The world’s climate leaders need better economic data

It isn’t hard to understand that global warming is already changing how we live. In India’s capital, New Delhi, this summer has been so hot — above 40 degrees Celsius (104 Fahrenheit) even at night — that people are gasping, the tap water is scalding, and the walls of their homes emit heat like radiators.

The Saudi Arabian authorities said that 1,300 pilgrims have already died on this year’s Hajj. Players at the European soccer championships are collapsing due to exhaustion.

And yet economists — clearly able to keep cool heads when everybody else is losing theirs — are in the middle of a fresh debate about the real costs of climate change. A new working paper from two academics at Harvard and Northwestern, and published by the National Bureau of Economic Research, argues that the macroeconomic damage from climate change might be as much as six times higher than previously estimated.

Their model predicts that a single degree increase “in global mean temperatures leads to a gradual decline in world GDP that peaks at 12% after six years and does not fully mean-revert even 10 years after the shock.” They point out that this makes unilateral climate action worth it for countries like the United States; that argument must surely also hold countries that are poorer but far more exposed to climate change, such as India. Is it possible to add a couple more countries here?

The paper has set off a storm of furious criticism, and not just from economists. The climate scientist John Kennedy argues that its methodology may be flawed. He isn’t sure, for example, that we can easily extrapolate from the historical record of 0.3-degree shocks to global temperature to the larger, one-degree changes associated with climate change.

The real costs

It’s clear that global warming is already having a malign effect on human health and livelihoods. We just need more clarity on how much.

Discussion of the real costs of climate change, to human welfare and to national economies, have been going on for decades. But we no longer need such estimates to make the case that it is real, and a problem. Instead, we need them as inputs into policymaking — similar to employment or price data.

Policymakers are still short of objective, sector-specific and precise estimates of current and possible future costs. That shortage is a growing problem — because climate policy is beginning to bite. Billions of taxpayer dollars are being directed to sectors that promise to curb emissions; consumers are paying more for carbon-intensive goods and services; and pressure to follow a net zero strategy has complicated decisions for companies and institutional investors.

These should all count as successes in the fight against climate change. When money moves, however, people begin to ask pointed questions. It isn’t just various Republican politicians attacking “woke capital” to get in the headlines. Serious macroeconomic decision-makers, accustomed to evidence-based policy, are beginning to ask exactly what global warming’s costs and benefits are for their particular countries.

India’s chief economic adviser, for example, asked earlier this year if we were irrationally scared of the health effects of global warming. It is true that we in India are more exposed to heat stress than most. But, he pointed out, large-scale studies suggest that far more people die in India as a consequence of “moderate cold” than from extreme heat.

Delhi’s temperature might stay above 40 degrees for weeks on end, with all the negative effects on public health and economic activity that entails; but would other Indians actually live longer if average temperatures rose? Do we have real evidence for the aggregate effect of higher temperatures on mortality in India and the rest of the developing world?

Bad data = bad policies