Is $201 Less Income Growth Each Year a Global Warming Catastrophe?
A new National Bureau of Economic Research study estimating the economic impact of global warming has generated scary headlines. A closer look at the study shows that it instead belongs in footnotes.
The NBER study estimates that if the earth’s temperature rises by 0.01° C per year through 2100, total U.S. GDP in 2100 will be 1.88 percent lower than it would otherwise be by the end of this century.
The starting point to understand the insignificance of NBER’s conclusions is Federal Reserve data showing that 2018 U.S. average annual income (i.e., per capita GDP) was $54,420. The next step is the 2019 Congressional Budget Office projection that real long-term potential labor force productivity growth – essentially the long-term real annual income growth rate – is 1.3 percent.
With 1.3 percent growth per year for the 80 years until the end of the century, average annual income will rise by 181 percent to $152,920 in 2100. If NBER’s estimate is correct and GDP growth in 2100 is 1.88 percent in total less than it would otherwise be, average income in 2100 will be $150,045.
The difference between $152,920 and $150,045 is minor, but it nevertheless likely overstates how much global warming might reduce GDP growth. NASA’s data set for global temperatures goes back to 1880 and shows that since that year, the earth’s temperature has risen by only 1.01° C (peaking in 2016, falling in 2017, and falling more in 2018). That’s only 0.007° C per year. This means that the NBER estimate is based on an assumption that the temperature will rise about 50 percent more per year than it actually has since 1880.
And then there’s the NBER study’s real headline-grabbing estimate: if the earth’s temperature rises by 0.04° C per year through 2100, total U.S. GDP will be 10.52 percent lower in 2100 than it would otherwise be.
A 0.04° C per year increase has no connection to NASA’s actual temperature data. A 0.04° C per year increase is almost six times the 0.007° C actual average increase since 1880. It would be generous to describe the 0.04° C per year annual increase projection as speculative and highly improbable.
Yet even if this fantasy scenario somehow turns out to be reality, it provides no reason for concern. With the same 1.3 percent growth per year through 2100, average annual income in 2100 in this scenario will be $136,833.
If this number isn’t enough of a yawner, consider this: on an incremental, year-to-year basis, this supposed doomsday scenario means that income growth will average just $201 less each year.
This isn’t even close to the right order of magnitude to scare anybody. Most Americans indeed would be thrilled if average income reaches $136,833.
To put it another way, is $201 less income growth each year a global catastrophe that must be averted by draconian changes to the world’s economy?