A Guide to Climate Damages

Multiple lines of research aim to quantify the economic impacts of climate change, including through reduced-form and structural approaches. We show that the effects of climate change on economic activity depend on changes in weather across time and space: changes in contemporary weather have direct effects on output; changes in past weather and in expectations of future weather induce adaptation; and changes in weather elsewhere around the globe introduce a general equilibrium component. Using this framework, we argue that estimation of climate impacts faces a trilemma: a methodology can have at most two of (i) robustness to a particular economic model structure, (ii) interpretation as effects of persistent, widespread, anticipated climate change, and (iii) quasi-experimental identification. We summarize the literature on climate damages in light of the trilemma, with an emphasis on recent progress understanding adaptation and spatial spillovers. We propose directions for future work.