Climate Change Around the World
The economic effects of climate change vary across both time and space. To study these effects, this paper builds a global economy-climate model featuring a high degree of geographic resolution. Carbon emissions from the use of energy in production increase the Earth's (average) temperature and local, or regional, temperatures respond more or less sensitively to this increase. Each of the approximately 19,000 regions makes optimal consumption-savings and energy-use decisions as its climate (or regional temperature) and, consequently, its productivity change over time. The relationship between regional temperature and regional productivity has an inverted U-shape, calibrated so that the high-resolution model replicates estimates of aggregate global damages from global warming. At the global level, then, the high-resolution model nests standard one-region economy-climate models, while at the same time it features realistic spatial variation in climate and economic activity. The central result is that the effects of climate change vary dramatically across space---with many regions gaining while others lose---and the global average effects, while negative, are dwarfed quantitatively by the differences across space. A tax on carbon increases average (global) welfare, but there is a large disparity of views on it across regions, with both winners and losers. Climate change also leads to large increases in global inequality, across both regions and countries. These findings vary little as capital markets range from closed (autarky) to open (free capital mobility).
This paper was delivered as the Walras-Bowley Lecture at the 11th World Congress of the Econometric Society in 2015 in Montreal. For helpful comments the authors would like to thank seminar participants at Arizona State University, Boston University, New York University, North Carolina State University, Stanford University, the University of Oslo, Washington University in St. Louis, and Yale University and conference participants at the 11th World Congress of the Econometric Society, the Third Conference of the Society for Economic Measurement, the 2016 Economic Workshop at IDC (Herzliya, Israel), the Laboratory for Aggregate Economics and Finance conference on “The Macro and Micro Economics of Climate Change,” the 2017 Summer Institute of the China Center for Economic Research, the 2018 UC Berkeley Advanced Workshop in Climate Economics, the ifo Institute Workshop on Heterogeneous Agents and the Macroeconomics of Climate Change, the CliMathNet workshop on “Mathematics of the Economy and Climate,” and the 2019 Korean Economic Review International Conference. This document is best read on a large screen with an Internet connection. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.