Free DP Download 04 March 2021 - THE ECONOMIC CONSEQUENCES AND GEOGRAPHY OF GLOBAL WARMING
THE ECONOMIC CONSEQUENCES AND GEOGRAPHY OF GLOBAL WARMING
José-Luis Cruz, Esteban Rossi-Hansberg
CEPR DP No. 15803 February 2021
Global warming will likely cause wide-ranging economic impacts across the globe, with predicted welfare losses as large as 15% in parts of Africa and Latin America but also high heterogeneity across locations, with northern regions in Siberia, Canada, and Alaska experiencing gains.
These are among the findings of a new CEPR study by Jose-Luis Cruz and Esteban Rossi-Hansberg introduces a novel global spatial dynamic assessment model to assess the impact of carbon emissions, and the implied changes in temperatures, on the world economy and on the economy of particular regions. The study also quantifies the effect of carbon taxes, abatement technologies, and clean energy subsidies. Among the findings:
- On average, the world is expected to lose 6% in terms of welfare.
- The hottest regions in South America, Africa, India and Australia experience welfare losses of 15%.
- The coldest regions in Alaska, Northern Canada, and Siberia undergo welfare gains as high as 14%.
- The results indicate large uncertainty about average welfare effects and point to migration and, to a lesser extent, innovation as important adaptation mechanisms.
- Clean energy subsidies have only a modest effect on carbon emissions and the corresponding evolution of global temperature since, although they generate substitution towards clean energy, they also lead to a reduction in the price of energy which results in more production and ultimately more energy use.
- Carbon taxes delay consumption of fossil fuels and help flatten the temperature curve but are much more effective when an abatement technology is forthcoming.
Global warming presents a daunting challenge for humanity. Designing the best tools to address it requires modern micro-founded economic models that incorporate multiple forms of adaptation and the rich spatial heterogeneity of the world.
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