Climate Convexity: The Inequality of a Warming World

In the past two centuries, global fossil fuel combustion has increased carbon dioxide concentration to unprecedented levels, which has increased Earth’s temperatures and the frequency of extreme climate events. If left unaddressed, the climate crisis will not only become more costly to global health and to the global economy, but also will exacerbate inequality within the U.S. and around the world. In a chapter for Securing Our Economic Future: Policies to Strengthen the Middle Class and Address Climate Change, a policy volume from the Aspen Institute’s Economic Strategy Group, Rhodium partner Trevor Houser describes recent changes in the climate and how scientists predict those changes will evolve in the years ahead. The chapter then describes recent advances in econometric research that, when paired with high-resolution climate models, help us understand the impact of those changes in the climate on society. Finally, the chapter concludes with recommendations for how U.S. policymakers can use this research to address the unequal threat of climate change, both domestically and internationally, and build a more just and sustainable future.

Recent research advances at the intersection of climate science and economics make it clear that the cost of inaction on climate change in the United States is not only greater than the cost of action, but that inaction exacerbates income inequality within the United States and around the world. From more frequent heatwaves and wildfires to more destructive hurricanes, an increasingly unstable global climate is already taking a toll on human health and prosperity, and disproportionately impacting the poor. How exposed humans are to future changes will be determined by the actions policymakers take today. Using new research and data, policymakers can counteract the inequality of a warming world.

How did we get here? For the past 12,000 years, a period referred to by geologists as the Holocene, our climate has been the most stable and suitable for human development at any point in Earth’s four billion year history. While the first Homo sapiens appeared more than 300,000 years ago in Africa, our early ancestors struggled to thrive through three glacial periods, where ice covered much of North America and Northern Europe. It wasn’t until Earth emerged from this last glacial cycle into relatively prolonged stability that humans could move from hunting and gathering to farming. In turn, agricultural production gave rise to early human civilizations in the Fertile Crescent, Ancient India, Ancient China, and Mesoamerica. Continued climate stability has enabled human civilization to undergo dramatic expansion in size, geographic breadth, technological sophistication, and cultural richness, giving us the world we know today.

Measured in economic terms, most human development experienced over the past 12,000 years has occurred in just the last two centuries. Between 0 and 1000 AD, the global economy expanded by only 0.1 percent per decade on average, and per capita GDP declined. Between 1000 and 1820, GDP growth accelerated to 1.8 percent per decade. Over the past 200 years, however, the global economy has grown by almost 30 percent per decade on average. Fossil fuels powered that growth, from coal-fired steel mills and power plants to oil-fueled trains, planes, and automobiles. Carbon dioxide (CO2) emissions from fossil fuel combustion have grown even faster than economic output overall—39 percent per decade, on average, over the past 200 years (Figure 1). This emissions growth is now threatening the very stability in the Earth’s climate that made the past 200 years of economic development possible.

Figure 1

For the past million years, atmospheric concentrations of carbon dioxide have ranged from 170 to 300 parts per million (ppm), following the Earth’s orbit-forced transitions through 100,000 year glacial cycles (Figure 2). For most of the past 12,000 years, atmospheric carbon dioxide concentrations have remained in a tight, comfortable range of 260 to 285 ppm. But fossil fuel combustion over the past two centuries has pushed concentrations above 410 ppm. The last time they were at this level was likely more than three million years ago (Seki et al. 2010).

This rapid growth in carbon dioxide concentrations has already significantly impacted the Earth’s climate, both its average temperatures and the frequency and severity of extreme events. The scientific community has studied the relationship between fossil fuel combustion and global climate change for 125 years, and developed increasingly sophisticated climate models to forecast how these changes will unfold in the future under different emissions scenarios. But our understanding of the impact of these changes on society has lagged considerably. Economists only started studying climate change in earnest in the early 1990s. Until recently only a few models existed, each with little empirical basis or geographic detail. A recent explosion of econometric research, mapping climate’s relationship to society, is changing that. When paired with high-resolution climate models, this research provides, for the first time, evidence-based estimates of the impact of climate change at a hyper-local level.

Figure 2

While this econometric research is still in its early stages, one core insight is abundantly clear: Climate change’s impact, whether on economic output or human health, will be extremely varied from place to place. The poor, both within countries and across countries, suffer more than the rich. This insight comes as policymakers grapple with inequality in economic and health outcomes from a pandemic-driven global recession. Recent findings from climate econometrics suggest that if humanity does not address climate change in the next few decades, it will likely drive more devastation and deeper inequality than the current global crisis.

And unlike the current crisis, the inequality of climate change extends to the cause as well as the effect. The carbon dioxide emissions heating the Earth today were emitted over the past two centuries, tied to economic activity that was not evenly distributed around the world. More than half of all global economic output over the past 170 years, and two thirds of all carbon dioxide emissions, have come from countries currently in the top 20 percent of the global income distribution on a per capita GDP basis. These countries are far less vulnerable to the impacts of climate change than the other 80 percent. This is due in large part to their current climate and the convex relationship between temperature and most economic and social outcomes. The climate in rich countries is, on average, colder than in poor countries, and a growing body of climate econometric research shows that a given increase in temperature is much worse for places that are already hot. Compounding this effect is the protective nature of past income growth in richer countries to climate change, made possible by fossil fuel combustion. This inequality exists within national borders as well. Wealthier citizens emit more carbon dioxide and are more protected from the changes in the climate those emissions create, due both to geography and being affluent enough to adapt.

This chapter starts with a description of recent changes in the climate and how scientists predict those changes will evolve in the years ahead. It then describes recent advances in econometric research that, when paired with high-resolution climate models, help us understand the impact of those changes in the climate on society. The chapter concludes with recommendations for how U.S. policymakers can use this research to address the unequal threat of climate change, both domestically and internationally, and build a more just and sustainable future.

Read the ChapterRead the Chapter Related Work: Calculating the Climate Reciprocity Ratio for the USRelated Work: Calculating the Climate Reciprocity Ratio for the US

Broken Abacus? A More Accurate Gauge of China’s Economy

A series of reform obstacles in China over the past year, including the deflation of the equity market bubble that began in June 2015, have revealed limits in Beijing’s ability to direct economic activity and deliver the historic headline growth of the past several decades. This “New Normal” has increasing relevance to investors and governments around the world. Leaders and business decision makers abroad must make judgments about China’s changing growth model and the even more fundamental question: just how believable is the underlying base of economic activity? Is China really the $10 trillion share of global economic output it claims to be?

In Broken Abacus? A More Accurate Gauge of China’s Economy, Daniel H. Rosen and Beibei Bao independently re-estimate China’s economy in terms of nominal GDP. To produce a result that could be compared with official Chinese figures, they relied on official data when it made sense to do so, while diligently documenting their methodology for future researchers. Die-hard national accounting specialists and macroeconomists will find a multitude of quantitative and qualitative findings in the full study, but the text is readable for experts and general China-interested readers alike. This path breaking study sets the stage for future China analysis where the absolutely size of the Chinese economy, not just the year-on-year change, will be of increasing interest and discussion.

Report Release Event at CSIS (Webcast).

Occasional CSIS Paper with summary of findings [PDF]

Purchase the full book here.

Economic Risks of Climate Change: An American Prospectus

Climate change threatens the economy of the United States in myriad ways, including increased flooding and storm damage, altered crop yields, lost labor productivity, higher crime, reshaped public-health patterns, and strained energy systems, among many other effects. Combining the latest climate models, state-of-the-art econometric research on human responses to climate, and cutting-edge private-sector risk-assessment tools, Economic Risks of Climate Change: An American Prospectus crafts a game-changing profile of the economic risks of climate change in the United States.

This prospectus is based on a critically acclaimed independent assessment of the economic risks posed by climate change commissioned by the Risky Business Project. With new contributions from Karen Fisher-Vanden, Michael Greenstone, Geoffrey Heal, Michael Oppenheimer, and Nicholas Stern and Bob Ward, as well as a foreword from Risky Business cochairs Michael Bloomberg, Henry Paulson, and Thomas Steyer, the book speaks to scientists, researchers, scholars, activists, and policy makers. It depicts the distribution of escalating climate-change risk across the country and assesses its effects on aspects of the economy as varied as hurricane damages and violent crime. Beautifully illustrated and accessibly written, this book is an essential tool for helping businesses and governments prepare for the future.

Learn more at

Fueling Up: The Economic Implications of America’s Oil & Gas Boom

Fueling UpNew drilling techniques for oil and natural gas are propelling an energy production renaissance in the United States. As the US economy struggles to emerge from the Great Recession, many see the boom as a possible source of economic salvation that could reduce unemployment and revitalize American manufacturing. Until now, however, there has been little objective analysis of the energy boom’s economic consequences. In this major study, Trevor Houser and Shashank Mohan fill that gap. They assess the impact of the recent and projected increase in domestic energy production on US GDP, employment growth, manufacturing competitiveness, household expenditures, and international trade balance. Alongside its economic impact, the American energy revolution is raising new environmental and trade policy questions. What are the consequences for the environment and global warming of increased domestic oil and gas production? Should companies be allowed to export the energy they produce or will doing so undermine American manufacturing competitiveness? Houser and Mohan provide independent research and analysis that will help policymakers navigate these issues.

Watch a live webcast of the January 8 release event at the Peterson Institute for International Economics here.

Roots of Competitiveness: China’s Evolving Agriculture Interests

Daniel Rosen, Scott Rozelle and Jikun Huang are co-authors of this book on Chinese competitiveness in agriculture, released by the Peterson Institute.

It is a cliché that China is the world’s manufactured goods factory, but most observers are just as certain that China’s farmers are a serious burden on growth. Yet China in fact has the makings of an internationally competitive agricultural sector, with the market setting most prices, farmers shifting quickly toward what they produce best, and significant research and development focused on biotechnology and other promising areas. China’s trade interests are changing as its farmers become more competitive, and this transformation will have major implications for world trade talks and global economic welfare. This study traces the steps China has taken to make agriculture a winning sector, the evidence that its initiatives are working, and the course the country is likely to take.

Behind the Open Door: Foreign Enterprises in the Chinese Marketplace

This study describes the experiences of foreign-invested firms in the mainland Chinese economy and discusses the implications of those experiences for the foreign commercial policies of the industrial countries, including the United States. It draws on extensive interviews with expatriate managers and other professionals currently at work in China.

Whereas recent books on Chinese marketplace conditions focus on a single firm or issue or lack a discussion of policy conclusions (because they are prepared for a commercial audience), this study is distinguished by the breadth of industry interviews and its concern for policy implications. Rosen makes a rare attempt to deduce the policy implications of current experiences of foreign firms in China, presenting conclusions that go beyond those found in today’s usual policy debate.

Behind the Open Door is a must for China specialists and should be read by anyone with general or business interests in China or the Asia-Pacific region. The book is an ideal text for MBA programs that focus on the region, and for political science and Asian studies courses on China.

Transforming the European Economy

Europe grew rapidly for many years, but now, faced with greater challenges, several of the large economies in Europe have either failed to generate enough jobs or failed to achieve the highest levels of productivity, or both. This study explores why Europe’s growth slowed, what contribution information technology makes to growth, and what policies could facilitate economic transformation. It emphasizes a system with strong work incentives and a high level of competitive intensity. Europe doesn’t need to eliminate its protections for individuals, the authors conclude, but both social programs and policies toward business must be reoriented so that they encourage economic change.

The Accelerating Decline in America’s High-Skilled Workforce: Implications for Immigration Policy

Kirkegaard explores the increasingly dysfunctional state of present US high-skilled immigration laws and recommends a coherent set of immediate reforms, which should aim to facilitate continuously high and increasingly economically necessary levels of high-skilled immigration to the United States. In recent decades American skill levels have stagnated and struggled to make the global top 10. As baby boomers retire, the United States risks losing these skills altogether. In response, the United States should address high-skilled immigration in its broader foreign economic policies in an attempt to remain a global leader in the face of accelerating global economic integration.

US Pension Reform: Lessons from Other Countries

It is generally accepted that Social Security must be reformed, but there is little agreement on how exactly this should be done. US Pension Reform: Lessons from Other Countries looks at the social pension reforms of twelve countries, assesses the current US Social Security program, and evaluates how these twelve models inform opportunities for adaptation of the current system. Authors Jacob Funk Kirkegaard and Martin Neil Baily consider governments’ current fiscal balances in order to contextualize countries’ initial financial liabilities and pension program infrastructure.

The book concludes with an integrated reform proposal for Social Security. These prescriptions suggest concrete plans to address issues such as underfunding, benefits for high-income participants and the elderly demographic segment, as well as the creation of an individual account program. This volume forges significant advances and boldly confronts the challenge of reconstructing the US Social Security program.

The Implications of China-Taiwan Economic Liberalization

China and Taiwan have built one of the most intertwined and important economic relationships in the world, and yet that relationship is not mutually open, compliant with World Trade Organization norms, or even fully institutionalized. What’s more, despite massive trade and investment flows, the boundary between the two is a serious flashpoint for potential conflict. But leaders in Beijing and Taipei have committed to normalize and deepen their economic intercourse and open a new post-Cold War era in their relationship. While the political significance of this gambit has captured attention worldwide, the scope of opening intended and the bilateral, regional, and global effects likely to ensue are as yet poorly understood. This volume attempts to remedy that uncertainty with careful modeling combined with a qualitative assessment of the implications of the cross-strait economic opening now agreed in an Economic Cooperation Framework Agreement (ECFA). The study explores the implications for Taiwan and China, for their neighbors, and for the United States if this undertaking is fully implemented by 2020.