Global Economic Impacts of Physical Climate Risks

IMF Working Papers, September 8, 2023

Source details

Title: Global Economic Impacts of Physical Climate Risks
Authors: Caterina Lepore, Roshen Fernando
Publication date: September 8, 2023
Core conclusion: "in the absence of additional adaptation relative to that already achieved by 2020, all the economies would experience substantial losses under the two climate scenarios and the losses would increase with global warming."

Scenarios analyzed:
- SSP 1-2.6
- SSP 2-4.5
Three-step approach:
- Estimate historical sectoral productivity changes from chronic climate risks (gradual changes in temperature and precipitation) and extreme climate conditions (representative of heatwaves, coldwaves, droughts, and floods).
- Produce forward-looking sectoral productivity changes for a global multisectoral sample of firms; for floods, estimates account for the persistent productivity changes from the damage to firms’ physical capital.
- Assess macroeconomic impacts within the global, multisectoral, intertemporal general equilibrium model: G-Cubed.

Historical and forward-looking sectoral productivity changes are estimated using firm-level evidence.
Flood impacts explicitly incorporate persistent productivity changes due to damage to firms’ physical capital.
Under both SSP 1-2.6 and SSP 2-4.5, and absent additional adaptation beyond 2020, all economies face substantial losses.
Losses increase with global warming.

Results are intended to be useful for policymakers and practitioners interested in conducting climate risk analysis.
Emphasis on the importance of adaptation beyond the baseline of adaptation already achieved by 2020 to mitigate projected losses.