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Climate Change Research
Economic Impact of Climate Change
Thrilled to share our latest work with @AdrienBilal! Check out our new working paper:
๐ง๐ต๐ฒ ๐ ๐ฎ๐ฐ๐ฟ๐ผ๐ฒ๐ฐ๐ผ๐ป๐ผ๐บ๐ถ๐ฐ ๐๐บ๐ฝ๐ฎ๐ฐ๐ ๐ผ๐ณ ๐๐น๐ถ๐บ๐ฎ๐๐ฒ ๐๐ต๐ฎ๐ป๐ด๐ฒ: ๐๐น๐ผ๐ฏ๐ฎ๐น ๐๐. ๐๐ผ๐ฐ๐ฎ๐น ๐ง๐ฒ๐บ๐ฝ๐ฒ๐ฟ๐ฎ๐๐๐ฟ๐ฒ
Read here: bit.ly
Thread below๐
๐ง๐ต๐ฒ ๐ ๐ฎ๐ฐ๐ฟ๐ผ๐ฒ๐ฐ๐ผ๐ป๐ผ๐บ๐ถ๐ฐ ๐๐บ๐ฝ๐ฎ๐ฐ๐ ๐ผ๐ณ ๐๐น๐ถ๐บ๐ฎ๐๐ฒ ๐๐ต๐ฎ๐ป๐ด๐ฒ: ๐๐น๐ผ๐ฏ๐ฎ๐น ๐๐. ๐๐ผ๐ฐ๐ฎ๐น ๐ง๐ฒ๐บ๐ฝ๐ฒ๐ฟ๐ฎ๐๐๐ฟ๐ฒ
Read here: bit.ly
Thread below๐
๐ ๐ผ๐๐ถ๐๐ฎ๐๐ถ๐ผ๐ป: Climate change is often portrayed as an existential threat, posing significant risks to our lives, livelihoods and the global economy.
Yet, empirical estimates using historical temperature variation imply small damages, ~1-3% GDP loss per 1ยฐC.
Yet, empirical estimates using historical temperature variation imply small damages, ~1-3% GDP loss per 1ยฐC.
The existing literature focuses on ๐ธ๐ช๐ต๐ฉ๐ช๐ฏ-๐ค๐ฐ๐ถ๐ฏ๐ต๐ณ๐บ, ๐ญ๐ฐ๐ค๐ข๐ญ temperature variation in panel.
Are the economic consequences of climate change truly so small? Or is local temperature an incomplete representation of climate change?
Are the economic consequences of climate change truly so small? Or is local temperature an incomplete representation of climate change?
We build on the shoulders of giants that have pioneered credible identification of the effects of temperature changes @MelissaLDell @bfjo @Ben_Olken @MarshallBBurke @tedmiguel Solomon Hsiang
But propose a new focus: ๐๐ถ๐บ๐ฒ-๐๐ฒ๐ฟ๐ถ๐ฒ๐ variation in ๐ด๐น๐ผ๐ฏ๐ฎ๐น temperature
But propose a new focus: ๐๐ถ๐บ๐ฒ-๐๐ฒ๐ฟ๐ถ๐ฒ๐ variation in ๐ด๐น๐ผ๐ฏ๐ฎ๐น temperature
Idea: Climate change originates with a rise in global temperature, which affects the Earthโs climate system as a whole, influencing the frequency, intensity and distribution of extreme climatic events.
๐๐ฑ๐ฒ๐ป๐๐ถ๐ณ๐ถ๐ฐ๐ฎ๐๐ถ๐ผ๐ป: Construct global temperature shocks as transient component in global temperature using Hamilton filter.
Captures external&internal climate variability such as Solar cycles or El Niรฑo events
Captures external&internal climate variability such as Solar cycles or El Niรฑo events
Estimate dynamic causal effects of global temperature shocks on real GDP using local projections.
We include rich set of country-specific and global controls to account for confounding factors. As robustness, we also formally account for reverse causality threats.
We include rich set of country-specific and global controls to account for confounding factors. As robustness, we also formally account for reverse causality threats.
๐ ๐ฎ๐ถ๐ป ๐ฟ๐ฒ๐๐๐น๐: A 1ยฐC increase in global temperature leads to a 12% decline in world GDP. The response is highly statistically significant and persistent.
The impact turns out to be robust:
-Time-series and panel estimates very similar
-Robust to construction of shock
-Robust to sample period
-Robust to controls included/accounting for reverse causality
-Time-series and panel estimates very similar
-Robust to construction of shock
-Robust to sample period
-Robust to controls included/accounting for reverse causality
The effect is by an order of magnitude larger than the GDP losses to a 1ยฐC local temperature shock:
๐ ๐ฒ๐ฐ๐ต๐ฎ๐ป๐ถ๐๐บ: Global temperature shocks predict strong rise in damaging extreme events. From Deschรชnes-Greenstone 2011; Hsiang-Jina 2014 we know that such events are associated with substantial economic damages.
The impact of local shocks on extreme events is much weaker
The impact of local shocks on extreme events is much weaker
๐ฆ๐๐ ๐ฎ๐ป๐ฑ ๐๐ฒ๐น๐ณ๐ฎ๐ฟ๐ฒ: We use our reduced-form impacts to estimate structural damage functions in IAM and quantify the social cost of carbon and welfare cost of climate change.
Consistent with the potential damages of storms, we allow for productivity and capital damages
Consistent with the potential damages of storms, we allow for productivity and capital damages
Our results imply a SCC of $1,056 per ton of carbon dioxide vs. $151/tCO2 when we estimate the model on local temperature shocks.
A business-as-usual warming scenario leads to a present value welfare loss of 31%. Both are multiple orders of magnitude above previous estimates.
A business-as-usual warming scenario leads to a present value welfare loss of 31%. Both are multiple orders of magnitude above previous estimates.
Magnitudes are robust wrt warming scenario and discount rates. Even under moderate warming of 2ยฐC or large discount rate of 4% we find substantial economic impacts.
๐ฃ๐ผ๐น๐ถ๐ฐ๐ ๐ถ๐บ๐ฝ๐น๐ถ๐ฐ๐ฎ๐๐ถ๐ผ๐ป๐: Our results have important policy implications. Unilateral decarbonization policy is not cost-effective under existing estimates of domestic cost of carbon.
Our estimates reverse this trade-off: Unilateral decarbonization policies become optimal for large countries such as the United States.
Thanks for reading. Comments and feedback very much welcome!
NBER WP : bit.ly
Ungated: dkaenzig.github.io
NBER WP : bit.ly
Ungated: dkaenzig.github.io
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