While modeling efforts have historically focused on the fiscal impacts of climate policies, a nascent literature is developing methods to quantify the fiscal impacts of physical climate change.
This is being done by combining established regression methods with downscaled climate models or by integrating climate change into quantitative methods. Emerging estimates indicate the fiscal costs are large, and the climate change impacts thus larger than expected; yet, even these are underestimated due to omitted impact channels.
Key Messages
- The earlier literature uses established regression methods to empirically quantify the impacts of extreme weather events or risks on fiscal outcomes and combines them with downscaled climate models to evaluate changes in fiscal outcomes due to climate change.
- The more recent literature integrates climate change into quantitative methods such as sovereign default models or macroeconomic public finance models to project associated fiscal and welfare costs.
- Estimates of climate change impacts using the latter methods indicate that damages from climate change are 23–33% higher than estimates from prior studies. Even so, these new figures are also underestimated as, for instance, wildfire impacts on healthcare costs are not included.
Keywords
damagesempirical methodsfiscal impactsmodelsphysical risk