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Economic Risks of Climate Change

Economic Risks of Climate Change: An American Prospectus

TREVOR HOUSER
SOLOMON HSIANG
ROBERT KOPP
KATE LARSEN
MICHAEL DELGADO
AMIR JINA
MICHAEL MASTRANDREA
SHASHANK MOHAN
ROBERT MUIR-WOOD
D. J. RASMUSSEN
JAMES RISING
PAUL WILSON
Copyright Date: 2015
Pages: 384
Stable URL: http://www.jstor.org/stable/10.7312/hous17456
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  • Book Info
    Economic Risks of Climate Change
    Book Description:

    Climate change threatens the economy of the United States in myriad ways, including increased flooding and storm damage, altered crop yields, lost labor productivity, higher crime, reshaped public-health patterns, and strained energy systems, among many other effects. Combining the latest climate models, state-of-the-art econometric research on human responses to climate, and cutting-edge private-sector risk-assessment tools,Economic Risks of Climate Change: An American Prospectuscrafts a game-changing profile of the economic risks of climate change in the United States.

    This prospectus is based on a critically acclaimed independent assessment of the economic risks posed by climate change commissioned by the Risky Business Project. With new contributions from Karen Fisher-Vanden, Michael Greenstone, Geoffrey Heal, Michael Oppenheimer, and Nicholas Stern and Bob Ward, as well as a foreword from Risky Business cochairs Michael Bloomberg, Henry Paulson, and Thomas Steyer, the book speaks to scientists, researchers, scholars, activists, and policy makers. It depicts the distribution of escalating climate-change risk across the country and assesses its effects on aspects of the economy as varied as hurricane damages and violent crime. Beautifully illustrated and accessibly written, this book is an essential tool for helping businesses and governments prepare for the future.

    eISBN: 978-0-231-53955-5
    Subjects: Business, Environmental Science, Political Science
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Table of Contents

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  1. Front Matter (pp. I-IV)
  2. Table of Contents (pp. V-VI)
  3. FOREWORD (pp. VII-VIII)
    MICHAEL R. BLOOMBERG, HENRY M. PAULSON JR. and THOMAS F. STEYER

    How much economic risk does the United States face from climate change? The answer has profound implications for the future of our economy and the American way of life. But until recently there was no systematic, analytically rigorous effort to identify, measure, and communicate these risks.

    It was the looming, unknown scale of these risks that led us to launch the Risky Business Project in summer 2013 and to commission the research that became theAmerican Climate Prospectusreport, published here in its entirety asEconomic Risks of Climate Change: An American Prospectus. Our aim is to quantify the economic...

  4. PREFACE (pp. IX-XVI)
    ROBERT KOPP, SOLOMON HSIANG, KATE LARSEN and TREVOR HOUSER
  5. ACKNOWLEDGMENTS (pp. XVII-XX)
  6. CHAPTER 1 INTRODUCTION (pp. 1-8)

    Weather and climate—the overall distribution of weather over time—shape our economy. Temperature affects everything from the amount of energy we consume to heat and cool our homes and offices to our ability to work outside. Precipitation levels determine not only how much water we have to drink but also the performance of entire economic sectors, from agriculture to recreation and tourism. Extreme weather events, such as hurricanes, droughts, and inland flooding, can be particularly damaging, costing Americans more than $110 billion in 2012 (NOAA 2013a).

    Economic and technological development has made us less vulnerable to the elements. Lighting...

  7. PART 1. AMERICA’S CLIMATE FUTURE
    • OPENING COMMENTARY (pp. 11-12)
      MICHAEL OPPENHEIMER

      Scientists and interested laypeople alike carry a vision of the hazards posed by climate change—for instance, increasing temperatures, higher sea levels, and intensification of precipitation leading to higher risks of heat-related deaths and coastal and inland flooding. These outcomes follow from nearly fifty years of refinement of computer modeling of the global climate system. However, where the rubber meets the road, in the world of policy, planning, and political action aimed at stemming greenhouse-gas emissions to reduce the risk, these models have proved to be of limited value. The same is true of attempts to plan and implement measures...

    • CHAPTER 2 WHAT WE KNOW (pp. 13-16)

      Over the nearly eight decades since the groundbreaking work of Guy Stewart Callendar (Callendar 1938), scientists have become increasingly confident that humans are reshaping Earth’s climate. The combustion of fossil fuels, deforestation, and other human activities are increasing the concentration of carbon dioxide (CO₂) and other greenhouse gases in the planet’s atmosphere. These gases create a greenhouse effect, trapping some of the Sun’s energy and warming Earth’s surface. The rise in their concentration is changing the planet’s energy balance, leading to higher temperatures and sea levels and to shifts in global weather patterns. In this chapter, we provide an overview...

    • CHAPTER 3 WHAT COMES NEXT (pp. 17-22)

      If past greenhouse-gas emissions from fossil-fuel combustion and other human activities have already changed our climate, what risks do we run if we continue on our current course? As discussed in chapter 1, this report attempts to help answer that question. While our focus is the economic risks of climate change, the analysis necessarily starts with an assessment of ways in which the climate may change in the years ahead.

      A growing body of evidence shows conclusively that continued emission of CO₂ and other greenhouse gases will cause further warming and affect all components of Earth’s climate system. While there...

    • CHAPTER 4 U.S. CLIMATE PROJECTIONS (pp. 23-38)

      This report seeks to assess how potential climate futures may differ from the conditions we know today. Results are provided for three future time periods: 2020–2039, midcentury (2040–2059), and late century (2080–2099). We also report results for a historical reference period, in most cases the period 1981–2010 used by the National Climate Data Center in defining the latest release of Climate Normals. Using multi-decadal averages rather than a single year ensures that results are not excessively influenced by natural interannual variability.

      Under all scenarios, average global and U.S. temperatures rise over the course of the century....

  8. PART 2. ASSESSING THE IMPACT OF AMERICA’S CHANGING CLIMATE
    • OPENING COMMENTARY (pp. 41-44)
      MICHAEL GREENSTONE

      This report has changed my understanding of what climate change means for the United States, providing incredibly detailed visibility into regional changes in climate and their economic consequences to specific sectors. Given its unique ability to touch home for so many, I suspect the study will ultimately be considered a landmark contribution in our understanding of this complex and vital subject. Since its release, it has already influenced political discourse around climate change—no small feat in a world where people’s views on this topic can seem immutable. Further, it has set a new bar for climate change research, shaping...

    • CHAPTER 5 AN EVIDENCE-BASED APPROACH (pp. 45-50)

      How do we assess the impact of the potential changes in temperature, precipitation, sea level, and storm patterns described in the previous chapter on our homes, businesses, and communities? Anticipating climate impacts is in many ways even more analytically challenging than projecting climatic changes, as human systems are not constrained by laws as rigid as those of physics and chemistry that shape the natural world. Yet, by piecing together evidence from the distant and not-so-distant past, including what we have experienced in our own lifetimes, we can begin to identify common patterns in how populations respond to climatic conditions, and...

    • CHAPTER 6 AGRICULTURE (pp. 51-66)

      Agriculture has long been an economic and cultural foundation for the United States. Known for historical boom and bust cycles, agricultural productivity and incomes are often influenced by and in turn influence the U.S. economy as a whole (Landon-Lane, Rockoff, & Steckel 2011; Hornbeck & Keskin 2012; Feng, Oppenheimer, & Schlenker 2013). In agriculture-dependent regions, the extreme drought and environmental mismanagement of the Dust Bowl in the early 1930s exacerbated the already dire economic conditions of the Great Depression (Egan 2006; Hornbeck 2012). Climate and weather variability have played roles to varying degrees in the cycles of U.S. agriculture. Extremes...

    • CHAPTER 7 LABOR (pp. 67-74)

      Labor is a critical component of our economy. Even slight changes in the productivity of the American workforce have a significant effect on overall economic output. Labor productivity improvements have been an important source of past GDP growth in the United States and, as a result, is an area of extensive study. Of particular interest has been the identification of optimal working conditions—including workplace environment and exposure to a variety of climate-related factors—in various economic sectors (Wyon 2000; Seppanen, Fisk, & Lei 2006). Suboptimal environmental conditions do more than simply make workers uncomfortable; they also affect the ability...

    • CHAPTER 8 HEALTH (pp. 75-84)

      The American public-health system has been designed to promote the health of American communities and residents and to prevent disease, injury, and disability. Huge strides in public health have been made over the past century, thanks in part to greater wealth, scientific advances and innovation, increased education, and a more developed public-health infrastructure (e.g., water-treatment plants, sewers, and drinking-water systems). Improvements in disaster planning and emergency response have also improved public health outcomes after responses to disease outbreaks and epidemics, floods, heat waves, storms, and other disasters that can harm public health. These advances have relied on years of assessment...

    • CHAPTER 9 CRIME (pp. 85-94)

      Crime is an important social force in the United States. The incidence of both violent and nonviolent crime affects individuals, households, and communities at a very personal level. The threat of crime shapes how societies organize themselves to protect their fellow citizens, their families, and their neighborhoods from the potential consequences of crime. Victims of crime know firsthand its effects on quality of life.

      Crime is also an important economic force in the United States. In areas where crime is prevalent, residents notice direct effects on housing prices, education, and job availability. The opportunity costs are high, as crime removes...

    • CHAPTER 10 ENERGY (pp. 95-104)

      Energy is a key ingredient in U.S. economic growth. Ensuring a reliable supply of electricity and other sources of energy is critical to the financial security of American businesses and households and to the national security of the country as a whole. While dynamic enough to respond to the climate conditions of the past, our energy system, as currently designed, is poorly prepared for future climatic changes. Rising temperatures, increased competition for water supply, and elevated storm-surge risk will affect the cost and reliability of the U.S. energy supply. Climate change will also shape the amount and type of energy...

    • CHAPTER 11 COASTAL COMMUNITIES (pp. 105-118)

      Temperate climates, attractive scenery, ease of navigation, and access to ocean food supplies have put coastlines at the forefront of human development throughout history and around the world. The United States is no exception. Today, counties touching the coast account for 39 percent of total U.S. population and 28 percent of national property by value. Coastal living carries risk, particularly on the East Coast and along the Gulf of Mexico, where hurricanes and other coastal storms inflict billions in property and infrastructure damage each year. Climate change elevates these risks. Rising sea levels will, over time, inundate low-lying property and...

  9. PART 3. PRICING CLIMATE RISK
    • OPENING COMMENTARY (pp. 121-124)
      GEOFFREY HEAL

      The set of chapters in part 3 attempts to put the effects of climate change in the United States into an economic context by placing dollar values on them. This certainly makes sense, as dollars are what we generally use for comparing and adding up very different types of goods and services. At the same time, we should be aware that there may be dimensions of climate effects that are not well-reflected in dollar values, no matter how ingeniously these are computed. Consider deaths from heatstroke: government agencies commonly value these at a few million dollars, a number known technically...

    • CHAPTER 12 FROM IMPACTS TO ECONOMICS (pp. 125-126)

      What are the economic consequences of the climate impacts described in the preceding chapters? Rising sea levels, increased flooding, and more frequent and intense coastal storms damage capital that must be rebuilt. Changing yields affect the financial health of both agricultural producers and farming communities. Climate-driven changes in mortality rates shape overall labor supply, and temperature influences the productivity of that labor. Higher energy prices reduce real household income and raise business costs. Changes in crime rates affect property values and public expenditures on police and other security services. The costs of climate change will not be evenly spread throughout...

    • CHAPTER 13 DIRECT COSTS AND BENEFITS (pp. 127-148)

      All assessments of the economic consequences of developments that may occur decades in the future must grapple with uncertainty about how the economy will evolve going forward absent those developments. This assessment of the economic risk of climate change is no different. Researchers are left with two choices: (a) assess the consequences of future developments relative to current economic structure and population distribution or (b) try to predict how the structure of the economy will change and assess the consequences of future developments relative to a hypothetical economic future. To quantify the direct costs and benefits of the climate-driven changes...

    • CHAPTER 14 MACROECONOMIC EFFECTS (pp. 149-152)

      In the preceding chapter, we assessed the direct costs and benefits of the climate impacts covered in this report and found significant variation by state. U.S. states are all part of the same national economy, however, and direct impacts in one sector or region have implications for other sectors and regions as well. For example, a decrease in agricultural output in Iowa affects food prices nationwide (and globally). Damage to coastal property raises borrowing costs in noncoastal regions because of the national (and global) nature of capital markets. Higher energy costs flow through the economy and can increase the price...

    • CHAPTER 15 VALUING RISK AND INEQUALITY OF DAMAGES (pp. 153-158)

      Two central contributions of this report are to characterize the uncertainty associated with the economic impacts of climate change and to estimate the extent to which these impacts will be borne unequally among Americans. In both cases, we note that average impacts gloss over an important aspect of the story: If the climate changes, there is a sizable chance that different types of impacts will be larger or smaller than the central estimate, and in many cases specific regions of the country experience impacts that differ substantially from the national average. While the primary purpose of this report is to...

  10. PART 4. UNQUANTIFIED IMPACTS
    • OPENING COMMENTARY (pp. 161-164)
      NICHOLAS STERN and BOB WARD

      This book provides an important and careful contribution to the understanding of the economic risks posed by climate change to some key sectors of the United States. But, as discussed in part 4, it does not cover all the risks and so necessarily underestimates the potential consequences. A number of those omitted risks are not easily modelled or measured, but they are real and potentially of great importance.

      The analysis quantitatively estimates the effect of climate change in the United States on some aspects of agriculture, labor, health, crime, energy, and coastal communities. Separate chapters in part 4 are dedicated...

    • CHAPTER 16 WHAT WE MISS (pp. 165-170)

      Our analysis is broad, but it is far from complete. As discussed in chapter 1, we have only been able to quantify a subset of the economic risks of climate change in the United States. Figure 16.1 highlights some of the gaps. These gaps can be subdivided into several categories: incomplete coverage within included market impacts, omitted categories of market impacts, interactions between impacts, omitted nonmarket impacts, effects on international trade and security, out-of-sample extrapolation, and potential structural changes. Many of these limitations parallel those of benefit-cost “integrated assessment models” that lack the empirical calibration and spatial detail of our...

    • CHAPTER 17 WATER (pp. 171-176)

      Water is a fundamental resource for our society, our economy, and the health of our communities and ecosystems. It is critical not only for our own consumption but also for food production, electricity generation, and many industrial activities. Although we have dealt with them throughout history, droughts and floods continue to pose significant risks to the U.S. economy, our health, and our way of life.

      Climate change affects water resources through multiple pathways, changing risks from water scarcity and overabundance, affecting water quality, and shifting patterns of water availability within and among regions and communities. Climate change can affect water...

    • CHAPTER 18 FORESTS (pp. 177-182)

      From the boreal forests of Alaska, to the California redwoods, to northeastern deciduous trees and south-eastern pines, forests span a third of total U.S. land area (about 750 million acres) and provide important natural and economic benefits. In economic terms, they provide valuable commodities like timber and bioenergy, recreational opportunities, and employment for local communities. The U.S. forest-products industry produces $200 billion in sales per year and employs about 1 million workers, generating an additional $54 billion each year in payroll (USDA 2013b). Although less easily quantified, forests also provide important ecosystem services including wildlife habitat, clean drinking water, flood...

    • CHAPTER 19 TOURISM (pp. 183-188)

      For many travel destinations across the United States, climate is the main attraction. Drawn to the nation’s coasts by sunshine, sand, and sea and to mountain ranges by snow and lush forests, tourists, it seems, are the quintessential fair-weather friends. The modern tourism industry in the United States has been built to satisfy the highly climate-sensitive desires of the millions of American and foreign visitors. The climate itself, and the amenities it provides—snow in the mountains, abundant water and fish stocks in rivers and lakes, and healthy coral and marine ecosystems—is a natural resource upon which the tourism...

    • CHAPTER 20 NATIONAL SECURITY (pp. 189-194)

      The U.S. national security establishment is accustomed to making decisions in the face of uncertainty. In an unpredictable world, assessing potential global risks is essential to making our homeland more secure. Climate change is such a risk. The global conditions associated with climate change, including potential changes in tropical cyclone activity, additional drought and flooding, and rising sea levels, present serious risk factors that could trigger mass migration, elevate border tensions, increase demands for rescue and evacuation efforts, and heighten conflicts over essential resources, including food and water (Catarious et. al. 2007). In recent years, the U.S. military has come...

  11. PART 5. INSIGHTS FOR CLIMATE-RISK ANAGEMENT
    • OPENING COMMENTARY (pp. 197-200)
      KAREN FISHER-VANDEN

      Part 5, “Insights for Climate-Risk Management,” provides an important extension to the sectoral-impact results presented in part 2 by exploring the implications for mitigation policy and potential adaptation responses. Similar to part 2, chapter 21 (“Mitigation”) provides estimates of climate change–induced impacts on labor productivity, agricultural yields, mortality, crime rates, energy expenditures, and coastal damage under three alternative climate futures: a no-policy case (RCP 8.5), a modest climate policy case (RCP 4.5), and an aggressive climate policy case (RCP 2.6). The main message from this analysis is that climate policies will appreciably reduce the mean and variance of climate...

    • CHAPTER 21 MITIGATION (pp. 201-208)

      Risk is the probability of an event occurring multiplied by the impact of that event should it occur. Climate risk can be managed by reducing the probability of costly climate futures by lowering global greenhouse-gas (GHG) emissions and by minimizing the impact of those futures through defensive investments and behavioral adaptation. Like the climate risk itself, the right combination of these two will depend on who you are, where you live, and the time period of concern. It will also depend on the relative cost of each option, which we do not quantify in this report. The fact that our...

    • CHAPTER 22 ADAPTATION (pp. 209-216)

      While global emission reductions can mitigate much of the climate risk Americans face, as shown in the preceding chapter, there are some climatic changes that are already “baked in” as a result of past greenhouse-gas emissions and will occur regardless of how emission levels change. In addition, many decision makers, from individual businesses and homeowners to local governments, have limited ability to affect global emissions directly and need to prepare for a range of plausible climate futures. Armed with the kind of forward-looking information provided in this report, decision makers can, however, reduce their risk exposure through adaptation.

      This report...

  12. TECHNICAL APPENDIXES
    • APPENDIX A. PHYSICAL CLIMATE PROJECTIONS (pp. 219-248)
      ROBERT KOPP and D.J. RASMUSSEN
    • APPENDIX B. CLIMATE IMPACTS (pp. 249-280)
      SOLOMON HSIANG, AMIR JINA and JAMES RISING
    • APPENDIX C. DETAILED SECTORAL MODELS (pp. 281-294)
      MICHAEL DELGADO, SHASHANK MOHAN, ROBERT MUIR-WOOD and PAUL WILSON
    • APPENDIX D. INTEGRATED ECONOMIC ANALYSIS (pp. 295-326)
      MICHAEL DELGADO and SHASHANK MOHAN
    • APPENDIX E. VALUING RISK AND UNEQUAL IMPACTS (pp. 327-328)
      ROBERT KOPP and SOLOMON HSIANG
  13. REFERENCES (pp. 329-348)
  14. ABOUT THE AUTHORS (pp. 349-350)
  15. INDEX (pp. 351-360)