UC, Berkeley, Report Projects Economic Risks From Climate Change

UC, Berkeley, Report Projects Economic Risks From Climate Change

University of California, Berkeley, economist and assistant professor of public policy Solomon Hsiang led the econometrics team that helped assemble a major report released June 2014 that projects significant economic risks from climate change in the United States.
The first data-driven national study to provide local estimates for economic risks to key economic sectors found:

  • The hardest-hit areas will include heavily used and increasingly expensive energy sources;
  • Labor productivity will also be hard hit as workers are sapped by the heat;
  • Infrastructure damage from rising sea levels will surge when combined with hurricane storms;
  • A roughly 50 percent chance exists that business-as-usual climate change action will result in the Nation’s climate-related mortality rates rising 1 to 3 times that of the motor vehicle mortality rate.

While some findings sound sensational, the report is careful to present a balanced picture, says Hsiang, who called it “a hard-nosed risk analysis, produced as if the United States were run like a firm. We’re not forecasting the collapse of the US economy or civilization. Some populations even benefit. But overall, impacts of climate change are substantial, with clear risks.”
The economic value of impacts on crime and agriculture, mainly driven by extreme temperatures, appear to be comparable to one another, according to the study. Although, total valuations of these impacts are lower than in other sectors.

Regional Differences

The report is the first to evaluate economic impacts in multiple sectors down to the county level, thus allowing decision-makers to understand how different regions will be affected by climate change. Overall, researchers found that states in the South, Midwest and Great Plains bear the largest economic burden from climate change while a handful of states, such as Oregon and Washington, are likely to benefit economically from climate change.
Previous reports tended to blur these different effects across the country by reporting only national average impacts that make the economics of climate seem rosier than they actually are, says Hsiang. For example, he noted the report estimates a 2-in-3 chance that, by the end of the century, Florida will suffer annual losses worth roughly 10-23 percent of the state’s entire Gross Domestic Product.

Climate Change & Income Inequality

“If you average over the entire country,” Hsiang explains, “you get a picture that is backward because damages sound smaller. But we know from observing people’s normal behavior, as well as lab experiments, that they dislike inequality,” which means people are actually willing to spend resources to avoid exacerbating economic inequalities. The report finds that national patterns of income inequality are reinforced by climate change because poor states tend to be more impacted than rich states.
Findings of the “American Climate Prospectus: Economics Risks in the United States” were summarized in a policy document issued May 2014 by the Risky Business initiative, established to explore the issue and led by former New York City Mayor Michael Bloomberg, former hedge-fund manager Tom Steyer and former US Treasury Secretary Henry Paulsen.
Hsiang previewed some of the report’s scientific innovations in April 2014 during his keynote lecture at the Nation’s largest meeting of climate-related insurers and reinsurers in Washington, DC, but none of the findings were make public until May 2014.

“Stern Review” for the United States

The report is considered to be comparable to the “Stern Review on the Economics of Climate Change,” a game-changing, 700-page analysis produced in 2006 for the British government by economist Lord Nicholas Stern, a distinguished professor at the London School of Economics. Stern called for early and strong action to deal with climate change. Stern’s report was largely theoretical, in sharp contrast to the data-heavy American Climate Prospectus released May 2014.
The latest study was co-led by Hsiang, Rutgers University professor and climate scientist Robert Kopp and Trevor Houser of the Rhodium Group, a private research firm. Working on the econometrics team with Hsiang were Columbia University doctoral candidates Amir Jina and James Rising. Jina was a visiting researcher at the Richard and Rhoda Goldman School of Public Policy at UC Berkeley while working on the project.

Focusing resources.
Hsiang says he hopes the study will help Americans understand the economic consequences of climate change at a local level, spur rational dialogue about the concrete impacts of climate change and help policymakers make more informed decisions about the many facets of climate change policy.

“By seeing where economic impacts are big or small helps us focus our business and public policy resources efficiently,” says Jina.

The study drew from decades of climate research, and then integrated that work with the latest econometric analyses to develop empirical, data-driven results. Rising explains that improvements in computational power and other methodological advances made it possible to deal with the terabytes of data he used in the analysis, something that would have been impossible just a few years ago.

“Our actions today are shaping our Nation’s economic future,” says Hsiang, “This analysis is like a flashlight at night: It lets us see what’s up ahead.”

For more information, contact Solomon Hsiang, assistant professor of public policy, shsiang@berkeley.edu, (510) 643-5751.