New Fed paper: ‘The consequences of higher temperatures on the US economy may be more widespread than previously thought’

A giant iceberg is seen behind an Innaarsuit settlement, Greenland July 12, 2018.

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A giant iceberg is seen behind an Innaarsuit settlement, Greenland July 12, 2018.
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Ritzau Scanpix / Karl Petersen / via REUTERS

  • Climate change is damaging the US economy’s long-term growth prospects, according to a new study published by the Richmond Fed.
  • “The consequences of higher temperatures on the US economy may be more widespread than previously thought,” the report said.
  • US economic growth may be reduced by as much as one-third by 2100, the authors estimate.

Here’s another reason to urgently reduce humanity’s contribution to an overheating planet: It’s bad for the economy.

In a country where environmental concerns are often depicted as conflicting with business and economic growth prospects, new research from the Federal Reserve Bank of Richmond finds just the opposite.

“The consequences of higher temperatures on the US economy may be more widespread than previously thought,” the report said.

The authors – two Richmond Fed staffers and two academics – estimate rising temperatures could curtail the pace of US economic growth by as much as one-third by 2100.

The study applies three scenarios of future greenhouse gas emissions determined by the Intergovernmental Panel on Climate Change.

Under the’ “low-emissions” scenario, rising temperatures would reduce growth in gross domestic product by 0.2 to 0.4 percentage point annually from 2070 through 2099, which represents as much as 10% of the historical average annual growth rate of 4%.

Under the high-emissions scenario, rising temperatures could reduce the growth rate by up to 1.2 percentage point, or roughly one-third of the historical average annual GDP growth rate.

ClimateFed2

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Federal Reserve Bank of Richmond

Economic forecasting is a perilous exercise even in the short run – and the authors duly note their estimates should be “interpreted with caution, since future adaptations to changing temperatures may mute long-run effects.”

Still, they warn that “over a longer horizon, the impact on GDP growth rates may be substantial.”

Looking across industries, the impact on productivity goes well beyond the obvious, like agriculture. “For example, temperatures above 90˚F have been found to reduce production at automobile manufacturing plants in the United States.”

Even the insurance industry is adversely affected, and not just because of higher payouts for natural disasters. “High temperatures negatively affect health, resulting in increased hospitalizations … As health outcomes worsen, insurers would face increased claims,” the study says.

Climate Impact by Industry

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Federal Reserve Bank of Richmond