Ishan Nath

This paper combines local temperature treatment effects with a quantitative macroeconomic model to assess the potential for global reallocation between agricultural and non-agricultural production to reduce the costs of climate change. First, I use firm-level panel data from a wide range of countries to show that extreme heat reduces productivity less in manufacturing and services than in agriculture, implying that hot countries could achieve large potential gains through adapting to global warming by shifting labor toward manufacturing and increasing imports of food. To investigate the likelihood that such gains will be realized, I embed the estimated productivity effects in a model of sectoral specialization and trade covering 158 countries. Simulations suggest that climate change does little to alter the geography of agricultural production, however, as high trade barriers in developing countries temper the influence of shifting comparative advantage. Instead, climate change accentuates the existing pattern, known as “the food problem,” in which poor countries specialize heavily in relatively low productivity agricultural sectors to meet subsistence consumer needs. The productivity effects of global warming reduce welfare by 5-8% for the poorest quartile of the world with trade barriers held at current levels, but by over 40% less in an alternative policy counterfactual that moves low-income countries to OECD levels of trade openness.

We formulate a two-country model of trade and creative destruction by domestic and foreign firms. In the model, trade liberalization quickens the pace of creative destruction and facilitates the flow of technology across countries. The resulting dynamic gains from idea flows are at least as large as the static gains from trade. In our model, such international idea flows are essential for understanding why country technologies do not drift apart, and for matching two properties of export dynamics. First, contracting firms are more likely to lose exports than domestic sales, whereas expanding firms are more likely to gain domestic sales than to gain exports. Exports are vulnerable to foreign as well as domestic creative destruction, whereas domestic sales are comparatively insulated from foreign creative destruction by trade barriers. Second, the product composition of a country’s exports exhibits ample turnover. This is consistent with our model, in which a country’s comparative advantage is constantly shifting due to global creative destruction.

The most prevalent and perhaps most popular climate policies in the U.S. are Renewable Portfolio Standards (RPS) that mandate that renewable sources, such as wind and solar, produce a specified share of electricity, yet little is known about their efficiency. Using a comprehensive data set and a difference-in-differences style research design, we find that electricity prices are 11% higher seven years after RPS passage and carbon emissions are 10-25% lower. Point estimates suggest that the cost per ton of CO2 abatement ranges from $60-$300, though these estimates do not account for possible future cost reductions due to RPS-induced
technological progress.

We formulate a two-country model of trade and creative destruction by domestic and foreign firms. In the model, trade liberalization quickens the pace of creative destruction and the flow of technology across countries. International idea flows are essential for understanding why country technologies do not drift apart and for matching two empirical facts. First, contracting firms are more likely to lose exports than domestic sales, whereas the opposite is true for expanding firms. Second, the product composition of a country’s exports exhibits ample turnover. In our model, a country’s comparative advantage is constantly shifting due to global creative destruction.

Using 40 countries’ subnational data, we estimate age-specific mortality-temperature relationships and extrapolate them to countries without data today and into a future with climate change. We uncover a U-shaped relationship where extre6me cold and hot temperatures increase mortality rates, especially for the elderly. Critically, this relationship is flattened by higher incomes and adaptation to local climate. Using a revealed-preference approach to recover unobserved adaptation costs, we estimate that the mean global increase in mortality risk due to climate change, accounting for adaptation benefits and costs, is valued at roughly 3.2% of global GDP in 2100 under a high-emissions scenario. Notably, today’s cold locations are projected to benefit, while today’s poor and hot locations have large projected damages. Finally, our central estimates indicate that the release of an additional ton of CO2 today will cause mortality-related damages of $36.6 under a high-emissions scenario, with an interquartile range accounting for both econometric and climate uncertainty of [−$7.8, $73.0]. These empirically grounded estimates exceed the previous literature’s estimates by an order of magnitude.

A national Clean Electricity Standard that is flexible, technology neutral, and linked to carbon reduction policies in other sectors could go a long way in decarbonizing the power sector. Policymakers could maximize the benefit of this approach by making the standard flexible and technology neutral, linking it to carbon reduction policies in other sectors, and pairing it with complementary policies that facilitate grid integration and directly support technological innovation.