Climate Change and Extreme Events: An Assessment of Economic Implications

Abstract

We use a general equilibrium model of the world economy, and a regional economic growth model, to assess the economic implications of vulnerability from extreme meteorological events, induced by the climate change. In particular, we first consider the impact of climate change on ENSO and NAO oceanic oscillations and, subsequently, the implied variation on regional expected damages. We found that expected damages from extreme events are increasing in the United States, Europe and Russia, and Russia, and decreasing in energy exporting countries. Two economic implications are taken into account: (1) short-term impacts, due to changes in the demand structure, generated by higher/lower precautionary saving, and (2) variations in regional economic growth paths. We found that indirect short-term effects (variations in savings due to higher or lower likelihood of natural disasters) can have an impact on regional economics, whose order of magnitude is comparable to the one of direct damages. On the other hand, we highlight that higher vulnerability from extreme events translates into higher volatility in the economic growth path, and vice versa.

Keywords: Climate Change, Extreme Events, Computable General Equilibrium Models, Precautionary Savings, Economic Growth

JEL Classification: D58, D91, Q54