Econometrics Seminar Series. "The Macroeconomic Impact of Climate Change: Global vs. Local Temperature"
Published: 30 October 2024
29 November 2024. Dr Diego Känzig, Northwestern University
Dr Diego Känzig, Northwestern University
"The Macroeconomic Impact of Climate Change: Global vs. Local Temperature"
Friday, 29 November 2024. 16:00-17:30
Online
Abstract
This paper estimates that the macroeconomic damages from climate change are six times larger than previously thought. We exploit natural variability in global temperature 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.
Bio
Diego Känzig is an Assistant Professor in the Department of Economics at Northwestern University, a Faculty Research Fellow at the National Bureau of Economic Research and a Research Affiliate at the Centre for Economic Policy Research. His research interests are in macroeconomics and macro-finance with a focus on climate change and inequality. In his work, he studies the role of energy and climate change for financial and macroeconomic fluctuations and how economic inequality and household finance matter for the macroeconomy and macroeconomic policy. Diego holds a PhD in Economics from London Business School and an MSc in Economics from the Universities of Bern and Basel.
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First published: 30 October 2024