Macroeconomic Implications of Climate Change
Paper Session
Saturday, Jan. 6, 2024 10:15 AM - 12:15 PM (CST)
- Chair: Adrien Bilal, Harvard University
Climate Hazards and Resilience in the Global Car Industry
Abstract
Climate change will increase the frequency and severity of natural disasters. I study the impact of an increase in the likelihood of weather-related disruptions on the spatial organization of firms. Using data on the global car industry and an event-study design, I document that the occurrence of a flood close to an assembly plant significantly reduces car production, which is partially reallocated to other unaffected plants of the same firm. I develop a novel quantitative multiregion model in which firms choose the location and capacity of their production plants to maximize expected profits under uncertainty about potential weather disruptions. In the model, firms have incentives to invest in production capacity in multiple locations to hedge against potential production disruptions in one of their plants. I estimate the model for the global automotive industry and use it to compute plant locations and capacity choices under different probabilities of weather disruptions according to possible climate change scenarios. In response to the heightened risk, I show that firms build additional plants, but these sites are smaller and operate with a larger spare capacity. The spatial reorganization of the firms’ plants is costly as it entails sizable productivity losses, resulting in higher consumer prices.Clean Growth
Abstract
We provide a spatial theory of clean growth to assess the global impact of the rise of renewable energy. We model the details of the combined production and transmission network of elec- tricity (“the grid”) that determine the supply and losses of energy in space. The local rate of clean energy adoption depends on learning-by-doing, the global electricity and trade network, and regional comparative advantage in renewable resources. To quantify the contribution of renewable adoption to global growth, we collect and harmonize global data on transmission lines, power stations, trade, and regional output. We use the model to measure the aggregate and spatial implications of clean growth, as well as the role of the Inflation Reduction Act in affecting the transition.The Macroeconomic Effects of Climate Policy Uncertainty
Abstract
Recent years have seen a lot of uncertainty about the future path of climate policy. How does this uncertainty affect the economy and the environment? In this paper, we construct a new measure of climate policy uncertainty based on newspaper coverage. Our index spikes near important events related to climate policy, such as major developments in emissions legislation, President’s statements about climate policy or global strikes about climate change, among other developments. We find that climate policy uncertainty has significant macroeconomic effects: increased uncertainty leads to a significant fall in industrial production and thus emissions and an increase in unemployment. Importantly, it also causes an increase in commodity and consumer prices. Thus, climate policy uncertainty shocks transmit to the economy as supply shocks. This stands in stark contrast to other uncertainty shocks, which have been found to propagate as aggregate demand shocks.JEL Classifications
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
- Q5 - Environmental Economics