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The Macroeconomic Impact of Climate Change: Global vs. Local Temperature

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  • Bilal, Adrien
  • Känzig, Diego

Abstract

This paper estimates that the macroeconomic damages from climate change are six times larger than previously thought. Exploiting natural global temperature variability, we find that 1°C warming reduces world GDP by 12%. Global temperature correlates strongly with extreme climatic events unlike country-level temperature used in previous work, explaining our larger estimate. We use this evidence to estimate damage functions in a neoclassical growth model. Business-as-usual warming implies a 29% present welfare loss and a Social Cost of Carbon of $1,065 per ton. These impacts suggest that unilateral decarbonization policy is cost-effective for large countries such as the United States.

Suggested Citation

  • Bilal, Adrien & Känzig, Diego, 2024. "The Macroeconomic Impact of Climate Change: Global vs. Local Temperature," CEPR Discussion Papers 19203, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19203
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    Cited by:

    1. Lessmann, Kai & Gruner, Friedemann & Kalkuhl, Matthias & Edenhofer, Ottmar, 2024. "Emissions Trading with Clean-up Certificates: Deterring Mitigation or Increasing Ambition?," CEPR Discussion Papers 19180, C.E.P.R. Discussion Papers.
    2. Francesco Jacopo Pintus & Jan P.A.M. Jacobs & Elmer Sterken, 2024. "Fiscal Impacts of Climate Anomalies," CAMA Working Papers 2024-74, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Srivastava, Prachi & Bloom, Nicholas & Bunn, Philip & Mizen, Paul & Thwaites, Gregory & Yotzov, Ivan, 2024. "Firm climate investment: a glass half-full," Bank of England working papers 1095, Bank of England.
    4. Pierre Coster & Julian di Giovanni & Isabelle Méjean, 2024. "Firms’ Supply Chain Adaptation to Carbon Taxes," Staff Reports 1136, Federal Reserve Bank of New York.
    5. Berg, Kimberly A. & Curtis, Chadwick C. & Mark, Nelson C., 2024. "GDP and temperature: Evidence on cross-country response heterogeneity," European Economic Review, Elsevier, vol. 169(C).
    6. Hoffmann, Bridget & Dueñas, Juliana & Goytia, Alejandra, 2024. "The Effect of Extreme Heat on Economic Growth: Evidence from Latin America," IDB Publications (Working Papers) 13810, Inter-American Development Bank.
    7. Lennard Schlattmann, 2024. "Spatial Redistribution of Carbon Taxes," ECONtribute Discussion Papers Series 345, University of Bonn and University of Cologne, Germany.

    More about this item

    Keywords

    Climate change;

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • F18 - International Economics - - Trade - - - Trade and Environment
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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