Conference Agenda
Overview and details of the sessions of this conference. Please select a date or location to show only sessions at that day or location. Please select a single session for detailed view (with abstracts and downloads if available).
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Thematic Session: Understanding the Macroeconomic Implications of Large-Scale Climate Change Risk
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Climate change is expected to continue and worsen over the rest of the century, which will bring with it increases in average temperatures, extreme weather, sea level rise, and increases in the risk and magnitude of hurricanes, wildfires, and other natural disasters. A growing literature has shown that that climate change could have a significant and persistent effect on the economy (e.g., Dell et al. 2012; Burke et al. 2015; Deryugina and Hsiang 2017; Burke and Tanutama 2019; Colacito et al. 2019; Henseler and Schumacher 2019; Nath, 2020; Kahn et al. 2021; Kumar and Khanna 2019; Bastien-Olvera et al. 2022; Nath et al. 2024). This empirical evidence is important because even small changes in the rate of economic growth can accumulate into large economic impacts over time. Casey et al. (2023) estimate a relationship between total factor productivity (TFP) and historical temperature and precipitation levels that differ by country. The authors simulate a TFP growth path based on future temperature projections to estimate future GDP per capita damages using a Solow growth model. Their results suggest that temperature affects the level of TFP but not the long-run growth rate of TFP.
Though the literature is more mixed, there is also a body of work that has investigated the effects of hurricanes and other natural disasters on long-term economic growth (e.g., Hsiang and Jina, 2014, 2015; Newell et al. 2021; Kalkuhl and Wenz 2020). Hallegate and Ghil (2008) find that flexibility in how investment can respond to natural disasters may be particularly important when predicting the magnitude of productivity loss as well as the persistence of macroeconomic effects over time.
Governments have increasingly become interested in better understanding the macroeconomic effects of increasing climate risk to facilitate better budget and resilience planning. Central banks are starting to think about how climate risk affects the financial system through effects on asset value and default risk. Many of these exercises have focused on the short run, but there are equally important questions when thinking about longer timescales.
When moving beyond shorter timespans, CGE models provide a natural starting framework to think about the channels through which climate change risk could affect the macroeconomy. The recent National Academies Roundtable on Macroeconomics and Climate-related Risks and Opportunities points out that there is a research gap on how to best accommodate the unique characteristics of climate risks within economic modeling frameworks to better understand their macroeconomic implications.
This session includes papers that leverage CGE modeling frameworks to glean insights into the important channels through which climate risk might manifest in the macroeconomy. The CGE models vary in their focus (U.S. vs global); expectations (perfect foresight vs adaptive or recursive dynamic); household and regional heterogeneity; and ability to capture short-run stickiness in capital or labor markets. Each of the modeling groups explore scenarios predicated on 1) a “top-down” that relates changes in climatic conditions (e.g., temperature and precipitation) to total factor productivity (TFP) using the outcomes of the econometric model in Casey et al. (2023) 2) a top-down TFP approach augmented to include a measure of increased capital destruction due to changes in natural disasters and extreme weather via effects on the depreciation rate, and, when possible, 3) a “bottom-up” _damage pathways approach that relates changes in climatic conditions to effects on specific inputs. Careful thought is given to the ways in which climate change risk may persist and accumulate in the economy over time. | ||
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Small Regions, Large Floods: Local Economic Effects of Coastal Flooding in Europe 1Joint Research Center, European Commission, Seville, Spain; 2London School of Economics, United Kingdom This study quantifies the long-term economic impacts of coastal floods across Europe using a high-resolution open-economy Solow model. The framework considers capital and labor mobility across more than a thousand regions. The economic model integrates natural science bottom-up projections of direct economic damages of coastal flooding as exogenous shocks. Results show that coastal regions face substantial and increasingly uneven economic losses as global warming intensifies. Under moderate warming, expected losses remain modest but already affect tens of millions of people; under high warming, impacts increase non-linearly for affected coastal regions, with some coastal regions exposed to consumption losses exceeding 10 percent by the end of the century. The implications for inland regions are naturally much smaller, with some realizing small gains through new investment opportunities, partially offsetting coastal losses at the aggregate level. Economy-wide and international spillovers of the economic impacts of climate change 1The Center for Global Trade Analysis, Purdue University, USA; 2Department of Economics, KU Leuven, Belgium Estimates of the economic consequences of climate change diverge widely and are influenced by methodological choices. Here, we explore different approaches to quantifying economic damages by leveraging a structural model of the global economy. We decompose macroeconomic outcomes by region, factor, and sector to reveal differences between top-down aggregate productivity shocks and a bottom-up representation of impact channels. While aggregate economic outcomes are comparable, region-specific results differ substantially between approaches at the tails of the distribution, driven by divergent international trade responses. Allowing for economic adaptation in production and trade flows, our findings indicate that international spillovers raise global welfare losses from climate change by 1-6% relative to the sum of domestic impacts. Overall, our results suggest that a disaggregated representation of climate change impact channels is important for improving the understanding of aggregate economic outcomes and for informing effective adaptation policies that account for international trade spillovers. Macroeconomic Impacts of Microeconomic Damages in General Equilibrium: Productivity and Capital Losses 1Resources for the Future; 2University of Maryland; 3National Bureau of Economic Research The full economic costs and macroeconomic effects of microeconomic damages associated with pollution damages, climate impacts, and similar negative shocks are not well understood. Beyond the direct damages, market distortions, supply chains, changes in capital and labor costs, etc. can potentially magnify (or diminish) the costs of these shocks. In this paper, we use analytical and numerical general equilibrium models to investigate the channels through which microeconomic shocks affect the macroeconomy. We model different types of shocks, evaluate how anticipation affects the macroeconomic implications of shocks, and measure the overall welfare costs relative to the value of direct damages. We find that preexisting taxes magnify the overall welfare costs relative to direct damages, that savings and investment decisions driven by anticipations of certain types of shocks can interact with tax distortions to lower welfare costs, and that the ratio of welfare cost to direct damages varies substantially across sectors of the economy. Macroeconomic Implications of Large-scale Productivity Shocks 1Reserve Bank of Australia; 2Australian National University; 3Independent Researcher; 4Syracuse University Climate change poses physical risks to the environment and the economy. This paper examines approaches to incorporating a limited set of physical climate risks into economic models and estimating their macroeconomic impacts across different climate scenarios. Using a global dynamic general equilibrium model (G-Cubed), the analysis covers the global economy with a particular focus on the United States. Macroeconomic projections associated with climate-related productivity shocks are part of a wider endeavor to understand the climate challenge and the relative merits of potential policy responses. Using estimates from other studies, we first represent climate change effects as productivity shocks and project their general equilibrium effects in G-Cubed. We consider four paths of productivity shocks: three global Shared Socioeconomic Pathways (SSP) scenarios that reduce total factor productivity and one US-only scenario that increases productivity in the agricultural sector and lowers labor productivity across other sectors. We also determine the path of the equity risk premium that produces reductions in US GDP that match SSP2-4.5 through 2060. Finally, we illustrate an alternative approach in which climate change is represented by a reduction in the rate at which physical capital provides capital services in production. Our results suggest that the impacts of all scenarios on macroeconomic projections in the United States are relatively modest through 2060. GDP reductions from the climate change impacts modeled range from 0.2% to 0.5% relative to a no-climate-change baseline, depending on the scenario. There are also small effects on US employment, international trade, and capital flows. The shocks to labor productivity in individual sectors produce significantly more severe impacts than the aggregate shocks to TFP. GDP losses in the reduction in sectoral labor productivity calibrated to SSP2-4.5 are roughly equivalent to those of the most severe TFP reductions of SSP5-8.5. Also, the GDP impacts in SSP2-4.5 are roughly equivalent to an increase in the equity risk premium of 1.75 percentage points by 2060. The results also indicate significant differences across countries. Overall, GDP impacts of these scenarios are positive for several regions in the Global North in the near term, driven by productivity gains and international capital flows. | ||