Climate change is already here, but what is it doing to the economy and what are the losses over time? GRI welcomed University of Arizona Professor Derek Lemoine to present his recent research paper, Already Heating Up: Climate Change and the Recent Economy, on the current costs of climate change.

The webinar presented data on the impact of climate change on U.S. income over a 20-year period (2000–2019) viewed through a framework that compiles the long-run, local calculation of climate impacts and the national weather for a full calculation of climate impacts.

While the short-run, local calculation suggests that climate change reduced income by an average of 0.4% over the period, the long-run, local calculation, which considers how climate change affected weather in past years and its impact on local capital stock[1], estimates the reduction to be 1%. By taking into consideration the nationwide implications of climate change on prices and capital stock, the reduction in U.S. income is approximately 12%.

The negative effects are due not only to extremes but also to the presence of more hot/warm and more cold/cool days, as opposed to those in the temperate 60-70 degree Fahrenheit range. Looking at the effect of excess hot/warm days and excess cold/cool days, the data reveals heterogenous effects across different regions. For example, cold days are more negative for poorer counties than wealthy ones, and agricultural areas may be more affected by heat than manufacturing areas.

This framework can be adapted for use by any entity with access to reliable and detailed weather and economic data. It will be particularly useful for government or regulators to have a credible foundation for estimating climate change losses, or for fund managers to understand the change in risk due to climate change, and the potential to use weather data to inform risk assessments.

[1] Capital stock encompasses physical capital, natural resources, and knowledge (i.e., technologies). Current weather potentially affects stocks directly through degradation and indirectly through decisions about investment (for capital stocks), management (for resource stocks), and research (for knowledge stocks).

Download presentation slides