The Macroeconomic Impact of Climate Change: Global vs. Local Temperature | Diego Känzig

Professor Diego Känzig is an Assistant Professor in the Department of Economics at Northwestern University. His research is in macroeconomics with a focus on climate change and inequality. In his work, he studies the role of energy and climate change for economic fluctuations and how economic inequality matters for the transmission of macroeconomic shocks and policies. His research highlights that climate change and inequality also have important business cycle implications, above and beyond the significant long-run effects.

Professor Känzig will be presenting the paper ‘The Macroeconomic Impact of Climate Change: Global vs. Local Temperature’.

Abstract

This paper estimates that the macroeconomic damages from climate change are six times larger than previously thought. Exploiting natural global temperature variability, we find that 1°C warming reduces world GDP by 12%. Global temperature correlates strongly with extreme climatic events, unlike country-level temperature used in previous work, explaining our larger estimate. We use this evidence to estimate damage functions in a neoclassical growth model. Business-as-usual warming implies a 25% present welfare loss and a Social Cost of Carbon of $1,367 per ton. These impacts suggest that unilateral decarbonization policy is cost-effective for large countries such as the United States.

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