Adrien Bilal teaches economics at Harvard University. Speaking to Srijana Mitra Das, he discusses the surprisingly large macroeconomic impacts of global temperature rises in the Anthropocene:Q. What is the core of your research? A. I am a macro economist and I work on questions related to the macroeconomy as a whole. I have researched economic geography, labour markets and more recently, climate change. Q. Can you share key findings from your new study on the macroeconomic impacts of global warming? A. In this project, we started with the observation that much of the economic analyses of the cost of climate change was based on a somewhat incomplete representation because it was draw-ing from what local temperature does to the economy — it was looking at how an economy reacts when it gets very hot within a country. However, that is not the full picture. Climate change means the temperature of the whole world changes — global temperature evolves. So, Diego R. Kanzig, my co-author, and I sought to understand what the effects of a change in global temperature would be on economic activity. We found an increase of 1oC in global mean temperature — that of the entire world — implies a decline in GDP at the world level of about 12%. That is six times larger than what hap-pens when local temperature goes up — then, you get a 1% to 3% decline in GDP. Q. What makes global temperature more impactful than local temperature? A. We drew inspiration from geo-science. The climate system of the world is determined at the level of the planet, not particular countries. When climate change happens, local temperatures experienced by countries do change but so do the oceans — when the seas warm, this changes evaporation regimes and potentially wind and precipitation as well. So, global temperature is a better barometer of world climate — and its impacts — rather than all the sub-channels which the literature so far had been analysing in isolation impacts — rather than all the sub-channels which the literature so far had been analysing in isolation.
Q. What do your results then indicate about the social cost of carbon? A. We have found the social cost of carbon — the dollar value of all the eco-nomic losses associated with emitting one ton of carbon today and warming linked to that — is six times larger than what previous work has found. We estimate this is approximately $1,000 per ton of carbon — this indicates how expensive it is for the world to emit carbon in terms of economic losses. Our work also looks at what hap-pens when global temperature rises by a certain amount. We used a specification where we studied the economic impacts of global temperature rising by 2oC around the end of the century. In a somewhat conservative business-as-usual scenario, we found that by 2100, starting from today, the world would lose 50% GDP relative to what it would have without such warming — in 2100, the world would be twice as rich, with double the purchasing power, without climate change than with it. Q. Are we also seeing climate change impacting purchasing power now? A. Yes. We’ve done retrospective ana-lyses as well, looking at what past climate change, from the 1960s onwards, did to the economy — we found a .75oC increase in global temperature since 1960 has led to a decline in purchasing power by a third, relative to what we could have had without climate change. This amount represents many years of economic growth — or alternatively, a quarter of annual growth over 60 years. Q. Which elements of GDP respond most strongly to global temperature shocks? A. There’s a decline in total factor produc-tivity, a summary measure that reflects the economy growing less efficient at produc-ing things when global temperature rises. We also see declines in capital and capital investments. All these together over the medium run contribute to a decline in GDP. Q. Which regions are most adversely impacted by these dynamics? A. We looked at 12 different regions of the world and found the effects are more uniformly detrimental than under local temperature shocks — most regions seem to be losing due to climate change. Colder nations are less affected than warmer countries but, on average, most regions lose 10% to 15% of GDP in the medium run with a 1oC warming shock. Even high-income regions like North America and Europe see sizable losses. Q. What are your key recommendations to policy makers now? A. Once you contemplate the high social cost of carbon, large economies — with a bigger share of the GDP of the world, like the United States and Europe but also India and China — will find it is in their own self-interest to decarbonise. In the US, it currently costs the gov-ernment about $80 per ton on average to implement a policy which removes one ton of carbon from the atmosphere. According to our numbers, the US loses about $200 in economic activity per ton of carbon emi-ssions — these numbers make it in US self-interest to decarbonise the economy.
