Economic Impacts of Rising Temperatures

Summary:
Rising global temperatures, evidenced by recent record-breaking heat waves, have significant adverse effects on economies worldwide, reducing GDP and exacerbating inequality. The impacts of climate change extend beyond the agricultural sector, affecting household incomes, various economic sectors, energy markets, inflation, financial markets, innovation, and public debt. Scientific studies emphasize the need for macroprudential measures to mitigate these risks, as climate-related natural hazards are expected to increase.
Global warming can elevate inflation and debt-to-GDP ratios, complicating economic growth and efficiency. The sensitivity of economies to climate change varies based on their sectoral dependencies. Decarbonization is essential for reducing carbon emissions, but it will influence output, inflation, and necessitate adjustments in monetary policies. The transition to net zero will involve tax, subsidy, and regulatory tools, posing challenges for inflation control and economic stability.
Policymakers must consider the impacts of extreme weather events, decarbonization, and net zero transition in their macroeconomic strategies. Current analytical frameworks are inadequate, necessitating improvements to address climate uncertainty effectively. Reducing this uncertainty and facilitating adaptive responses will be critical, as climate change remains a significant global risk.