This paper estimates that the macroeconomic damages from climate change are six
times larger than previously thought. We exploit natural variability in global temper-
ature and rely on time-series variation. A 1°C increase in global temperature leads to a
12% decline in world GDP. Global temperature shocks correlate much more strongly
with extreme climatic events than the country-level temperature shocks commonly
used in the panel literature, explaining why our estimate is substantially larger. We
use our reduced-form evidence to estimate structural damage functions in a standard
neoclassical growth model. Our results imply a Social Cost of Carbon of $1,056 per
ton of carbon dioxide. A business-as-usual warming scenario leads to a present value
welfare loss of 31%. Both are multiple orders of magnitude above previous estimates
and imply that unilateral decarbonization policy is cost-effective for large countries
such as the United States.
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The Macroeconomic Impact of Climate Change: Global vs. Local Temperature
12 May 2024
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Citation
Bilal, A. & Känzig, D., 2024. The Macroeconomic Impact of Climate Change: Global vs. Local Temperature, Policy Commons.
Retrieved from https://coilink.org/20.500.12592/gthtdps on 08 Sep 2024. COI: 20.500.12592/gthtdps.
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