The Economic Impacts of Climate Change

TLDR

Current estimates suggest climate change will have limited economic and welfare impacts in the 21st century, but its effects on growth and poverty are hard to quantify, and poverty reduction can complement emissions cuts. This article reviews the economic impacts of climate change and the policy implications of the results. The authors conduct a review of existing economic analyses and policy implications. Initial impacts may be positive, but over the long term negative effects outweigh positives, especially in poorer, hotter, lower‑lying countries, and the near‑term optimal carbon tax is estimated at a few tens to a few hundreds of dollars per ton.

Abstract

This article reviews the economic impacts of climate change and the policy implications of the results. Current estimates indicate that climate change will likely have a limited impact on the economy and human welfare in the twenty-first century. In fact, the initial impacts of climate change may well be positive. However, in the long run the negative impacts dominate the positive ones. Negative impacts will be substantially greater in poorer, hotter, and lower-lying countries. Poverty reduction complements greenhouse gas emissions reduction as a means to reduce climate change impacts. Although climate change may affect the growth rate of the global economy and may trap more people in poverty, quantification of these impacts remains difficult. The optimal carbon tax in the near term is somewhere between a few tens and a few hundreds of dollars per ton of carbon.