A new working paper (i.e. not yet peer reviewed) has been published by The National Bureau of Economic Research (US). Titled “The Macroeconomic Impact of Climate Change: Global vs. Local Temperature”, the paper claims that the macroeconomic damages from climate change have been seriously underestimated and are six times worse than thought. It has been reported on in a recent Guardian article.
The authors explain ….”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. (The US Environmental Protection Agency currently places the social cost of carbon at $190 per ton). 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”.
All the more reason that we need a policy which truly prices the real cost of pollution or we will soon be living in a world where, in purely hard financial terms, nothing will be insureable, let alone the unquantifiable costs!