An Empirical Climate Damage Function Accounting for Climate Extremes and Adaptation

47 Pages Posted: 3 Feb 2022

See all articles by Moritz Schwarz

Moritz Schwarz

Smith School of Enterprise and the Environment, University of Oxford; Climate Econometrics, Institute for New Economic Thinking at the Oxford Martin School

Felix Pretis

University of Victoria, Department of Economics; University of Oxford - Institute for New Economic Thinking at the Oxford Martin School

Date Written: February 1, 2022

Abstract

Quantifying the economic impacts of climate change is crucial to inform mitigation and adaptation policy but faces challenges surrounding impacts of climate extremes and uncertainty around the range of plausible adaptation pathways. We overcome these by using machine learning and econometric model selection to construct an empirically-derived climate damage function allowing for impacts of a range of climate extremes under adaptation independent of any specific emission scenario. We use a novel baseline of forecasts of future economic development until the end of the century and – in absence of adaptation – project a decline in median country-level GDP per capita of up to 66% for warming beyond 4.5°C relative to no climate change. Projected marginal impacts under no adaptation suggest an approximate 12% decline in median country-level GDP per capita for each additional °C warming. We further show that the damage curve is not invariant to adaptation and provide empirical evidence of historical adaptation over time and incomes at a macro-economic level. Instability over time lowered the level of projected median GDP per capita impacts by approximately 20 percentage points relative to no-adaptation. Income-driven adaptation could reduce the marginal impacts of an additional degree of warming by a half to around 6% of GDP per capita per additional °C. Nevertheless, projected damages remain high and unequal even in the presence of adaptation reiterating the urgent case for stringent mitigation policy.

Keywords: Climate Change, Econometrics, Climate Damages, Climate Impacts, Adaptation

JEL Classification: Q54, Q58, Q44

Suggested Citation

Schwarz, Moritz and Pretis, Felix, An Empirical Climate Damage Function Accounting for Climate Extremes and Adaptation (February 1, 2022). Available at SSRN: https://ssrn.com/abstract=4022690 or http://dx.doi.org/10.2139/ssrn.4022690

Moritz Schwarz (Contact Author)

Smith School of Enterprise and the Environment, University of Oxford ( email )

South Parks Road
Oxford, OX1 3QY
United Kingdom

HOME PAGE: http://www.moritzschwarz.org

Climate Econometrics, Institute for New Economic Thinking at the Oxford Martin School ( email )

Oxford
United Kingdom

Felix Pretis

University of Victoria, Department of Economics ( email )

3800 Finnerty Rd
Victoria, British Columbia V8P 5C2
Canada

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School ( email )

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

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