# 1. Introduction

Estimates of the economic cost of climate change have attracted interest from policy makers and the public and generated heated debates. These estimates, however, have mostly been framed in terms of the impact on country‐level or global GDP, which does not capture the full impact of climate change on people’s well‐being.

In particular, climate change impacts will be highly heterogeneous within countries. If impacts mostly affect low‐income people, welfare consequences will be much larger than if the burden is borne by those with a higher income. Poor people have fewer resources to fall back upon and lower adaptive capacity. And – because their assets and income represent such a small share of national wealth – poor people’s losses, even if dramatic, are largely invisible in aggregate economic statistics.

Investigating the impact of climate change on poverty requires an approach that focuses on people that play a minor role in aggregate economic figures and are often living within the margins of basic subsistence. Macroeconomic models such as Computable General Equilibrium models alone cannot assess the impact on poverty, and a micro‐economic approach that explicitly represents the livelihoods of poor people is required. Fortunately, micro‐simulation techniques (Olivieri et al. 2014; Bussolo, De Hoyos, et al. 2008; Bourguignon, Ferreira, and Lustig 2005) and the generalization of household surveys now make it possible to look at this issue. Innovative steps in this direction have been made recently, combining aggregate impact estimates with household‐level data or using specific models (Hertel and Rosch 2010; Hertel, Burke, and Lobell 2010; Ahmed, Diffenbaugh, and Hertel 2009; Gupta 2014; Jacoby, Rabassa, and Skoufias 2014; Skoufias, Rabassa, and Olivieri 2011; Devarajan et al. 2013; Bussolo, de Hoyos, et al. 2008). Most of these analyses investigate the effect of climate change on poverty through agriculture production.

Assessing the impact of climate change on poverty remains however a daunting task. In particular, the speed and direction of future socioeconomic changes will determine the future impacts of climate change on poor people and on poverty rates as much as climate change itself (Hallegatte, Przyluski, and Vogt‐ Schilb 2011). It is not hard to imagine that, in a world where everyone has access to water and sanitation, the impacts of climate change on water‐borne diseases will be smaller than in a world where uncontrolled urbanization has led to widespread underserved settlements located in flood zones. Similarly, in a country whose workers mostly work outside or without air conditioning, the impact of temperature increase on labor productivity will be stronger than in an industrialized economy. And a poorer household will have a larger share of its consumption dedicated to food and will therefore be more vulnerable to climate‐related food price fluctuations than a richer household.

Assessing the future impacts of climate change therefore requires an exploration of future socioeconomic development pathways, in addition to future changes in climate and environmental conditions.

First, we assume that there is no climate change, and we explore possible counterfactual scenarios of future development and poverty eradication. Second, we introduce climate change into the picture and look at how it changes the prospect for poverty eradication.

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