propose climate budgeting that can be adopted in the Greater Bay Area (GBA) of China.This project is important in three aspects. Firstly, it is crucial for China’s national economic sustainability. Coastal cities are the “engine” of China’s economic growth. Over 60% of China’s population live in coastal provinces; therefore, evaluating how both past and future tropical cyclones affect the local economy and residents is a necessary step for sustainable climate financing. Secondly, the GBA is the innovation hub of China, and many cities in GBA face increasing challenges related to climate change. How well the GBA adapts to intensified climate change matters for sustaining the growth of the national economy. It is thus essential for policymakers to understand the economic impacts and effectiveness of adaptation strategies. Thirdly, climate risk is now a critical concern of corporate strategic management. As listed firms are required to report climate risks to the Hong Kong Exchanges and Clearing Limited, understanding the climate-economy relationship will help listed firms to better adapt to climate change and maintain Hong Kong’s competitiveness.