Uncertain Impacts on Economic Growth When Stabilizing Global Temperatures at 1.5°C or 2°C Warming

Abstract

Empirical evidence suggests that variations in climate affect economic growth across countries over time. However, little is known about the relative impacts of climate change onto economic outcomes when global mean surface temperature (GMST) is stabilized at 1.5°C or at 2°C warming relative to pre-industrial levels. Here we use a new set of climate simulations under 1.5°C and 2°C warming from the 'Half a degree Additional warming, Prognosis and Projected Impacts' project (HAPPI), to assess changes in economic growth using empirical estimates of climate impacts in a global panel dataset. Panel estimation results that are robust to outliers and breaks suggest that within-year variability of monthly temperatures and precipitation has little effect on economic growth beyond global non-linear temperature effects. While expected temperature changes under a GMST increase of 1.5°C lead to proportionally higher warming in the Northern Hemisphere, the projected impact onto economic growth is larger in the Tropics and Southern Hemisphere. Accounting for econometric estimation and climate uncertainty, the projected impacts onto economic growth of 1.5°C warming are close to indistinguishable from current climate conditions, while 2°C warming suggests statistically lower economic growth for a large set of countries (median projected annual growth up to 2% lower). Level projections of GDP per capita exhibit high uncertainties; with median projected global average GDP per capita approximately 5% lower at the end of the century under 2°C warming relative to 1.5°C. The correlation between climate-induced reductions in per capita GDP growth and national income levels is significant at the p<0.001 level, with lower income countries experiencing greater losses, which may increase economic inequality between countries and is relevant to discussions of Loss and Damage under the UNFCCC.

Keywords: climate, impacts, economic growth, 1.5 degrees, uncertainty, inequality

JEL Classification: O1, C23, Q54