Projected Economic Impacts of Climate Change

Projected Economic Impacts of Climate Change

March 28, 2019
Projected Economic Impacts of Climate Change
As mandated by Congress, the U.S. Global Change
effects largely did so on a global scale. Since the early
Research Program produces regular National Climate
2000s, advancements in the underlying physical and
Assessment (NCA) reports on the state of scientific
economic research, data availability, and computing power
knowledge about climate change and its effects on human
have allowed the development of more granular
and natural systems in the United States. Volume II of
approaches, capable of estimating the sum of a wider array
NCA4, published in 2018, examines the contributions of
of sectoral effects at the national, regional, or even county
individual economic studies, in order to develop consensus
level. These methods are complex, drawing together
conclusions from across the body of climate impacts
insights from a range of disciplines, including climate
literature. According to NCA4, “annual losses in some
science, economics, and statistics.
economic sectors are projected to reach hundreds of billions
of dollars by the end of the century” provided continued
According to a 2017 report of the U.S. Government
growth in emissions at historic rates. The findings of the
Accountability Office (GAO), a “small but growing number
NCA4, and those of previous reports, have raised concerns
of researchers” are developing the methods used to project
in Congress about the projected economic impacts and
the potential economic effects of climate change within the
questions about the study methods used to derive these
United States. To date, these methods have been primarily
projections.
applied to certain economic sectors for which data are
readily available and evidence for the relationship between
Studies projecting the economic impacts of climate change
climate and impacts is considered robust. These include
vary in their scope, methodology, and the intended
human health, labor, energy, agriculture, water resources,
applications of their findings. Some focus on the effects of
infrastructure, and coastal property. Currently, no studies
one aspect of climate change upon a single type of
purport to produce a comprehensive estimate of the effects
economic activity (e.g., effects of temperature and carbon
of climate change on the entirety of the U.S. economy.
dioxide fertilization on corn yields), while others study the
effects across a more comprehensive array of market and
Recent Projections in the Literature
non-market activities. Recent research, however, provides
Two studies, cited in Volume II of the NCA4, provide the
detailed projections of future impacts of climate change
most detailed projections to date of the economic effects of
across a variety of sectors of the U.S. economy.
climate change across multiple sectors in the United States.
These are:
Projections of the economic impacts of climate change have
been cited by some Members of Congress to advance
 A 2017 report of the Climate Impacts and Risk Analysis
climate-related legislation, and have raised questions and
(CIRA) project, coordinated by the U.S. Environmental
concerns about their interpretation and use in policymaking.
Protection Agency (EPA) with input from other federal
This product provides an abbreviated overview of climate
agencies; and
impacts research, recent projections from the literature, and
considerations in interpreting these. In this context, climate
 A 2017 study by Hsiang et al., published in Science, and
impacts are defined as the projected physical and economic
building upon the American Climate Prospectus, a 2014
effects of climate change, both positive and negative. This
report of the Rhodium Group.
product does not discuss the social cost of carbon or similar
metrics, which estimate the net present costs associated
These studies vary in methodology, economic sectors that
with emitting additional greenhouse gases (see CRS In
are included, and choice of metric to report results.
Focus IF10625, Social Costs of Carbon/Greenhouse Gases:
Consequently, their findings are not directly comparable.
Issues for Congress).
The 2017 CIRA report provides national and regional
Status of U.S. Climate Impacts Research
economic impact projections for the analyzed sectors in
While scientific understanding of the physical effects of
2050 and 2090 under two emissions trajectories. The report
climate change is supported by a large body of research, the
analyzes 22 climate impact sectors within six broad
methods for projecting the likely physical and economic
categories: health, infrastructure, electricity, water
effects for specific regions are relatively new and
resources, agriculture, and ecosystems. Results are
imprecise. Development of these methods remains an area
presented in real 2015 dollars for each sector, but are not
of active research.
aggregated into a single economy-wide estimate. Under a
high emissions scenario with limited adaptation, net losses
Methods of projecting the economic effects of climate
in labor, extreme temperature mortality, and coastal
change have been in development since the early 1980s.
property are estimated in the hundreds of billions of dollars
Early attempts to quantify more comprehensive economic
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Projected Economic Impacts of Climate Change
per year by the end of the century. Of the 22 sectors
Treatment of Social Values
analyzed, one is estimated to result in net benefits in 2090.
Economic models are sensitive to assumptions that often
contain judgments about the relative value society places on
The Hsiang et al. study projects net climate impacts in six
various outcomes. Examples of social values that may be
sectors—agriculture, crime, coastal property, energy,
included in climate models are time preference/discounting
human mortality, and labor—under three emissions
(i.e., the extent to which society values costs occurring in
trajectories for 2080 through 2099. They report their
the present more than those occurring in the future), risk
findings as a percentage of gross domestic product (GDP).
tolerance, and consideration of outcomes that affect social
Annual net economic costs across the sectors are estimated
inequality. Hsiang et al. project that the valuation of the
to cost “roughly 1.2% of [GDP] per +1°C on average,” with
economic damages increases by a factor of between 1.3 and
estimates ranging from +0.1% (net benefit) to -1.7% (net
4.6 if social aversion to inequality is included in the
cost) GDP at low levels of warming (1.5°C) through -6.4%
analysis. There is no consensus about the appropriate
to -15.7% of GDP under a higher warming scenario (8°C).
treatment of social preferences in economic impact
estimates. Whether and how these values are accounted for
Selected Considerations in Interpreting
influences both the final estimate and its interpretation for
Climate Impact Projections
policymakers.
Climate impact researchers and other experts caution that
estimates should not be interpreted as predictions of actual
Distribution of Economic Impacts
future impacts. Instead, researchers suggest the estimates
Projections of aggregate national effects may obscure
may provide insights into the potential direction and
variations by region and socioeconomic distribution.
magnitude of impacts, depending on varying assumptions.
Climate effects vary by geographical region depending on
Some critics suggest that the inherent uncertainties
factors such as the current climate and climate-sensitivity of
associated with projecting to the end of the century make
the locality. For instance, CIRA projects relatively
the net costs of climate change in that timeframe
moderate climate impacts in some sectors in the Northwest
fundamentally unknowable. Beyond these central concerns,
as compared to other U.S. regions. These variations may
additional considerations, discussed below, may be of
transfer value over time from some regions of the country
interest to policymakers.
to others. Hsiang et al. project that climate change is likely
to generate a transfer of value from the southern and eastern
Analytical Challenges
portions of the United States to the northern and western
The NCA4 notes that the research literature on physical and
regions. The same study estimates that the impacts could
economic impacts in the United States remains incomplete
disproportionately affect low-income communities, tending
in its coverage of the range and magnitudes of potential
to increase existing inequalities.
impacts. Challenges to quantification include, among
others:
Choice of Reporting Metric
The choice of metrics used to report potential economic
 The wide variety of economic sectors likely affected by
impacts can influence the interpretation of the results. For
climate change, the complexity of the effects, and the
example, GDP, as calculated by the U.S. government,
existence of complex feedbacks among sectors;
measures the value of goods and services produced in the
United States, but does not necessarily distinguish between
 Lack of metrics for monetizing some of the non-market
costs and benefits. As a result, some effects of climate
effects (e.g., loss of biodiversity, ecosystem damages);
change, which could be considered adverse impacts (e.g.,
property loss to hurricanes), may yield an increase in GDP
 The long timescales over which some greenhouse gases
because they increase economic activity for relief and
persist in the atmosphere;
recovery, while the loss of assets may not be fully counted.
 The difficulty of long-term projecting;
Some researchers (including Hsiang et al.) calculate net
costs under their own methodology rather than that
 Uncertainty surrounding possible climatic or societal
traditionally used to calculate GDP, but still report their
tipping points, beyond which impacts may accelerate or
findings as a percentage of GDP in order to place the
become irreversible; and
estimated costs in the broader context of total economic
productivity. The interpretation of these estimates is distinct
 Uncertainty surrounding the magnitude and efficacy of
from those that directly calculate the impacts on future
future adaptation, which may reduce the economic
GDP levels or growth due to the differential treatment of
effects of physical impacts (and incur its own costs).
costs and benefits when calculating the final estimates.
Some observers suggest that these challenges have resulted
Danielle A. Arostegui, Research Assistant
in estimates that systematically underestimate the actual
Jane A. Leggett, Specialist in Energy and Environmental
future costs associated with climate change. Both the
Policy
Hsiang et al. and the CIRA study acknowledge their
incomplete coverage and plan to expand it as the underlying
IF11156
research develops. By contrast, some argue that insufficient
accounting for adaptation may overestimate the economic
impacts on humans and ecosystems.
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Projected Economic Impacts of Climate Change

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