How Climate Change May Affect the U.S. Economy

How Climate Change May Affect the U.S. Economy

How Climate Change May Effect the U.S.
April 4, 2022
Economy
Lida R. Weinstock
There is general consensus within the scientific community that human activities have increased
Analyst in Macroeconomic
greenhouse gas concentrations in the atmosphere and that the increased concentrations have
Policy
contributed to a rise in global average temperatures. The United Nations’ Intergovernmental

Panel on Climate Change recently assessed, “Overall adverse economic impacts attributable to
climate change, including slow-onset and extreme weather events, have been increasingly

identified.”
Two of the main avenues through which climate change can affect GDP in the short and long terms are productivity and
investment effects. Productivity is a key determinant in long-term economic growth—as productivity increases, economies
can produce more goods and services with the same level of resources, which in turn tends to increase well-being and
income. Business investment is also a determinant of long-term growth insofar as it contributes to the domestic capital stock,
which is directly related to the economy’s overall productive capacity. Research suggests that climate change could
negatively impact productivity and business investment, as rising temperatures and heat waves could result in lower output
per worker. Declines in productivity and production could decrease businesses’ incentive to invest, particularly in a scenario
in which physical capital is routinely damaged or destroyed due to the effects of extreme weather events to a point where
further investment becomes unattractive. Climate change can also bring some benefits (such as fewer extreme cold events)
and opportunities (opening of Arctic shipping lanes), although the net effects of climate change on the economy are generally
expected to be increasingly adverse and widespread on net.
Climate change—notably the projected increase in certain extreme weather events—is also expected to affect the overall
economy through its impacts on specific sectors, such as housing, infrastructure, and agriculture. Nearly one-third of the U.S.
housing stock could be at high risk of climate-change-induced hazards, and billions of dollars of property are vulnerable to
complete destruction or being rendered unusable by flooding risk alone. Transportation infrastructure, which supports the
production and movement of goods and services, could be damaged with climate change. While transportation systems are
typically designed to withstand certain magnitudes of extreme weather events, an increase in the frequency and severity of
extreme weather events would increase the residual risk. Heat waves, heavy precipitation, and other storms can additionally
cause delays and disruptions on roads, public transit systems, airports, and the like, adding to the costs of production and
interfering with consumption.
There are several considerations to take into account when analyzing research on the economic effects of climate change.
One is that economic projection is an imprecise science and entails a degree of uncertainty, and uncertainty may increase
over long time horizons. This research becomes more complicated when based on climate modeling results, which are often
based on scenarios that may or may not be associated with likelihoods of occurrence or reflect future conditions.
Additionally, there is no consensus on the best way to model the economic effects of climate change. Several different
methodologies and types of modeling are used to estimate the impacts of various climate change scenarios on economic
indicators such as GDP and personal income. Differing methods can make it difficult to compare results across studies.
Currently, this field of study into the economic effects of climate change is relatively small compared to other types of
economic or climate-related research. The relative dearth of studies makes it challenging to reach specific “mainstream”
conclusions about economic impacts. Nonetheless, the large majority of existing studies tend to find that climate change
impacts to longer-term economic output—either economy-wide or in impacted sectors—is likely to be negative and
increasingly so, although the magnitude of these effects is not widely agreed upon.

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Contents
Introduction ..................................................................................................................................... 1
How May Climate Change Impact the U.S. Economy? .................................................................. 3
Short-Term vs. Long-Term Impacts .......................................................................................... 3
Productivity ............................................................................................................................... 4
Business Investment .................................................................................................................. 5
Regional Impacts ....................................................................................................................... 6
Sector Impacts ........................................................................................................................... 7
Housing ............................................................................................................................... 7
Infrastructure ....................................................................................................................... 8
Agriculture .......................................................................................................................... 9
Methodology for Estimating Economic Impact ............................................................................. 11
Challenges of Economic Analysis ............................................................................................ 11
Selected Government Reports on Economic Impacts of Climate Change .................................... 13
Selected Research .................................................................................................................... 13
Environmental Protection Agency, Multi-Model Framework for Quantitative
Sectoral Impacts Analysis: Climate Change Impacts and Risk Analysis ....................... 15
U.S. Global Change Research Program, Fourth National Climate Assessment
Volume II: Impacts, Risks, and Adaptation in the United States .................................... 15
IPCC, Climate Change 2022: Impacts, Adaptation, and Vulnerability, Chapter
14: North America ......................................................................................................... 16
Kahn et al., Long-Term Macroeconomic Effects of Climate Change: A Cross
Country Analysis ............................................................................................................ 16
Organisation for Economic Co-operation and Development (OECD), The
Economic Consequences of Climate Change ................................................................ 17
Questions of Measurement ...................................................................................................... 17

Tables
Table 1. Selected Reports on the Economic Impacts Under Certain Assumed Scenarios ............. 14

Contacts
Author Information ........................................................................................................................ 18

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Introduction
While certain aspects of climate science are debated within the scientific community, there is a
high level of agreement on several points, including that human activities have increased
greenhouse gas (GHG) concentrations in the atmosphere and that the increased concentrations are
the primary drivers of the discernible rise in global average temperature since the mid-20th
century.1 According to the latest climate change scientific assessment of the Intergovernmental
Panel on Climate Change (IPCC):2
The scale of recent changes across the climate system as a whole and the present state of
many aspects of the climate system are unprecedented over many centuries to many
thousands of years.3
Climate change is already affecting every inhabited region across the globe with human
influence contributing to many observed changes in weather and climate extremes.4
Future emissions cause future additional warming, with total warming dominated by past
and future CO2 emissions.5
Global warming of 1.5°C and 2°C will be exceeded during the 21st century unless deep
reductions in CO2 and other greenhouse gas emissions occur in the coming decades.6
All regions are projected to experience further increases in hot climatic impact-drivers
(CIDs) and decreases in cold CIDs.7
Many changes in the climate system become larger in direct relation to increasing global
warming. They include increases in the frequency and intensity of hot extremes, marine
heatwaves, and heavy precipitation, agricultural and ecological droughts in some regions,
and proportion of intense tropical cyclones, as well as reductions in Arctic sea ice, snow
cover and permafrost.8
With every additional increment of global warming, changes in extremes continue to
become larger. For example, every additional 0.5°C of global warming causes clearly
discernible increases in the intensity and frequency of hot extremes, including heatwaves
(very likely), and heavy precipitation (high confidence), as well as agricultural and
ecological droughts in some regions (high confidence).9

1 For a more detailed discussion of climate science, points of agreement, and contentions within the climate science
community, see CRS Report R45086, Evolving Assessments of Human and Natural Contributions to Climate Change,
by Jane A. Leggett; and CRS Report R43229, Climate Change Science: Key Points, by Jane A. Leggett. For the
attribution assessment, see V. Masson-Delmotte et al., Climate Change 2021: The Physical Science Basis. Contribution
of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change, 2021,
https://www.ipcc.ch/report/ar6/wg1/downloads/report/IPCC_AR6_WGI_Full_Report.pdf.
2 The IPCC is organized by national governments affiliated with the United Nations and relies on volunteer expertise
from thousands of scientists to assess for policymakers the science, impacts, and policy options related to climate
change. The assessments require expert, public, and government reviews before release. For the latest assessment of
climate change science see Masson-Delmotte et al., Climate Change 2021.
3 Masson-Delmotte et al., Climate Change 2021, p. SPM-9.
4 Masson-Delmotte et al., Climate Change 2021, p. SPM-10.
5 Masson-Delmotte et al., Climate Change 2021, p. SPM-16.
6 Masson-Delmotte et al., Climate Change 2021, p. SPM-17.
7 Masson-Delmotte et al., Climate Change 2021, p. SPM-32.
8 Masson-Delmotte et al., Climate Change 2021, p. SPM-19.
9 Masson-Delmotte et al., Climate Change 2021, p. SPM-19.
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Many regions are projected to experience an increase in the probability of compound events
with higher global warming (high confidence).10
If global warming increases, some compound extreme events with low likelihood in past
and current climate will become more frequent, and there will be a higher likelihood that
events with increased intensities, durations and/or spatial extents unprecedented in the
observational record will occur.11
Even under the lowest GHG emission scenarios considered by the IPCC—including some with
immediate, deep, and rapid reductions of GHG emissions—global average temperatures are
expected to continue to rise through mid-century. Climate changes are expected to continue
unless deep GHG reductions occur in coming decades. Climate modeling indicates increases in
climatic impacts related to heat and decreases in climate impacts related to cold temperatures,
with changes in extreme weather with every increment of temperature increase.
While economic activity affects climate change, so too does climate change affect economic
activity. Economic activity can be affected in the short and long terms by climate change. Of note,
while no single extreme weather event can necessarily be attributed to climate change, scientific
and statistical analyses can estimate the effects of climate change on the change of likelihoods of
single extreme events and on extreme events overall. Given the scientific consensus about the
relationship between climate change and trends in extreme weather events, this report includes
the overall economic impact of extreme weather events as part of the economic effects of climate
change.
The effects of climate change on the economy include both positive and negative components and
involve estimation uncertainties, and research estimates vary. The research community generally
agrees that long-term economic effects are likely, on balance, to be increasingly negative and
widespread—and catastrophic for some locations—although the magnitude of effects is a
continuing area of research. In particular, evidence suggests that human preparation and
adaptation to anticipated changes can reduce adverse impacts and capture opportunities, but the
degree, comprehensiveness, and ancillary consequences of adaptation are challenging to predict.12
(Adaptation is not within the scope of this report and will not be further discussed.)
As summarized by the latest IPCC impacts, adaptation, and vulnerability assessment:
Overall adverse economic impacts attributable to climate change, including slow-onset and
extreme weather events, have been increasingly identified (medium confidence). Some
positive economic effects have been identified in regions that have benefited from lower
energy demand as well as comparative advantages in agricultural markets and tourism
(high confidence). Economic damages from climate change have been detected in climate-
exposed sectors, with regional effects to agriculture, forestry, fishery, energy, and tourism
(high confidence), and through outdoor labour productivity (high confidence). Some
extreme weather events, such as tropical cyclones, have reduced economic growth in the
short-term (high confidence). Non-climatic factors including some patterns of settlement,
and siting of infrastructure have contributed to the exposure of more assets to extreme

10 Masson-Delmotte et al., Climate Change 2021, p. SPM-33.
11 Masson-Delmotte et al., Climate Change 2021, p. SPM-35.
12 For a literature review of adaptation effectiveness, see Bonnie Jean Owen, “Evaluating Effectiveness in Climate
Change Adaptation and Socially-Engaged Climate Research,” University of Arizona, PhD dissertation, 2019,
https://repository.arizona.edu/handle/10150/634331. For a prospective analysis of how adaptation may decrease future
impacts on U.S. infrastructure, see, for example, James E. Neumann et al., “Climate Effects on US Infrastructure: The
Economics of Adaptation for Rail, Roads, and Coastal Development,” Climatic Change, vol. 167, no. 3 (August 19,
2021).
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climate hazards increasing the magnitude of the losses (high confidence). Individual
livelihoods have been affected through changes in agricultural productivity, impacts on
human health and food security, destruction of homes and infrastructure, and loss of
property and income, with adverse effects on gender and social equity (high confidence).13
This report begins with a discussion of potential mechanisms through which climate change could
affect the economy, including productivity, business investment, and sector impacts. It then
examines some of the research into the economic effects of climate change as well as the
limitations of such research. This report does not review the scientific evidence on climate change
and takes the science as accepted by national governments.14 Rather, its purpose is to discuss the
ways in which climate change may impact the U.S. economy.15 The report does not review
research on how policies to mitigate climate change would affect the economy. Rather, the report
reviews research on the economic effects of climate change given specific climate outcomes. The
research reviewed is intended to provide “what if” scenarios rather than a “best guess” of future
outcomes.
How May Climate Change Impact the U.S.
Economy?
This section discusses some of the avenues through which climate change affects economic
activity and gross domestic product (GDP). While later sections in this report describe the
methodology used to estimate possible economic effects of climate change and summarize
specific studies, this section will conceptually describe certain mechanisms through which
climate change may effect economic outcomes. It is not necessarily a straight line from climate
change to changes in overall economic activity (often measured by GDP). Rather, climate change
more directly affects various inputs used to generate overall economic output, and there may be
many variables—including the implementation of policies—that intervene between potential and
actual effects.
Two of the main avenues through which climate change can affect GDP in the short and long
terms are through effects on productivity and investment. Climate change may also affect the
overall economy through its impacts on specific sectors—such as housing, infrastructure, and
agriculture—if they are sufficiently large and lasting.
Short-Term vs. Long-Term Impacts
As will be described in subsequent sections, climate change may have differing effects on the
economy in the short and long terms. In the short term, any extreme weather events made more
frequent or severe by climate change may result in positive, negative, or no changes to output,
depending on the extent to which business activity is disrupted and rebuilding efforts of pre-

13 Hans-O. Pörtner et al., Climate Change 2022: Impacts, Adaptation and Vulnerability. Contribution of Working
Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change, February 27, 2022,
https://report.ipcc.ch/ar6wg2/pdf/IPCC_AR6_WGII_FinalDraft_FullReport.pdf. The version of the report cited here is
a final draft and subject to final edits and therefore may differ from future versions.
14 See CRS Report R43229, Climate Change Science: Key Points, by Jane A. Leggett. For the most recent IPCC
scientific assessment of climate change, see Masson-Delmotte et al., Climate Change 2021.
15 For more information on this topic, see CRS In Focus IF11156, Projected Economic Impacts of Climate Change, by
Jane A. Leggett.
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existing structures takes place.16 Other manifestations of climate change, such as temperature
change, may also affect the economy in the short term in ambiguous ways. For example, warmer
temperatures may boost crop production in some cases but not others (see “Agriculture” for more
information).
Given the literature and research developments at this point, economists generally agree that the
long-term economic effects of climate change are likely to be increasingly negative on balance.
Absent deep GHG mitigation, research generally indicates that output is likely to be negatively
impacted by climate change over the medium to long run. The overall negative impact would
likely be due to decreasing incentives for businesses to invest, as well as to decelerating or
decreasing productivity growth (as described below). The magnitude of any future impacts is
uncertain and debated.17 Of note, if the long-term productivity growth rate (as opposed to a
temporary shift in the level) changes as a result of climate change, the long-term growth rate of
GDP may also be affected, leading to an ongoing accumulation of losses.18
Productivity
Productivity measures how efficiently inputs are producing outputs in an economy. In other
words, productivity is the ratio of the amount of land, labor, capital, energy, etc., that is used to
produce goods and services to the amount of goods and services produced. Productivity is a key
determinant of long-term economic growth. As productivity increases, economies can produce
more goods and services with the same level of resources, which in turn tends to lead to increased
income and well-being. There are two common measures of productivity: labor productivity and
total factor productivity.19 Labor productivity measures the amount of hours worked relative to
the amount of output in an economy, while total factor productivity considers not only labor but
also other factors of production such as land and capital.
The effect climate change has on productivity is not easily measured. However, some economists
have postulated that climate change might negatively affect productivity. According to several
studies, rising average temperatures and extreme heat are associated with lower labor
productivity, although the extent to which productivity is affected varies across studies.20 This

16 The destruction of physical capital is not directly included in subsequent measures of GDP. For more information
about the effect of natural disasters on measures of GDP, see Bureau of Economic Analysis (BEA), “How Are GDP
and Related Income Measures of the National Accounts Affected by a Disaster?,” December 5, 2005,
https://www.bea.gov/help/faq/55.
17 U.S. Global Change Research Program, Fourth National Climate Assessment Volume II: Impacts, Risks, and
Adaptation in the United States, 2018 (revised March 2021), p. 4, https://nca2018.globalchange.gov/downloads/
NCA4_2018_FullReport.pdf (hereinafter NCA4); and CRS In Focus IF11156, Projected Economic Impacts of Climate
Change, by Jane A. Leggett.
18 One-time increases in productivity would cause one-time increases in GDP, resulting in temporary GDP growth but
then a return to the previous GDP growth rate. However, if productivity continues to grow, this would cause GDP to
continue to growth as well, increasing its growth rate.
19 Relevant to GHG emissions and their mitigation is energy productivity, more typically called energy efficiency at the
scale of a particular technology or activity, and energy intensity at the scale of an economy—typically measured as the
energy consumed (or sometimes supplied) per unit of GDP. GHG control policies would generally increase energy
productivity but, in many cases, at a cost. An examination of the potential impacts GHG control policies is beyond the
scope of this report, however.
20 For example, according to a working paper from the National Bureau of Economic Research, productivity on any one
day declines about 1.7% for every 1° increase in average temperature above 15°C (about 59°F). The paper does not
address potential productivity increases of rising minimum (winter) temperatures. The IPCC’s Fifth Assessment Report,
published in 2014, cites estimates that suggest global labor productivity could decrease during the hottest months of the
year to 60% of its average in 2100 and less than 40% in 2200 under a scenario in which global mean temperatures rise
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occurs because workers exposed to extreme heat would be expected to see their output decline.
Studies frequently do not, however, examine or report the potential productivity benefits of rising
minimum temperatures and extreme cold events, so the balance between heat and cold effects is
uncertain.
In terms of its uses in agriculture and forestry, land can also become less productive as a result of
rising average temperatures (or more productive in the case of relatively cool areas, such as when
growing seasons lengthen). Scientists expect rising global temperatures overall to increase
precipitation but also its variability in many locations. The effects of changing precipitation on
productivity would depend strongly on its timing (e.g., during a growing season), its variability
and predictability, and its intensity (of precipitation or lack thereof, as drought). The net effect of
changing precipitation is uncertain and would vary by location, with summer drying in the U.S.
Midwest and increasing summer rainfall in the Northeast, for example.21 Generally, climate
change, including extreme weather events, is likely to “increasingly disrupt agricultural
productivity in the United States.”22 This will be discussed in more detail in the “Agriculture”
section.
The effects of rising average temperature are likely to affect productivity differently across
different sectors, regions, and countries. For example, a country that specializes in labor-intensive
production may see greater decreases in labor productivity during extreme heat, as a worker
doing physical labor outdoors is more likely to be affected than is an office worker on a hot day.
One of the largest potential contributors to productivity loss is extreme heat. The United States is
likely to see smaller productivity losses than other countries do as a result of this phenomenon,
because most of the United States has a temperate climate and its workforce is relatively less
concentrated in outdoor labor-intensive industries.23
Business Investment
Business investment refers to spending by private businesses and nonprofits on physical capital—
long-lasting assets used to produce goods and services. An increased stock of physical capital
increases the capacity of businesses to produce goods and services and can therefore affect the
greater economy. In the short term, an increase in business investment directly increases the

3.4°C by 2100 and 6.2°C by 2200 relative to 1861-1960 averages. The EPA’s Climate Change and Vulnerability
Report from September 2021 finds that for weather-exposed workers in the United States, climate-driven increases in
high-temperature days will result in an average of 14 lost labor hours per year for temperature increases of 2°C (relative
to 1986-2005 temperatures) and 34 hours per year for increases of 4°C. See Tatyana Deryugina and Solomon M.
Hsiang, Does the Environment Still Matter? Daily Temperature and Income in the United States, National Bureau of
Economic Research, Working Paper no. 20750, December 2014, https://www.nber.org/papers/w20750; Kirk R. Smith
et al., Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects, IPCC,
2014, p. 736, https://www.ipcc.ch/site/assets/uploads/2018/02/WGIIAR5-PartA_FINAL.pdf; and U.S. Environmental
Protection Agency (EPA), Climate Change and Social Vulnerability in the United States: A Focus on Six Impacts,
September 2021, https://www.epa.gov/system/files/documents/2021-09/climate-vulnerability_september-
2021_508.pdf. Of note, these studies and statements are generally considering only the effects of increasing high
temperatures and frequently omit the effects—typically benefits—of rising minimum temperatures.
21 IPCC, WGI Interactive Atlas: Regional information (Advanced); accessed January 18, 2022, https://interactive-
atlas.ipcc.ch/regional-information#eyJ ... n19.
22 NCA4, p. 29.
23 Even still, one study predicts that the United States could lose up to $100 billion annually as a result of climate-
induced labor productivity losses. For a sense of scale, U.S. real GDP was over $19 trillion in the third quarter of 2021.
See Atlantic Council, “Extreme Heat: The Economic and Social Consequences for the United States,” August 2021,
https://www.atlanticcouncil.org/wp-content/uploads/2021/08/Extreme-Heat-Report-2021.pdf.
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current level of GDP, because physical capital is itself produced and sold. In the long term,
economic growth generally depends on growth in the economy’s productive capacity (rather than
swings in supply and demand), and a larger physical capital stock increases the economy’s
overall productive capacity, allowing more goods and services to be produced with the same level
of labor and other resources. In turn, faster economic growth generally translates into faster
income growth and improved living standards.24
The effect of climate change on average investment over a longer period is of particular concern
due to its connection with long-run economic growth. (Over short time periods, business
investment in any given year may fluctuate significantly as a result of extreme weather events,
but this effect would be transitory—and potentially positive—in a time period in which damaged
or destroyed physical capital was replaced.) The logic behind this concern is that if climate
change causes declines in production, income, and productivity, it will lower businesses’
incentive to invest, thereby lowering the investment rate. There is, as of yet, not clear evidence
that longer-term trends in business investment have been altered significantly by climate change,
as research to try to quantify this potential effect is limited and results vary.25
Regional Impacts
The United States is a large country that spans several climate regions. Along with differences in
populations, economic structures, and other factors, climate change will likely affect differentially
the economies of separate regions. The magnitude of the climate change effects in each separate
region is likely to vary as well, in part due to anticipation, preparation, and adaptation (which
incur their own costs and returns). Climate change can also provide benefits to some regions or
sectors. For example, earlier starts to and generally longer growing seasons are projected to
increase crop yields in some regions.26 The loss of sea ice may also prove beneficial to trade, at
least in the short term, because of increased access to certain shipping passages during the year.27
With information and adaptation, producers are also expected to be able to avoid some potential

24 For more information on business investment and the economy, see CRS In Focus IF11020, Introduction to U.S.
Economy: Business Investment, by Lida R. Weinstock.
25 While research is limited, some studies have attempted to estimate the change in business investment as a result of
climate change. For example, the authors of a recent study stated, “In computing the economic path that optimises this
century’s global consumption under unmitigated climate change, we find a 22% income reduction compared to an
economy unaffected by climate change. Hereof 40% are losses due to growth effects of which 48% result from a
reduced incentive to invest under climate damages.” In other words, a little more than 4% of income losses would be
the result of reduced investment. In this particular study the authors use an economic growth model, known as the
DICE-2013R model, to estimate the response of investment activity to climate change to a high GHG emissions
scenario (the IPCC’s RCP6.0 and RCP8.5). This type of model uses an intertemporal framework to analyze optimal
investment decisions. Whether to invest or not is framed as a trade-off between present-day consumption and future
consumption. Investment will limit current consumption but may enable more consumption in the future. The results of
this model therefore do not predict what will happen but rather what could happen if optimal investment decisions are
made under specific conditions such as the one in which future GHG emissions increase at a pace well above the
trajectories under current policies. See Sven N. Willner, Nicole Glanemann, and Anders Levermann, “Investment
Incentive Reduced by Climate Damages Can Be Restored by Optimal Policy,” Nature, vol. 12, no. 3254 (May 31,
2021), https://www.nature.com/articles/s41467-021-23547-5. For more information on the DICE-2013R model, see
William Nordhaus and Paul Sztorc, DICE 2013R: Introduction and User’s Manual, October 2013,
http://www.econ.yale.edu/~nordhaus/homepage/homepage/documents/DICE_Manual_100413r1.pdf.
26 NCA4, p. 952.
27 David Herring, “Are There Positive Benefits from Global Warming?,” National Oceanic and Atmospheric
Administration, September 27, 2021, https://www.climate.gov/news-features/climate-qa/are-there-positive-benefits-
global-warming.
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losses and to seek opportunities. The benefits should be netted with costs to estimate the overall
net economic impact of climate change.
All of this is to say that not all climate changes impact the economy in the same way or over the
same time horizon, and therefore, some regions of the United States may feel the effects of
climate change more negatively and acutely than other regions do. The same logic applies not
only within the United States but throughout the world. Other countries may be more or less
impacted by climate change than the United States is. In a global economy, the impacts to other
countries will likely matter for the United States, especially in terms of trade, demands for
assistance and disaster relief, pressures on migration, etc.
Sector Impacts
Climate change can impact the economy via many avenues, including how it impacts different
economic sectors. This section delves into some of the sectors most likely to see significant
impacts from climate change. The list of sectors is not all inclusive but rather a subset used to
illustrate how impacts to a specific sector could potentially impact the overall domestic economy.
The impacts described in the following sections are distilled only to certain industries, and the
potential effects on the economy are described assuming no further additional mitigation,
adaptation, or economic and policy changes. In reality, however, it is likely that declines in
certain categories of spending will result in increases in other categories of spending and that less
investment in one higher-risk region or sector may lead to greater investment in other regions or
sectors. Therefore, in the longer run, any aggregate effects considered in this section may be
exaggerated. For example, if jobs in a particular sector are lost, total employment does not
necessarily decline if those workers find jobs in a different, growing sector.28 Additionally, the
effects of climate change are likely to be strongly distributional, meaning that where some sectors
see losses as a result of climate change, others may see gains. For this reason, it is not possible to
look at impacts on select sectors and map them directly onto economy-wide GDP or employment.
Housing
The housing market plays an important role in the U.S. economy.29 At the aggregate level,
housing accounts for a significant portion of all economic activity, and changes in the housing
market can have broader effects on the economy. According to the Federal Reserve, the market
value of owner-occupied real estate rose to $33.4 trillion in the second quarter of 2021, up from
$29.9 trillion a year previously and $17.4 trillion a decade previously.30 This amount is
approximately 1.5 times the size of annual GDP in 2020.31 At an individual level, about 64% of
housing units are owner-occupied,32 and these homes can be a substantial source of household

28 Or, as businesses adapt to changing conditions, jobs may change with uncertain effects on overall employment and
wages. For example, one study of ski resorts in Utah found that owners are diversifying the recreational opportunities
they offer, although there are likely barriers, such as costs, to complete adaptation. Emily J. Wilkins et al., “Climate
Change and Utah Ski Resorts: Impacts, Perceptions, and Adaptation Strategies,” Mountain Research and Development,
vol. 41, no. 3 (September 2021), p. R12, https://doi.org/10.1659/MRD-JOURNAL-D-20-00065.1.
29 For more information, see CRS In Focus IF11327, Introduction to U.S. Economy: Housing Market, by Lida R.
Weinstock.
30 Federal Reserve, Z.1 Financial Accounts of the United States: Flow of Funds, Balance Sheets, and Integrated
Macroeconomic Accounts, Second Quarter 2021, https://www.federalreserve.gov/releases/z1/20210923/z1.pdf.
31 BEA, Gross Domestic Product (Third Estimate), Corporate Profits (Revised Estimate), and GDP by Industry, First
Quarter 2021, June 24, 2021, p. 11, https://www.bea.gov/sites/default/files/2021-06/gdp1q21_3rd_1.pdf.
32 U.S. Census Bureau, American Community Survey, Table DP04: Selected Housing Characteristics, 2019,
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wealth for those who own them. As of the end of the first quarter of 2021 owner-occupied real
estate accounted for more than a quarter of households’ net worth.33 Total spending in the housing
market, including residential investment and housing services, directly contribute to GDP, and
housing prices can affect consumer spending through wealth effects.
Given the value of the U.S. housing stock, even in a scenario in which only high-risk homes34 are
affected by climate change via extreme weather events (it is not necessarily likely or predictable
that all of these homes would be affected during a set period of time), climate change could still
potentially translate to trillions of dollars of damage over the long term that would be borne by
homeowners, insurers, and the government. A significantly damaged or destroyed housing stock
could affect longer-term housing prices in affected locations, though it may increase prices in
other locations where housing may be priced lower—or, to the extent that damage was uninsured,
this would decrease the wealth of the owners of climate-change-affected houses. To a certain
extent, climate-change-induced damage to property could cause competing forces on residential
investment. If homes are damaged and rebuilt (assuming they were originally built in a previous
year), that rebuilding will increase GDP in the form of increased residential investment. However,
if housing prices fall in a location as a result of risk, construction spending might fall as builders’
profits fall, resulting in lowered residential investment.
Infrastructure
Physical infrastructure generally refers to long-lasting structures or systems that facilitate
economic activity. Economists generally agree that infrastructure is critical to economic well-
being, enabling private businesses and individuals to produce and consume goods and services in
a more efficient manner. For example, a new bridge may greatly shorten travel distances for truck
drivers, allowing them to deliver goods to consumers more quickly and at a lower cost. For
businesses, infrastructure can help lower fixed costs of production, especially transportation costs,
which are often a central determinant of where businesses are located. For households, a wide
variety of final goods and services are provided through infrastructure services, such as water,
energy, and telecommunications. Infrastructure tends to benefit the economy overall, as it allows
more goods and services to be produced with the same level of inputs, fostering long-term
economic growth.35
Infrastructure is at risk of damage—and, to some extent, has already been damaged—by the
effects of extreme weather events associated with climate change, including, but not limited to,
sea level rise, flooding, and extreme heat. As with other sectors, climate change is likely to impact

https://data.census.gov/cedsci/table?q=dp04&d=ACS%201-Year%20Estimates%20Data%20Profiles&tid=
ACSDP1Y2019.DP04&hidePreview=false.
33 Federal Reserve, Z.1 Financial Accounts of the United States, p. 9.
34 According to CoreLogic’s 2020 Climate Change Catastrophe Report, most homes in the United States have some
risk of climate-change-induced hazard events, and nearly one-third of the U.S. housing stock (about 35 million homes)
is considered to be at high risk. The study defines risk based on the sum of the average annual loss for earthquake,
wildfire, inland flood, severe convective storm, winter storm, hurricane/tropical storm coastal surge, and
hurricane/tropical storm hazards for 105 million residential structures across the United States. These values are then
considered in conjunction with reconstruction cost values to determine a risk ranking for structures. See Saumi
Shokraee et al., 2020 Climate Change Catastrophe Report, CoreLogic, January 28, 2021, https://www.corelogic.com/
downloadable-docs/2020-climate-change-catastrophe-report-17-ctr-0121-00.pdf; CoreLogic, “Risk Redefined:
CoreLogic Climate Change Catastrophe Report Emphasizes Need to Address Increasing Frequency of Hazard Events,”
January 27, 2021, https://www.corelogic.com/press-releases/risk-redefined-corelogic-climate-change-catastrophe-
report-emphasizes-need-to-address-increasing-frequency-of-hazard-events/; and NCA4, p. 339.
35 For more information, see CRS Report R46826, Infrastructure and the Economy, by Lida R. Weinstock.
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infrastructure in different regions and localities to varying extents. In the case of infrastructure,
urban, suburban, and rural areas tend to have differing systems of infrastructure and therefore are
prone to different kinds of risks. Urban populations can be particularly at risk, as many systems of
infrastructure tend to be interrelated in urban areas. For example, water treatment and public
transportation may run off the same electrical grid.36
One of the types of infrastructure most at risk of being impacted by climate change is
transportation.37 While transportation systems are typically designed to withstand extreme
weather events based on historical norms, a projected increase in frequency and severity of some
extreme weather events, such as extreme heat, may make existing transportation infrastructure
potentially more at risk of damage. The risk to infrastructure from climate change, while not
necessarily calculable, may change incentives for both private and public infrastructure
investment, including which types of infrastructure to invest in. Higher temperatures can cause
damage to pavement38 and rail tracks. Heat waves, heavy precipitation, and other storms can also
cause delays and other disruption on roads, public transit systems, and airports, to name a few,
potentially decreasing productivity in the economy.39 On the other hand, fewer winter ice and
storms could result in cost savings and improved mobility in certain areas.40
Should existing infrastructure—particularly transportation infrastructure—become less efficient,
this could result in the less efficient production and consumption of goods and services
throughout the economy, thereby hindering economic growth.41
Agriculture
The agriculture industry—including farming, forestry, fishing, and related activities—had a gross
output of over $500 billion in the first quarter of 2021.42 In the same quarter, the value added of
the agriculture industry to the economy amounted to 1.0% of GDP.43 Certain studies suggest
climate change could cause productivity losses in this sector, resulting in slower sector growth
than would be realized without climate change.44

36 U.S. Global Change Research Program, Third National Climate Assessment Report Findings: Infrastructure, 2014,
https://nca2014.globalchange.gov/highlights/report-findings/infrastructure.
37 For more information about the impacts of climate change on surface transportation infrastructure and recent policy
actions in this area, see CRS In Focus IF11921, Surface Transportation and Climate Change: Provisions in the
Infrastructure Investment and Jobs Act (P.L. 117-58), by William J. Mallett.
38 The EPA estimates that “climate change-driven changes in temperature and precipitation are projected to result in
significant impacts to U.S. roads. Discounted, reactive adaptation costs (rehabilitation measures) are estimated at $230
billion through 2100 under RCP8.5 and $150 billion under RCP4.5, on average.” See EPA, Multi-Model Framework
for Quantitative Sectoral Impacts Analysis: A Technical Report for the Fourth National Climate Assessment, May
2017, https://www.epa.gov/sites/default/files/2021-03/documents/
ciraii_technicalreportfornca4_final_with_updates_11062018.pdf.
39 EPA, “Climate Impacts on Transportation,” January 19, 2017, https://19january2017snapshot.epa.gov/climate-
impacts/climate-impacts-transportation_.html.
40 EPA, “Climate Impacts on Transportation.”
41 For more information on how infrastructure affects economic growth, see CRS Report R46826, Infrastructure and
the Economy, by Lida R. Weinstock.
42 BEA, Industry Economic Accounts Data, Gross Output by Industry, https://apps.bea.gov/iTable/iTable.cfm?reqid=
150&step=2&isuri=1&categories=gdpxind.
43 BEA, Industry Economic Accounts Data, Value Added by Industry, https://apps.bea.gov/iTable/iTable.cfm?reqid=
150&step=2&isuri=1&categories=gdpxind.
44 One recent estimate suggests that global agricultural productivity (using 1961 as a baseline), despite growing in
absolute terms, is 21% lower than it might otherwise have been due to the effects of climate change. This is only one
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Crop-based agriculture depends heavily on climate conditions, and therefore climate change is
likely to significantly affect the agriculture sector even though producers have been adept at
managing weather variability.45 The frequency of certain climate-change-induced extreme events
such as droughts or flooding can disrupt crop growth and significantly damage yields, leading to
less overall crop production. In some regions, a warming climate and increased amounts of
carbon dioxide are projected to improve yields of some crops in some locations—assuming other
environmental conditions necessary for crop growth are met—but result in yield declines for
others. However, the net effects across the United States are uncertain.46 Furthermore, as regional
climates change, where specific crops are farmed may change. Regions that were once hospitable
to a certain crop may become inhospitable and vice versa. As such, there may be winners and
losers as crops are redistributed across regions.47
Livestock and fisheries could also be negatively impacted by climate change. Warming
temperatures, drought, and heat waves may all affect the health and viability of livestock. Water
temperature change and acidification caused by increased atmospheric carbon dioxide could harm
fish and aquatic ecosystems alike. Livestock often accounts for over $100 billion in cash receipts
in the United States annually, and fisheries contribute around $1.5 billion to GDP annually.48 (The
magnitude or likelihood of effects on these industries is uncertain, and the above statistics are
meant only to provide a sense of the size of these industries, not provide estimates of potential
losses.)
Climate change that decreases the productivity of the agricultural sector could also carry costs for
the economy, depending on the extent to which overall productivity is affected. As of 2019, there
were 2.6 million direct on-farm jobs.49 If climate change decreases agricultural productivity,
profits could decrease and jobs could be lost, although many of those workers would likely
relocate to different regions or take jobs in different industries. Additionally, farmworkers in

example and other studies show varying results. As such, this point is only meant to be illustrative of how agricultural
productivity may be affected by climate change and is not a definitive result of what will happen. See Ariel Ortiz-
Bobea et al., “Anthropogenic Climate Change Has Slowed Global Agricultural Productivity Growth,” Nature, vol. 11,
no. 306-312 (April 1, 2021), https://www.nature.com/articles/s41558-021-01000-1. For a wider range of research, see
NCA4, p. 393.
45 For a more detailed discussion of agriculture and climate change, see the section “Primer on Climate Change,
Agriculture, and Forestry” in CRS Report R46454, Climate Change Adaptation: U.S. Department of Agriculture,
coordinated by Genevieve K. Croft.
46 NCA4, Chapter 10: Agriculture and Rural Communities.
47 The Economist, “Climate Change Will Alter Where Many Crops Are Grown,” August 28, 2021,
https://www.economist.com/international/2021/08/28/climate-change-will-alter-where-many-crops-are-grown. A
recent field study experiment suggests that there may be global crop yield losses as a result of climate change. The
study concludes that “yield losses in response to a global mean warming level of 1.5K, as aimed for in the Paris
Agreement, would still be substantial, ranging from 2% to 7% across the main producing countries.” The study focuses
on corn, wheat, soybeans, and rice. The United States is one of the top five producers of corn, wheat, and soybeans and
produces roughly 50% of the global supply of corn, 40% of soy, and 20% of wheat. Of note, this is only one
experiment and therefore the results may not be representative of the entire field of study and should be interpreted
with caution. See Xuhui Wang et al., “Emergent Constraint on Crop Yield Response to Warmer Temperature from
Field Experiments,” Nature, vol. 3, (June 29, 2020), p. 912, https://www.nature.com/articles/s41893-020-0569-7; and
U.S. Department of Agriculture, Climate Change and Agriculture in the United States: Effects and Adaptation,
February 2013, https://www.usda.gov/sites/default/files/documents/CC%20and%20Agriculture%20Report%20(02-04-
2013)b.pdf.
48 EPA, “Climate Impacts on Agriculture and Food Supply,” January 19, 2017, https://19january2017snapshot.epa.gov/
climate-impacts/climate-impacts-agriculture-and-food-supply_.html.
49 Economic Research Service, Ag and Food Sectors and the Economy, 2021, https://www.ers.usda.gov/data-products/
ag-and-food-statistics-charting-the-essentials/ag-and-food-sectors-and-the-economy/#:~:text=
In%202019%2C%2022.2%20million%20full,1.3%20percent%20of%20U.S.%20employment.
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warm climates are particularly prone to decreased productivity (and risks of mortality) as a result
of increasing temperatures and extreme heat events, which could negatively impact the
agriculture sector in the longer term, as discussed in the “Productivity” section.
Methodology for Estimating Economic Impact
While identifying mechanisms through which climate could affect the economy are useful for
understanding potential causes and effects, estimates of the magnitudes of the effects could be
helpful to policymakers and other stakeholders seeking to weigh the potential benefits and costs
of alternative policy choices. Economists have developed and are practiced in a number of
techniques and tools to make economic projections. However, the uncertainties that are inherent
in making economic projections may be particularly challenging when making climate change
projections.
Economic projections involve estimating potential future economic conditions, typically over
months to a few years. In this discipline, economists build “models” that attempt to approximate
but simplify how vastly complicated economies at the regional, national, or even global level
function and how they are affected by key variables. These variables can include any number of
factors that could affect economic outcomes, including the size of the labor force, the size of the
capital stock, how productive a unit of labor or capital stock is, price levels, interest rates, and
asset values, among many others. Typically, uncertainty in the assumptions increases the further
out in time the analysis projects. Despite the assumptions and simplifications of these models,
economic forecasting is nonetheless a useful tool for policymakers, business organizations, and
other stakeholders. It is arguably the best available tool to estimate possible future economic
conditions when making policy or business decisions.
Economic projections are not perfect predictors. Projecting economic conditions is an imprecise
science and entails a degree of uncertainty, especially in the long term. Economists have various
statistical techniques and methods for addressing the challenges of economic modeling, but a
degree of uncertainty remains in the results.50 Further contributing to differences in results are
differences in methodology across studies, which will be discussed in more detail in the next
section.
The remainder of this section discusses some of the challenges facing economic analysis.
Challenges of Economic Analysis
 Assumptions. In general, economic models necessarily make simplifying
assumptions and cannot account for all variables. The assumptions made in a
model can cause more uncertainty for long-term than short-term forecasting as
the range of changes that may occur in an economy widens over time.
 Shocks. Economic models are usually not able to predict random future events,
but these events often have significant implications for the economy.51 For

50 For example, see Neil R. Ericsson, Economic Forecasting in Theory and Practice: An Interview with David F.
Hendry, Board of Governors of the Federal Reserve System, November 2016, pp. 1-2, https://www.federalreserve.gov/
econresdata/ifdp/2016/files/ifdp1184.pdf; and Masayuki Morikawa, “The Accuracy of Long-Term Growth Forecasts by
Economic Researchers,” VoxEU, February 10, 2020, https://voxeu.org/article/accuracy-long-term-growth-forecasts-
economics-researchers.
51 Cornell University, “Introduction to Time-Series Regression,” http://node101.psych.cornell.edu/Darlington/series/
series1.htm.
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example, economic forecasts did not predict the COVID-19 pandemic, which
resulted in a recession and served as the impetus for significant fiscal and
monetary policy changes.52 Depending on the shock, long-term trends in
economic series may or may not be permanently altered, and this is usually
apparent only in hindsight.53 Nonetheless, advances in climate change modeling
include “stochastic” processes or are able to estimate the effects of hypothesized
shocks to understand the potential implications of, say, extreme weather events or
a series of them on economic conditions.
 Structural change. Economies change structurally over time.54 Structural
changes—changes that affect the way the economy functions—can happen
quickly but often occur relatively slowly. Changes in technology, the composition
of the labor force, or demographics, for example, may result in the parameters of
a model becoming inaccurate over time.55 Long-term models may be particularly
ill-equipped to deal with this limitation given the likelihood that there may be
more (or more significant) structural changes to the economy in the longer term
than the shorter term.56 Further, these structural changes could interact with
climate change. For example, new technology might increase or reduce the
energy and carbon intensity of economic production. Because climate change is
necessarily a process that evolves over decades, and the likelihood that effective
GHG mitigation policies may radically alter certain economic systems, modeling
may not capture the potential for unforeseen structural changes.
 Data. Measurement challenges can affect the precision or accuracy of the data
used to build and test models. This is illustrated by the fact that as part of the data
collection and calculation process in the United States, statistical agencies often
provide revised estimates. For example, the Bureau of Economic Analysis
provides three estimates of GDP over time as more source data and revised data
become available.57 Such revisions tend to be fairly insignificant, although the
definitions and manner of data collection and calculation of certain economic
series have also changed, causing significant breaks in data and necessitating
unexpected data revisions in some cases.58 Many agencies also do longer-term

52 As an example of how significantly unforeseen events such as the pandemic can affect economic conditions, prior to
the pandemic in January 2020 the Congressional Budget Office forecasted real GDP to grow by 2.5% in the second
quarter of 2020. In actuality, real GDP fell by 31.2% in the second quarter of 2020. See Congressional Budget Office,
“Budget and Economic Data,” https://www.cbo.gov/data/budget-economic-data.
53 For example, see Francesco Furlanetto et al., Estimating Hysteresis Effects, Federal Reserve Bank of Atlanta,
November 2021, https://www.atlantafed.org/-/media/documents/research/publications/wp/2021/11/08/24-estimating-
hysteresis-effects.pdf.
54 Daron Acemoglu, Advanced Economic Growth: Lecture 19: Structural Change, Massachusetts Institute of
Technology, November 12, 2007, https://economics.mit.edu/files/1953.
55 J. H. Stock, “Time Series: Economic Forecasting,” International Encyclopedia of the Social and Behavioral
Sciences, 2001, p. 15723, https://scholar.harvard.edu/files/stock/files/time_series_economic_forecasting.pdf.
56 Bin Chen and Yongmiao Hong, “Testing for Smooth Structural Changes in Time Series Models via Nonparametric
Regression,” Econometrica: Journal of the Econometric Society, vol. 80, no. 3 (May 2012), p. 1157,
https://www.jstor.org/stable/41493847?seq=1#metadata_info_tab_contents.
57 BEA, “Glossary: Advanced Estimate,” https://www.bea.gov/help/glossary/advance-estimate.
58 Itzhak Yanovitsky and Arthur VanLear, “Time Series Analysis: Traditional and Contemporary Approaches,” in The
SAGE Sourcebook of Advanced Data Analysis Methods for Communication Research (Thousand Oaks, CA: Sage
Publications, 2007), p. 96, https://us.sagepub.com/sites/default/files/upm-assets/23658_book_item_23658.pdf.
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benchmark revisions, which can significantly impact data.59 Models can be and
often are updated to reflect data revisions, but at any given point in time, the
most recent data incorporated may still be subject to revision, and any
definitional change in a series can cause a break in the data.60 Data changes and
revisions can be problematic for any economic model but may be of particular
import to longer-term models, such as those used to estimate the effects of
climate change, because the data is less and less likely to be accurate the more
time passes.
 Lack of a control. Generally, scientific research tends to employ control
groups—that is, a group that does not receive a particular treatment and therefore
can be compared with the experimental group to determine which effects are
actually a result of the treatment. While theoretical constructions can be used for
the purposes of research, in reality it is not possible to, for example, observe how
the economy responds to a new policy while also simultaneously observing the
same economy without the policy. Likewise, conditions are typically the result of
many factors, making it difficult in empirical studies to isolate the specific effects
of climate change.61
Selected Government Reports on Economic Impacts
of Climate Change
The literature surrounding the economic impacts of climate change is varied. There are several
different methodologies and types of modeling used to estimate the impacts of various climate
change scenarios on economic indicators such as GDP and personal income. Some models are
broad, and others are sector or region specific. Baseline and alternate scenarios of climate change
vary across studies. Indeed, the types of climate conditions studied vary from temperature change
to precipitation change to extreme weather shocks and beyond. In sum, it can be difficult, and at
times inadvisable, to compare the results of different studies. Further, as discussed in the previous
section, any single result is likely to have a high degree of uncertainty due the challenges and
limitations of both economic and climate modeling. The methodology and scope of each
individual study should be considered when analyzing research. Despite challenges in this field,
research into the economic effects of climate change can provide valuable insights into how
systems may work, which factors may be more or less important in outcomes, and how specific
assumptions may alter the type and magnitude of outcomes.
Selected Research
Table 1 below shows a few government-sponsored reports published on the impacts of climate
change. For the purposes of this literature review, the selection of research is limited to studies
published since 2015 by government or intergovernmental agencies, whether original research,

59 For example, see BEA, “Information on Updates to the National Economic Accounts,” 2021, https://www.bea.gov/
information-updates-national-economic-accounts.
60 For example, the Federal Reserve changed the composition of the M1 money stock, causing a break in the data.
Federal Reserve Board of Governors, “Technical Q&As: Money Stock Measures—H.6 Release,”
https://www.federalreserve.gov/releases/h6/h6_technical_qa.htm.
61 World Health Organization, Climate Change and Human Health: Risks and Responses, 2003, p. 61,
https://www.who.int/globalchange/publications/climchange.pdf.
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reviews of other research, or independent research published under the auspices of an agency.62
By limiting the discussion to only these sources, the following research designs and results could
fall within a smaller range than would the literature as a whole, because the authors come from
organizations that may have similar missions, stakeholders, and cultures. However, because these
organizations are widely recognized to be authoritative sources of research and their results are
generally representative of conventional studies and not producing outlier results, these studies
serve as a good set of illustrative reports.
While this report focuses on domestic economic effects of climate change, some of these studies
additionally focus on global economic effects. As such, global estimates are likely different than
they would be for the United States alone, as some foreign countries are more vulnerable and
some are less vulnerable than the United States is to climate risk.
Table 1. Selected Reports on the Economic Impacts Under Certain Assumed
Scenarios
Report
Year of Publication
Sponsoring Agency
Scenarios Tested
Climate Change Impacts
2017
U.S. Environmental
RCP 8.5b and RCP 4.5c
and Risk Analysis
Protection Agency
Fourth National Climate
2018
U.S. Global Change
Drawing on a suite of
Assessment Volume II:
Research Programa
analyses with a focus on
Impacts, Risks, and
the IPCC’s RCP 8.5 and
Adaptation in the United
4.5
States
Climate Change 2022:
2022
Intergovernmental Panel
A suite of scenarios
Impacts, Adaptation, and
on Climate Change
including RCP 2.6, 4.5, 6.0
Vulnerability, Chapter 14:
and 8.5d
North America
Long-Term
2019
International Monetary
RCP 8.5 and RCP 2.6
Macroeconomic Effects of
Fund Working Paper
Climate Change: A Cross
Country Analysis
The Economic
2015
Organisation for
RCP 8.5
Consequences of Climate
Economic Co-operation
Change
and Development
Source: See below sections for more information on these studies.
Notes:
a. The U.S. Global Change Research Program is a federal program, mandated by Congress, that includes 13
member agencies such as the U.S. Environmental Protection Agency and the U.S. Department of
Agriculture.

62 For a selection of some of the nongovernmental academic research on this subject, see Dale W. Jorgenson et al.,
“U.S. Market Consequences of Global Climate Change,” Pew Center on Global Climate Change, April 2004,
https://research.fit.edu/media/site-specific/researchfitedu/coast-climate-adaptation-library/united-states/national/us—
pew-climate-center—c2es-reports/Jorgenson-et-al.-2004.-Economy—CC.pdf; Robert S. Pindyck, “Climate Change
Policy: What Do the Models Tell Us?,” Journal of Economic Literature, vol. 51, no. 3 (September 2013), pp. 860-872,
https://www.aeaweb.org/articles?id=10.1257/jel.51.3.860; Robert S. Pindyck, What We Know and Don’t Know About
Climate Change, and Implications for Policy, National Bureau of Economic Research, Working Paper no. 27304, June
2020, https://www.nber.org/papers/w27304; Nicholas Stern, The Economics of Climate Change: The Stern Review
(Cambridge, U.K.: Cambridge University Press, 2007), https://www.lse.ac.uk/granthaminstitute/publication/the-
economics-of-climate-change-the-stern-review/; and William D. Nordhaus, “To Slow or Not to Slow: The Economics
of the Greenhouse Effect,” Economic Journal, vol. 101, no. 407 (July 1991), pp. 920-937, https://www.jstor.org/stable/
2233864?seq=1#metadata_info_tab_contents.
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b. RCPs, or representative concentration pathways, are what-if scenarios based on alternative assumptions
and relationships among socio-economic, technological, environmental, and atmospheric/climate
relationships, with associated ranges of temperature and other climate results for each scenario from many
independent climate models. RCP 8.5 represents a pathway of increasing emissions with no mitigation
efforts and is considered by many to be well above currently enacted policies and technology trends.
c. RCP 4.5 represents a pathway of slowly declining GHG emissions with current and increasing mitigation
efforts.
d. RCP 2.6 represents a pathway of strongly declining GHG emissions, and RCP 6.0 represents a pathway of
stabilizing emissions.
e. For discussion of the two principal studies of economic impacts in the United States cited in the NCA4, see
CRS In Focus IF11156, Projected Economic Impacts of Climate Change, by Jane A. Leggett.
Environmental Protection Agency, Multi-Model Framework for Quantitative
Sectoral Impacts Analysis: Climate Change Impacts and Risk Analysis
As part of a technical report for the U.S. Global Change Research Program’s Fourth National
Climate Assessment, the U.S. Environmental Protection Agency, in collaboration with several
other federal agencies, completed a Climate Change Impacts and Risk Analysis project.63 The
authors model various impacts of climate change in the United States under RCP 4.5 and 8.5
scenarios. The report generally concludes that “annual damages are projected to increase over
time and are generally larger under RCP8.5 compared to RCP4.5.”64 Of particular note to the
discussion of U.S. economic effects is the report’s discussion of labor effects. Importantly, the
following findings are only a few among many and, therefore, are not representative of the
report’s findings as a whole. To determine the effects of climate change on labor, the researchers
use dose-response functions for the relationship between temperature and labor.65 These estimates
measure short-term responses and do not account for adaptation or other structural changes. The
cost of losses is estimated using average wages in 2005, as reported by the Bureau of Labor
Statistics, and adjusted to the future using projected changes in GDP per capita. Under these
assumptions and the very high RCP 8.5 scenario, over $160 billion could be lost in U.S. wages
per year by 2090 owing to the effects of extreme heat on working conditions. Under RCP 4.5, the
losses were halved to $80 billion.66 For a sense of scale, as of the fourth quarter of 2021, total
wages and salaries totaled roughly $10.8 trillion in the United States.67
U.S. Global Change Research Program, Fourth National Climate Assessment
Volume II: Impacts, Risks, and Adaptation in the United States
No less than every four years, the U.S. Global Change Research Program is required to deliver a
report to Congress and the President that assesses the published literature on climate changes and

63 EPA, Multi-Model Framework for Quantitative Sectoral Impacts Analysis: A Technical Report for the Fourth
National Climate Assessment, May 2017, https://www.epa.gov/sites/default/files/2021-03/documents/
ciraii_technicalreportfornca4_final_with_updates_11062018.pdf.
64 EPA, Multi-Model Framework for Quantitative Sectoral Impacts Analysis, p. 4.
65 Joshua Graff Zivin and Matthew Neidell, “Temperature and the Allocation of Time: Implications for Climate
Change,” Journal of Labor Economics, vol. 32, no. 1 (January 2014), pp. 1-26, https://www.jstor.org/stable/pdf/
10.1086/671766.pdf.
66 EPA, Multi-Model Framework for Quantitative Sectoral Impacts Analysis, p. 54.
67 BEA, “National Income and Product Accounts, Table 2.2B. Wages and Salaries by Industry,” https://apps.bea.gov/
iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey.
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their observed and projected impacts.68 The most recent report,69 the Fourth National Climate
Assessment, uses the Coupled Model Intercomparison Project Phase 5 for its climate change
scenarios.70 The report summarizes U.S. research findings on economic impacts as follows:
“Without substantial and sustained global mitigation and regional adaptation efforts, climate
change is expected to cause growing losses to American infrastructure and property and impede
the rate of economic growth over this century.”71
IPCC, Climate Change 2022: Impacts, Adaptation, and Vulnerability, Chapter
14: North America
As part of the Working Group II contribution to the IPCC’s Sixth Assessment Report, there is a
chapter devoted to the impacts, adaptation, and vulnerability to climate change in North
America.72 The authors note that since the fifth assessment report, research into climate impacts
for the United States has significantly expanded and that, despite differences in magnitude owing
to approach, assumptions, and expectations, the new studies “show substantial projected
economic damages across North America by the end of the century, especially for warming
greater than 4ºC.” The authors further cite that:
For the U.S., reductions in mortality, energy expenditures and improvements in agricultural
yields are projected to result in net gains in the North and Pacific Northwest whereas in the
South, higher heat-related mortality, increases in energy expenditures, SLR and storm
surge are projected to result in economic losses by the end of the century. No region in the
U.S. is expected to avoid some level of adverse effects.73
Kahn et al., Long-Term Macroeconomic Effects of Climate Change: A Cross
Country Analysis
In this working paper,74 the authors attempt to develop a multi-country stochastic growth model
with climate effects that links deviations in historical norms in precipitation and temperature to
changes in labor productivity, investment, and real output per capita. The study includes 174
countries over the period from 1960 to 2014. Results indicate that a persistent 0.01°C annual
increase in temperature above its historical norm could reduce real GDP per capita growth by

68 The U.S. Global Change Research Program is a federal program, mandated by Congress, that includes 13 member
agencies such as the EPA and the U.S. Department of Agriculture.
69 U.S. Global Change Research Program, Fourth National Climate Assessment Volume II: Impacts, Risks, and
Adaptation in the United States, 2018 (revised March 2021), https://nca2018.globalchange.gov/downloads/
NCA4_2018_FullReport.pdf (cited elsewhere as NCA4).
70 Program for Climate Model Diagnosis and Intercomparison, “CMIP5—Coupled Model Intercomparison Project
Phase 5—Overview,” https://pcmdi.llnl.gov/mips/cmip5/.
71 NCA4, p. 25.
72 Jeffrey A. Hicke et al., “North America,” in Pörtner et al., Climate Change 2022: Impacts, Adaptation and
Vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on
Climate Change, February 27, 2022, https://www.ipcc.ch/report/ar6/wg2/downloads/report/
IPCC_AR6_WGII_FinalDraft_Chapter14.pdf.
73 Hicke et al., “North America,”, p. 14-68.
74 Matthew E. Kahn et al., “Long-Term Macroeconomic Effects of Climate Change: A Cross Country Analysis,”
International Monetary Fund, Working Paper, vol. 19, no. 215 (October 2019), https://www.imf.org/-/media/Files/
Publications/WP/2019/wpiea2019215-print-pdf.ashx. This article was later published in the peer-reviewed journal
Energy Economics, vol. 104, no. 105624 (December 2021), https://www.sciencedirect.com/science/article/pii/
S0140988321004898.
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0.0586 percentage points per year in the long run (statistically significant at the 1% level) and that
a persistent 0.01°C decrease below its historical norm reduces real GDP per capita growth by
0.0520 percentage points per year in the long run (statistically significant at the 5% level).
The authors additionally perform a counterfactual analysis for 2015-2100 and find that on an
annual basis, if temperature were to increase by 0.01°C annually above its historical norm, global
income growth would be lower by 0.0543 percentage points. Further, in the absence of GHG
mitigation policies, a persistent increase in average global temperature by 0.04°C annually would
reduce the level of global real GDP per capita by 7.22% by 2100 based on the stochastic growth
model with climate assumptions. If the increase in global average temperatures were held to well
below 2°C above the pre-industrial temperature—the Parties’ collective aim for policies in the
Paris Agreement75—the increase in average global temperature would be 0.01°C annually, and the
global real GDP per capita loss would be 1.07% by 2100. Under this counterfactual, per capita
GDP loss in the United States by 2100 would be between 0.98% and 2.84% for RCP2.6 and
between 6.66% and 14.32% for RCP8.5.76
Organisation for Economic Co-operation and Development (OECD), The
Economic Consequences of Climate Change
In this research paper,77 the authors combine two models—a sectoral and regional computable
general equilibrium model and a large-scale integrated assessment model—to assess the impact of
climate change on GDP around the world. The authors find that in 23 of 25 regions studied
(including the United States), the net economic consequences of climate change would be
negative for RCP8.5. Results indicate that, based on policies in place at the time of the
publication of this report and in the absence of mitigation efforts from that point in time, the
combined negative effect on projected global GDP annually could be between 1.0% and 3.3% by
2060. GDP may be negatively affected between 2% and 10% compared to a no-damage baseline
scenario if temperature rise 4°C above pre-industrial levels by 2100.78 With respect to the no-
damage baseline, the authors additionally find that the percentage change in projected GDP in
2060 in the United States as a result of damages from climate change would be between 0% and -
1%. Of note, this report uses RCP8.5, which assumes strong GHG emissions and does not purport
to represent what is likely to happen in the future but only what could happen under a very high
and increasing GHG emissions scenario.
Questions of Measurement
Economists typically use aggregate measures of economic activity such as GDP, personal income,
and the unemployment rate to determine the health of the economy. Despite certain shortcomings
in these measures, economists generally believe them to be useful indicators when it comes to

75 United Nations Framework Convention on Climate Change, “The Paris Agreement,” https://unfccc.int/process-and-
meetings/the-paris-agreement/the-paris-agreement.
76 See Table 1 notes for an explanation of RPC2.6 and RPC8.5.
77 OECD, The Economic Consequences of Climate Change, 2015, https://www.oecd-ilibrary.org/environment/the-
economic-consequences-of-climate-change_9789264235410-en.
78 The no-damage baseline is “a projection similar to the SSP2 standard scenario, but with revised socioeconomic
drivers for population and economic growth. This ‘naïve’ no-damage baseline projection, while purely hypothetical,
provides the appropriate reference point for the analysis. It is differentiated from the core projection in which climate
change impacts affect the economy, while all other assumptions remain unchanged.” In other words, the no-damage
baseline assumes climate change will not affect the economy. OECD, The Economic Consequences of Climate Change,
p. 46.
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how policy or shocks affect Americans. However, given the likelihood of very disparate effects of
climate change on different regions, industries, and individuals or groups of individuals, relying
only on such aggregate measures could obscure some effects.
Further, there is debate as to whether aggregate economic measures such as GDP are good
metrics of well-being or welfare.79 For example, spending on climate adaptation, such as the
construction of additional infrastructure, may increase GDP in any given year but does not
necessarily make individuals better off than they would have been had the need for the better
adapted infrastructure not arisen.
From a technical perspective, current GDP may not adequately measure current or future welfare.
Components of GDP such as investment do not affect current welfare but rather future welfare,
and thus current GDP may overstate the average welfare of citizens. On the other hand, current
consumption, which may increase current welfare, may decrease future welfare, particularly when
current consumption depletes natural resources.80
GDP growth and improving living standards are often highly correlated, and GDP is more easily
measurable than welfare is, and thus it is often used as a proxy for quality of life. However, GDP
does not inherently measure nonmarket costs (or benefits), including many negative externalities
of the production process, such as pollution or loss of species. As defined by the OECD,
“externalities refer to situations when the effect of production or consumption of goods and
services imposes costs or benefits on others, which are not reflected in the prices charged for the
goods and services being provided.”81 Of note, GDP also does not account for positive
externalities that benefit society.82
All of this is not to say that economists should ignore the impacts of climate change on GDP. In
fact, GDP may be a very telling metric, especially when it comes to longer-term impacts and
some of the more gradual effects of climate change.
Author Information

Lida R. Weinstock

Analyst in Macroeconomic Policy

Acknowledgments
Jane Leggett, CRS Specialist in Energy and Environmental Policy, contributed to this report.

79 Some organizations, notably the OECD, have researched alternative metrics for well-being. The OECD Better Life
Index rates member country well-being based on a series of metrics, including some more traditional metrics such as
income and jobs but also less traditional metrics such as environment and life satisfaction. See OECD, OECD Better
Life Index, https://www.oecdbetterlifeindex.org/#/11111111111.
80 Peter S. Thorne, Chair, EPA Science Advisory Board, and Peter J. Wilcoxen, Chair, EPA Science Advisory Board
Economy-Wide Modeling Panel, letter to the Honorable E. Scott Pruitt, Administrator, EPA, September 29, 2017,
https://yosemite.epa.gov/sab/SABPRODUCT.NSF/0/4B3BAF6C9EA6F503852581AA0057D565/%24File/EPA-SAB-
17-012.pdf.
81 R. S. Khemani and D. M. Shapiro, Glossary of Industrial Organisation Economics and Competition Law, OECD,
1993, https://www.oecd.org/regreform/sectors/2376087.pdf.
82 Amit Kapoor and Bibek Debroy, “GDP Is Not a Measure of Human Well-Being,” Harvard Business Review,
October 4, 2019, https://hbr.org/2019/10/gdp-is-not-a-measure-of-human-well-being.
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