The Global Economic Impact of Climate Change

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Yale economist William Nordhaus has done some of the best research on the economic effects of climate change. In a new working paper, Nordhaus and Andrew Moffat survey the literature (27 studies) and look at 36 different estimates regarding the global economic impact of climate change by 2100. They note that the IPCC stated in their 2007 report, “Global mean losses could be 1 to 5% of GDP for 4°C of warming” (pg. 2). Overall, “there are many studies of theoretical temperature increases in the 2 to 4 °C range, and that they cluster in the range of a loss of 0 to 4% of global output” (pg. 13). The authors’ own “preferred regression” provides an “estimated impact” of “1.63 % of income at 3 °C warming and 6.53% of income at a 6 °C warming. We make a judgmental adjustment of 25% to cover unquantified sectors…With this adjustment, the estimated impact is -2.04 (+ 2.21) % of income at 3 °C warming and -8.16 (+ 2.43) % of income at a 6 °C warming” (pg. 3).

This supports my previous posts about the economics of climate change. Once again, climate change will drastically reduce income over the next 100 years without intervention (and recent research suggests that we might have more time to intervene than previously thought). But people will still be be significantly better off compared to us today even if we fail to act. They just won’t be as well off as they could have been.1