Distribution of Global Temperature Effects on Downscaled Economic Activity

14:00 Tuesday 28 May

OC045

Room S9

 

Shouro Dasgupta (Italy) 1,2; Francesco Bosello (Italy) 1,3; Enrica De Cian (Italy) 1,2; Malcolm Mistry (Italy) 1,2

1 - Centro Euro-Mediterraneo sui Cambiamenti Climatici; 2 - Università Ca' Foscari Venezia; 3 - Università degli Studi di Milano

Since the first concerns about potential damages from climate change impacts, their economic assessment has emerged as one of the most challenging and controversial issues. In this paper, we show that future temperature changes could have larger impacts on economic performance than suggested by the recent climate econometric literature. The evidence comes from revisiting the empirical relationship between economic growth and climatic conditions using spatially resolved data for economic activity at higher resolution than any previous study over the period 1980–2010.

In this paper, we use the high-resolution gridded economic activity data at 0.5° to revisit the relationship between climatic exposure and economic performance to investigate the potential distribution of future climate impacts across space. While studies have utilized population-weighted climatic data to analyze the impacts of climate change at the country-level, aggregation biases remain. The high-resolution data reduces the averaging effect, where negative and positive performances compensate each other. We also use spatial econometric techniques to control for the spatial dependence across grid-cells.

Our results show that the global optimal temperature maximizing economic activity is lower than previously estimated, 9.9°C as opposed to 12–13°C from studies using similar approaches (Nordhaus 2006 and Burke et al. 2015). The implication is that a uniform 1°C increase in surface temperature would change economic activity between –32% and +73%, with a global mean of –5%. Using future temperature projections from a multi-climate model ensemble, we find that unmitigated climate change will result in a median decline of 46% in economic activity by the end of the 21st century compared to the current economic activity (1965–2005) under RCP 8.5. A more moderate temperature increase (RCP4.5–RCP6) would limit the economic impacts to 25%–30%. Furthermore, 67% of the cells of our high-resolution grids will become poorer with a worsening of income inequality not only across, but also within countries, as measured by the GINI coefficient. Our analysis also finds some evidence that extreme events have negative impacts on economic activity adding to the more gradual shift induced by temperature changes. A thorough exploration of the macroeconomic implications of changes in the frequency and intensity of future extreme events is left for future research.