# **1. Introduction**

Climate change is leading to higher surface temperatures, acidifying oceans, and a rising global mean sea level. The consensus estimate is that the average global surface temperature has increased by 0.85 degree Celsius since the industrial revolution, with estimates of future increase ranging from 0.9 to 5.4 degrees Celsius by the end of this century ( Hsiang and Kopp 2018, IPCC 2014 ). With long-term precipitation patterns changing in complex ways, some parts of the world are expected to get drier, while others get wetter (Hsiang and Kopp 2018). Droughts are expected to become more common in drier parts of the world (Collins et al. 2014). Climate change is also increasing the frequency and intensity of extreme weather events. For instance, the prevalence of intense tropical cyclones is expected to increase (Kossin et al. 2017).

These changes in the earth’s climate are projected to reduce aggregate economic output because of their adverse effects on agricultural yields, industrial output, labor supply, productivity, and human capital, among other mechanisms ( Auffhammer 2018, Carleton and Hsiang 2016, Dell, Jones, and Olken 2014, International Monetary Fund 2020). Recent econometric studies suggest that warming has a sizable adverse impact on GDP ( Burke, Hsiang, and Miguel 2015, Dell, Jones, and Olken 2012, Hsiang 2010). Based on a review of such studies, Carleton and Hsiang (2016) estimate that future warming will reduce the global GDP growth rate by 0.28 percentage points per year during the coming century. Such estimates of aggregate GDP impacts are subject to uncertainty about the future path of climate change. However, when the economic impacts of both climate trends (such as rising temperatures) and climate-change-related extreme event risks (such as more frequent cyclones) are taken into account, even moderate future climate change scenarios imply sizable effects on GDP (Fernando, Liu, and McKibbin 2021).

Major storms have sizable negative impacts on such economic outcomes as per-capita income and output (Anttila-Hughes and Hsiang 2013, Cachon, Gallino, and Olivares 2012, Nordhaus 2010, Yang 2008). Storms also damage productive assets: in India, for example, the average cyclone destroys 2.2 percent of a firm’s fixed assets (Pelli et al. 2023). Cyclones and droughts also increase infant mortality and worsen other health outcomes (Anttila-Hughes and Hsiang 2013, Currie and Rossin-Slater 2013, Kudamatsu 2016, Schmitt, Graham, and White 2016). As a result, extreme weather events not only reduce output in the short run, but also harm long-run economic growth: a 90th-percentile cyclone event is estimated to reduce per-capita incomes by 7.4 percent two decades later (Hsiang and Jina 2014).

The economic impacts of climate trends, such as rising temperatures, are also complex and sizable. Abnormal temperatures are associated with damages to agricultural yields ( Guiteras 2009, Lobell, Schlenker, and Costa-Roberts 2011, Schlenker and Lobell 2010, Schlenker and Roberts 2009). For example, Guiteras (2009) estimates that in the long run (2070–2099), climate change will reduce farm yields in India by at least by 25 percent. Temperature also affects industrial output (Cachon, Gallino, and Olivares 2012, Dell, Jones, and Olken 2012, Hsiang 2010, Somanathan 2021, Zhang 2