Losses to global economy from climate crisis could be six times worst than earlier

A new, not-yet-peer-reviewed study from the National Bureau of Economic Research—the folks who designate the beginnings and endings of U.S. recessions—asserts that economic losses from temperature rise due to global warming will be far, far worse than previously calculated. Consequently, they calculate that the social cost of carbon, an estimate of the harm caused by releasing more carbon dioxide into the atmosphere, is nearly 10 times the U.S. standard.

Just a 1°C (1.8°F) rise of pre-industrial times causes a 12% decrease in global gross domestic product, the researchers estimate. But we’re already well past that rise, and the vast majority of surveyed climate scientists believe we’re headed for 2.5°C (4.5°F). Some of them anticipate that the rise by the end of the 21st Century will be 3°C (5.4°F).

This will mean “precipitous declines in output, capital and consumption that exceed 50% by 2100,” according to the study, which calls it “comparable to the economic damage caused by fighting a war domestically and permanently.” The authors, Adrien Bilal and Diego R. Känzig, write:

Our estimated effect of temperature shocks on world GDP stands in stark contrast to existing estimates of the cost of climate change. Nordhaus (1992), Dell et al. (2012), Burkeet al. (2015) and Nath et al. (2023) find that a 1°C temperature shock reduces GDP by at most 1-3% in the medium run. Why do we find dramatically larger effects?Our estimate is six times larger than in previous work because we focus on a different source of temperature variation, one that captures the comprehensive impact of climate change: changes in global mean temperature. By contrast, previous work exploits variation in country-level, local temperatures. It turns out that global temperature has much more pronounced impacts on economic activity than local temperature. When we estimate the impact of local temperature on country-level GDP, based on the same empirical specification and using the same approach to construct temperature shocks, we find similarly small effects to previous studies. Econometrically, previous work that exploits local temperature in a panel setting nets out common impacts of global temperature shocks through time fixed effects. Instead, we focus on these common impacts.

As a result of these projected losses, the researchers put the social cost of carbon at $1,056 a ton. Under President Barack Obama, the social cost was estimated at around $42 a ton. Under Donald Trump it was less than $5 a ton. Six months ago, President Joe Biden set the new estimate in a legally binding federal regulation at $190 a ton.

Adrien Bilal told The Guardian: “There will still be some economic growth happening but by the end of the century people may well be 50% poorer than they would’ve been if it wasn’t for climate change.” The economic drain, he said, will be akin to what is seen in wartime. ”Let’s be clear that the comparison to war is only in terms of consumption and GDP—all the suffering and death of war is the important thing and isn’t included in this analysis. The comparison may seem shocking, but in terms of pure GDP there is an analogy there. It’s a worrying thought.”

Tick, tick, tick.