Temperature volatility comes at a price to worldwide growth
Pioneering research has used panel econometric techniques to estimate the economic impact of average temperatures. Building on that approach, we show that temperature anomalies from historical norms may be more consequential economically than average temperature levels.
What you will learn:
- Our research finds that considering changes in the overall temperature distribution not only justifies using temperature anomalies, but also provides a deeper assessment of climate change, which signifies additional changes in the distribution of weather variables beyond averages.
- To achieve this, we estimate a climate damage function that separates economic impacts into (1) global-warming effects due to temperatures trending away from their long-run means; and (2) broader climate change attributed to changes in temperature volatility and the likelihood of extreme events. Full technical details including our empirical approach and robustness checks can be found in our working paper.
- The projected economic cost of climate change is greater than previously thought, and cooler countries no longer benefit from modest warming. Indeed, we seem to be at a tipping point. As the global temperature anomaly rises past 1.1°C, productivity growth falls. In aggregate, 2.2°C of warming by 2050 has the potential to reduce global GDP levels 10%-20%, versus 1% under our original specification. Warming of up to 5°C by 2100 would lead to economic annihilation, consistent with scientific research on mass extinction thresholds.
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