Global Economic Impacts of Physical Climate Risks

This paper evaluates the global economic consequences of physical climate risks under two Shared
Socioeconomic Pathways (SSP 1-2.6 and SSP 2-4.5) using firm-level evidence. Firstly, we estimate the
historical sectoral productivity changes from chronic climate risks (gradual changes in temperature and
precipitation) and extreme climate risks (representative of heatwaves, coldwaves, droughts, and floods).
Secondly, we produce forward-looking sectoral productivity changes for a global multisectoral sample of
firms. For floods, these estimates account for the productivity changes from the damage to firms’ physical
capital. Thirdly, we assess the macroeconomic impact of these shocks within the global, multisectoral,
intertemporal general equilibrium model: G-Cubed. The results indicate that, in the absence of additional
adaptation relative to that already achieved by 2020, all the economies would experience substantial
losses under the two climate scenarios, and the losses would increase with global warming. The results
can be useful for policymakers and practitioners interested in conducting climate risk analysis.