Estimating the economic impact of temperature volatility

David Winter and Manuela Kiehl

Oxford Economics, UK

This paper uses panel data on 201 countries from 1960 to 2019 to estimate the economic impact of temperature volatility and extremes, i.e., temperature anomalies, beyond the changes in average temperature levels associated with global warming. We find that temperature anomalies have a stronger impact on GDP than temperature levels and are better-suited for directly quantifying the economic impact of global warming. By additionally accounting for the full temperature distribution across a geospatial grid and across time, our approach is a methodological step towards quantifying the macroeconomic impacts of broader climate change. Projected damages from climate change are far greater than estimated in previous studies (e.g., Burke, Hsiang & Miguel 2015). Furthermore, in contrast to these studies which suggest that cooler countries would initially benefit from modest further warming, our damage forecasts see all countries face significant losses in productivity growth. Against a baseline in which the planet warms 2°C by 2050, 2.6°C of warming by 2050 has the potential to reduce projected global output by up to 50% in 2050. Warming in the range of 4-5°C by 2100 would lead to economic annihilation, consistent with scientific research on mass extinction thresholds.