“Climate change is the question of who owns the rights to this multitrillion-dollar asset, the atmosphere,” he says. “If we assign those rights, there are huge implications. And if we don’t, there are huge implications.”
Many people have long been skeptical of climate change “for reasonable reasons,” Hsiang acknowledges. It’s hard to grasp, he says, that the world economy could be so energy-intensive as to raise the temperature of the very air and oceans around us. But now the data prove it.
It’s important to consider the matter in economic terms and not just scientific or philosophical terms, Hsiang argues. That’s because climate change grows out of economic activity, and managing it will involve economic trade-offs. In 2019, he testified before Congress that the direct thermal effects of warming over the next 80 years could reduce American incomes by $4.7 trillion to $10.4 trillion. The combined effects of climate change on agriculture, energy, labor, health, crime, and coastal communities could cost the United States 1.2 percent of gross domestic product for each 1ºC increase in temperature, he said, while overall death rates, suicides, sexual assaults, murders, and birth-related harm would all rise significantly.
At the same time, the economist rejects the urge of some environmental advocates to throw everything possible at the problem. Some critics fault his research for generating cost and benefit estimates that don’t seem catastrophic enough, he says.
“We can’t pretend that climate change is our only economic problem,” Hsiang says. The stakes in mitigating and adapting to climate change are so high that “if we make a mistake, the amount of misallocation of resources could be astronomical,” he says. “We shouldn’t overspend on climate change.”
Consequently, Hsiang and collaborators have focused on calculating the social cost of carbon, or the comprehensive future impact on the world of each additional ton of carbon dioxide emitted into the atmosphere. Carbon dioxide is the main greenhouse gas responsible for climate change, and much of it comes from the burning of fossil fuels. The world spews more than 30 billion tons of it into the atmosphere every year, according to the International Energy Agency. And the CO2 will stay there for 1,000 years.
“The social cost of carbon is one of the most important economic numbers we don’t know,” Hsiang says. “It will play a huge role in making decisions. If we knew what it was, we could put a value on our atmosphere as an asset” and decide on policies for addressing climate change. The Biden administration has made it a priority to update the US government’s estimate. In 2010, the Obama administration put it at $51 a ton. The Trump administration cut that to $7. The case can be made that the figure should be at least $125, according to the University of California Santa Barbara’s Tamma Carleton, one of Hsiang’s former students, and the University of Chicago’s Greenstone.
In the 2015 book Economic Risks of Climate Change: An American Prospectus, Hsiang and 11 co-authors made the first comprehensive assessment of the economic risks of climate change for the United States. Out of that effort grew the Climate Impact Lab, a six-year-old research consortium led by Hsiang, Greenstone, Rutgers climate scientist Robert Kopp, and Trevor Houser, a partner in the research organization Rhodium Group.
The lab deploys more than 30 researchers at Berkeley, the University of Chicago, and Rutgers, many of them graduate students, and relies on Rhodium Group’s computing power. The team includes economists, climate change scientists, data engineers, and risk analysts.
“It’s a recognition of the scale of the problem that you need a lot of human resources,” Hsiang says. The Climate Impact Lab uses climate and economic data on a local level to document how climate change affects society, from droughts in California to mortality in India to labor productivity in China. Even though the Trump administration downplayed the issue at the federal level, the lab’s granular data helped American states and cities decide where factories could be safely built and how to plan for hurricanes, according to Carleton, who was the lab’s first graduate student employee.
Hsiang projects that the Climate Impact Lab will publish the initial version of its calculation of the global cost of carbon within a year. But that won’t be the end of the work, he says.
“We need more economists working on this problem,” Hsiang says. At the request of the editors of several academic journals, Hsiang and collaborators produced a four-part tutorial on climate change for economists. “We’re trying to document our new methods for others,” he says.
“We’re all supposed to produce science,” says Maximilian Auffhammer, an environmental economist at Berkeley. “The great ones also produce other scientists, and Sol has already trained a bunch of really impressive students.”
Of course, Hsiang has detractors. The University of Sussex’s Richard Tol, the creator of the widely used FUND model for estimating climate change’s economic effects, has been a frequent critic.
“My main issue is that he uses weather shocks to study climate change,” Tol says. “Weather shocks are unexpected. Climate change is slow and predictable. As a result, he overstates the impacts.”
