Working Paper

Climate Shocks in the Anthropocene Era: Should Net Domestic Product Reflect Climate Disasters?

Abstract: The asset costs of natural disasters in the United States grew rapidly from 1980 to 2023, with the trend rising 4.9 percent annually in real terms to $90 billion in 2023. Much of this trend in costs is likely due to climate change and, as a loss of assets, implies a faster depreciation of real assets. We argue that the expected depreciation from these events should be included in Consumption of Fixed Capital (CFC), leading to lower levels and slightly lower growth rates for Net Domestic Product (NDP) and Net Domestic Investment. We use Poisson pseudo-maximum-likelihood regressions to estimate this expectation and generate our experimental measure of costs. An alternative calculation of CFC and NDP might directly include the time series of costs incurred rather than the far smoother expectation; this was the procedure adopted before 2009 and resulted in abrupt changes in NDP

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

JEL Classification: Q54; Q56; C82;

https://doi.org/10.21799/frbp.wp.2025.01

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2025-01-07

Number: 25-01