The Congressional Budget Office (CBO) released a new working paper this week with its projection of the effects of climate change on the U.S. real gross domestic product (GDP). CBO projects that the effects of climate change will reduce real GDP growth rate by 0.03 percentage points from 2020-2050, relative to the benchmark climate conditions prevailing in a period near the end of the 20th century. With this reduced annual GDP growth rate, the level of real U.S. GDP is projected to be 1.0 percent lower by 2050. This marks the first time that CBO is reporting the size of the effect of climate change on the U.S. economy separately, instead of incorporating climate change factors into its economic projections.
CBO used two approaches to estimate the impact of climate change on economic outcomes. The top-down methodology was used to look at historical relationships between a region’s temperature patterns and its economic activities. The bottom-up approach analyzed the relationship between specific conditions (such as hurricanes, sea-level rise, etc.) and economic outcomes (such as hurricane damage, etc.) More technical details of these approaches will be released in a follow-up CBO working paper. To generate climate predictions for the next 30 years, CBO took the average of two climate scenarios developed by the Intergovernmental Panel on Climate Change (IPCC): RCP 4.5 and RCP 8.5. Representative concentration pathways (RCPs), refers to a specific trajectory that leads to a certain outcome of concentration levels of GHGs.