The impact of climate conditions on economic production. Evidence from a global panel of regions

TLDR

The reported impacts exclude non‑market damages and those from extreme weather events or sea‑level rise. The study introduces a novel subnational GRP dataset covering over 1,500 regions in 77 countries to estimate historic climate impacts across time scales. Using annual panel, long‑difference, and cross‑sectional regressions on the dataset, the authors assess how temperature influences productivity levels and growth. The analysis finds no permanent growth‑rate effects but shows temperature significantly reduces productivity levels, projecting a 7–14 % global output decline by 2100 under a 3.5 °C rise, with larger losses in tropical and poorer regions, and estimating the social cost of carbon at 73–142 $/tCO₂ in 2020 and 92–181 $/tCO₂ in 2030.

Abstract

We present a novel data set of subnational economic output, Gross Regional Product (GRP), for more than 1500 regions in 77 countries that allows us to empirically estimate historic climate impacts at different time scales. Employing annual panel models, long-difference regressions and cross-sectional regressions, we identify effects on productivity levels and productivity growth. We do not find evidence for permanent growth rate impacts but we find robust evidence that temperature affects productivity levels considerably. An increase in global mean surface temperature by about 3.5°C until the end of the century would reduce global output by 7–14% in 2100, with even higher damages in tropical and poor regions. Updating the DICE damage function with our estimates suggests that the social cost of carbon from temperature-induced productivity losses is on the order of 73–142$/tCO2 in 2020, rising to 92–181$/tCO2 in 2030. These numbers exclude non-market damages and damages from extreme weather events or sea-level rise.