It remains out of reach to include all possible impacts in such an analysis, so we considered only the channels through which climate change is most likely to affect poverty reduction. We focus on direct impact on poverty – e.g. through health – and do not focus on the impact of climate change on aggregate growth, at the macroeconomic level, and the secondary impact on poverty reduction. This is a limitation considering the evidence that aggregate growth is a major driver of poverty reduction (Dollar and Kraay 2002; Dollar, Kleineberg, and Kraay 2013). We do so because previous research suggests that the macroeconomic impact of climate change are likely to remain limited by 2030 (Arent et al. 2014; Stern 2006), and because we hypothesize that the main channel from climate change impact to poverty are the direct impacts, that are invisible in macroeconomic models (Hallegatte et al. 2014).

# 5.1. Sectoral impacts on households

In each country and for each of the two selected socioeconomic scenarios ( _prosperity_ and _poverty_ ) we introduce climate change impacts on food price and production, natural disasters, and health. In the projections of the 1.4 million households modeled in our scenarios (representing 1.2 billion households), we adjust the income and prices to reflect the impact of climate change on their ability to consume, and derive the impact on poverty.

Given that the sector‐level impacts are highly uncertain, we also define a _low‐impact_ and a _high‐impact_ scenario. These depend on the magnitude of the physical and biological impacts of climate change (which depend on the ability of ecosystems to adapt and on the responsiveness of physical systems such as glaciers and coastal zones) and on spontaneous adaptation in various sectors (such as adoption of new agricultural practices or improved hygiene habits). Note that with a 2030 horizon, impacts barely depend on emissions between 2015 and 2030, which only affect the magnitude of climate change over the longer‐ term, beyond 2050.

There are several limits to our approach. First, we follow a bottom‐up approach and sum the sectoral impacts, assuming they do not interact. Second, we consider only a subset of impacts, even within our three sectors—for instance, we do not include the loss of ecosystem services and the nutritional quality of food. Third, we cannot assess the poverty impact everywhere. Our household database represents only 83 percent of the population in the developing world. Some highly vulnerable countries (such as small islands) cannot be included in the analysis because of data limitations, in spite of the large effects that climate change could have on their poverty rates.

## Food prices and food production

The vulnerability of poverty reduction to food price hikes have already been demonstrated, for instance in (Ivanic and Martin 2008; Ivanic, Martin, and Zaman 2012; Hertel, Burke, and Lobell 2010; Devarajan et al. 2013). Impacts of climate change on agriculture affect poverty in two ways (Porter et al. 2014). First, an increase in food prices reduces households’ available income, but especially consumption of the poor who spend a large share of their income on food products. The impact in our scenarios depend on the fraction of food expenditure in total expenditure, which decreases with the income level of the household (Figure 10). Food price changes also affect the farmers’ incomes. However, this channel is complex since lower yields mean that higher food prices do not necessarily translate into more farmers’ revenues: the net effect depends on the balance between changes in prices and quantities produced.

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