The principal argument against taking strong action to curtail the greenhouse gas emissions that cause climate change has long been that it will be economically costly. By putting a price on carbon, goes the logic, people will spend more for gas, more for home heating -- more for many things in the economy, given the dominance of fossil energy in our lives.
A new study just released by the National Bureau for Economic Research, however, now turns this argument completely on its head -- arguing that it is warmer temperatures that may be the real economic cost.
The paper, by Tatyana Deryugina of the University of Illinois-Urbana Champaign and Solomon Hsiang of the University of California, Berkeley, shows a fairly dramatic negative influence of heat on economic productivity. In particular, they find that, for every 1.8 degrees Fahrenheit (1 degree C) that a given day's 24 hour average temperature exceeds 59 degrees, economic productivity declines by 1.7 percent. And for a single very hot day -- warmer than 86 degrees F -- per capita income goes down by $ 20.56, or 28 percent.
The paper is penned in part as a riposte to those who have long assumed that in the United States, our economy is so advanced -- and we're so insulated by things like air conditioning -- that a mere hot day can't throw off the workforce. "Contrary to this notion that the environment does not matter, we see that economic activity at the county level responds fairly strongly to what temperatures are doing on a day to day basis," says Berkeley's Hsiang.
To show as much, Deryugina and Hsiang took average temperatures, county-by-county across the 48 continental United States, for over 40 years (from 1969 through 2011). Then they compared them with data on personal income from these counties. Strikingly, they found that heat takes a strong toll on weekdays, but no toll on weekends:
This, of course, strongly suggests that warm temperatures are interfering with people's ability to work. In fact, the paper argues that they take their economic toll in two ways: First (and most obviously) by hurting the agricultural economy, and second, by slashing the productivity of sectors that require outdoor labor -- which, the paper says, includes manufacturing.
The agricultural effect is, not surprisingly, the larger of the two factors. But the paper also highlights the "well-documented productivity decreases of workers who are exposed to thermal stress." According to Hsiang, on hot days, people working outdoors tend to work as much as an hour less. He also points to research suggesting that in warmer temperatures, workers make more mistakes.
It's important to acknowledge that extreme cold can also hamper economic productivity -- the January 2014 "polar vortex" is widely considered to have slowed the economy. Moreover, the paper notes, a warming climate may actually increase productivity in some (cold) places, because they will enjoy more days of the year that fall within an optimal temperature range, from a productivity standpoint. "The days that used to be cold become moderate, and so they have increasing productivity," says Hsiang.
On balance, though, the paper finds that a global warming trend should hurt productivity, estimating that in a business-as-usual scenario without strong action to curtail warming, income growth should take a .12 percent hit each year. That may not sound like much, but it's 1 percent every 8 years or so. "If you change the growth rate, those effects add up, year over year," says Hsiang.
And of course, this doesn't take into account any of the other ways in which climate change incurs economic costs -- say, by worsening disasters, or by driving sea level rise, requiring costly adaptation. A recent report from the United Nations Environment Programme found that by 2050, the costs of adapting to climate change for developing countries could rise to $ 250-$500 billion -- not in total, but annually. And that's even if the nations of the world manage to keep global warming below the "dangerous" threshold of 2 degrees Celsius.
Maybe a transition to a less carbon intensive economy isn't ultimately so costly after all.