Climate Action

How climate change will impact US economic growth

Hikers walk on the Matanuska Glacier near Palmer, Alaska August, 10 2008. The vast amounts of water stored in glaciers play crucial roles in river flows, hydropower generation and agricultural production, contributing to steady run-off for Ganges, Yangtze, Mekong and Indus rivers in Asia and elsewhere.  To match feature CLIMATE-GLACIERS/    REUTERS/Lucas Jackson/Files  (UNITED STATES - Tags: ENVIRONMENT SCI TECH TRAVEL)

New papers released by the Federal Reserve Bank of Richmond make for grim reading. Image: REUTERS/Lucas Jackson/Files

Pedro Nicolaci da Costa
Editorial Fellow, Peterson Institute for International Economics
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Here’s another reason to urgently reduce humanity’s contribution to an overheating planet: It’s bad for the economy.

In a country where environmental concerns are often depicted as conflicting with business and economic growth prospects, new research from the Federal Reserve Bank of Richmond finds just the opposite.

"The consequences of higher temperatures on the US economy may be more widespread than previously thought," the report said.

The authors — two Richmond Fed staffers and two academics — estimate rising temperatures could curtail the pace of US economic growth by as much as one-third by 2100.

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The study applies three scenarios of future greenhouse gas emissions determined by the Intergovernmental Panel on Climate Change.

Under the’ "low-emissions" scenario, rising temperatures would reduce growth in gross domestic product by 0.2 to 0.4 percentage point annually from 2070 through 2099, which represents as much as 10% of the historical average annual growth rate of 4%.

Under the high-emissions scenario, rising temperatures could reduce the growth rate by up to 1.2 percentage point, or roughly one-third of the historical average annual GDP growth rate.

Image: Federal Reserve Bank of Richmond

Economic forecasting is a perilous exercise even in the short run — and the authors duly note their estimates should be "interpreted with caution, since future adaptations to changing temperatures may mute long-run effects."

Still, they warn that "over a longer horizon, the impact on GDP growth rates may be substantial."

Looking across industries, the impact on productivity goes well beyond the obvious, like agriculture. "For example, temperatures above 90˚F have been found to reduce production at automobile manufacturing plants in the United States."

Image: Federal Reserve Bank of Richmond

Even the insurance industry is adversely affected, and not just because of higher payouts for natural disasters. " High temperatures negatively affect health, resulting in increased hospitalizations … As health outcomes worsen, insurers would face increased claims," the study says.

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Related topics:
Climate ActionNature and BiodiversityEconomic Growth
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