Technical Note 1: Is Claude A Better Economist Than I Am?

Only one temperature variable matters

Only One Temperature Variable Matters

To produce their estimates of economic damage resulting from climate change, the authors simulate the model’s estimation results using two standard climate scenarios, RCP 2.6 and RCP 8.5. RCP 2.6 and RCP 8.5 project the ten temperature and precipitation variables to 2100. Using those scenarios, the authors calculate the median loss in global real income to 2100 under the two climate scenarios. As we see, the real economic damage is in the 19% range for RCP 2.6 and RCP 8.5.

Under RCP 8.5, a climate scenario in which greenhouse gas emissions increase without any mitigation measures, loss in global real income is a whopping 60% by 2100.

Looking at their estimates it appeared that one temperature variable dominated. I therefore zeroed out the coefficients of all the other variables, only keeping the one temperature variable, and re-simulated their model, using their python code. The chart below shows that only one variable in the model actually matters, producing almost all the losses.

Economists make the distinction between statistical significance and economic significance. The chart above shows that even if the omitted temperature and precipitation climate variables are statistically significant (in fact most aren’t), they are not economically significant.