Roadmap to assess the economic cost of climate change with an application to hurricanes in the United States

Abstract

This paper presents a methodological roadmap to assess macro-economic damages from climate change. To do so, it explores a single manifestation of climate change in a single location: an increase in hurricane intensity in the United States. The presentation starts from a global climate change, namely a homogenous 10 percent increase in hurricane potential intensity, and follows the causal chain to total macro-economic losses. First, the large-scale change is downscaled to a spatial scale pertinent to investigate socio-economic impacts. Here, the Emanuel hurricane model is used to estimate present and future local landfall probabilities. Second, a statistical analysis of historical landfalls is used to translate these probability changes into direct economic losses. The paper also discusses several adaptation strategies that could be implemented to limit these losses. Finally, a modified Input-Output model is used to investigate indirect losses due to macroeconomic mechanisms and feedbacks. This model translates the changes in direct losses into changes in total losses. The model suggests that total losses increase non-linearly, amplifying the role of the most extreme events. The paper then proposes adaptation strategies that can reduce indirect losses by improving the ability of the economy to reconstruct and deal with the consequences of disaster. © 2009 Springer-Verlag US.