Beware of exaggerated claims of climate harm
Exaggerated claims about the harms of global warming are the stock-in-trade not only of the Trudeau government and publicly-funded climate institutes in Canada, but of many others in various quarters. In a recent Econ Journal Watch article, David Barker, a former University of Chicago professor and former Federal Reserve Bank of New York economist, said “at least a few economists at the Federal Reserve seem bent on showing that climate change will hurt economic growth.” But their research—or at least some of it—is flawed.
Barker’s article rebuts a paper by economist Michael T. Kiley, published by the Board of Governors of the Federal Reserve in 2021, which claims “the effects of temperature on downside risks to economic growth are large and robust.” Kiley’s paper was widely cited, but as Barker writes, Kiley’s primary result—“that the effect of temperature is larger when growth is low than when it is high”—is actually statistically insignificant.
Writing in the Wall Street Journal, Barker identified a significant problem with Kiley’s research: “Each country in the sample had equal weight in the analysis. China had the same weight as St. Vincent though China’s population is 13,000 times as large.” So flimsy were Kiley’s results that they disappeared when Rwanda, Equatorial Guinea and similar countries accounting for less than 1 per cent of global GDP were omitted. “Kiley’s analysis,” Barker concluded, “demonstrates nothing about the effect of climate change on economic growth.”
Barker’s latest Econ Journal Watch article followed one published last year, which commented on a study first published in 2018 by the Federal Reserve Bank of Richmond. Like the Kiley study, it purported to show rising temperatures significantly reduce economic growth. But Barker found the study’s result “comes from using an extreme estimate of warming multiplied by a statistically insignificant coefficient that changes sign when estimated with a different source of data.” So the study result was meaningless.
To be fair, many studies do find global warming will reduce GDP. However, claims of very severe economic harm, as in Kiley’s study whose results “suggest the growth at risk from climate change is large” and the CHP study, which suggested “rising temperatures could reduce U.S. economic growth by up to one-third over the next century,” are not supported by research. In fact, the mainstream science suggests the economic harms of climate change are modest, even in the very long term.
Best estimates are that climate change will reduce GDP by a low- to mid-single digit percentage by 2100, even using pessimistic assumptions. Yet it’s by no means assured that climate change’s effects on economic growth are or will be negative at all. New data are always becoming available, and econometric modelling requires a great deal of art in addition to science, so that even reanalysis of existing data may yield very different results.
There is, in fact, good evidence showing the effect of climate change on economic growth will likely be insignificant and may even be positive. And there’s significant variation in the effect of climate change across regions. Countries with cold climates, such as Canada, stand to benefit economically from higher temperatures, at least in the short term. These are important facts to keep in mind whenever politicians, activists or academics claim that climate change has severe and immediate negative economic effects.