Working Paper

Climate Shocks in the Anthropocene Era: Should Net Domestic Product Be Affected by Climate Disasters

Abstract: The monetary costs of weather and climate disasters in the U.S. have grown rapidly from 1980 to 2022, rising more than 5 percent in real terms annually. Much of this real growth in costs is likely due to climate change. Regardless of its cause, these costs imply a faster depreciation of real assets. We argue that the expected depreciation from these events could be included in the consumption of fixed capital, leading to lower levels, and slightly lower growth rates, for net domestic product (NDP). We use Poisson pseudo-maximum-likelihood regressions to estimate this expectation and to generate our experimental measure of costs. An alternative calculation of depreciation and NDP might be derived from the time series of costs incurred rather than from the far smoother expectation. This latter series might be more appropriate for a national income satellite account. We also investigate the parametric distributions of the annual average-cost and total-cost data.

Keywords: Climate Change; Anthropocene; Depreciation; National Accounts; Disasters;

JEL Classification: Q54; Q56; C82;

https://doi.org/10.21799/frbp.wp.2023.24

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2023-10-30

Number: 23-24