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Researchers More Accurately Estimate Economic Impacts of Climate Change

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Poorer countries tend to grow faster than richer ones. But this tendency, called convergence, is often overlooked when forecasting the economic impacts of climate change.

A new study from Georgia Tech’s Jimmy and Rosalynn Carter School of Public Policy finds that incorporating convergence into empirical (data and observation-based) climate models drastically reduces estimated global income loss and inequality from climate change by 2100.

“Very few, if any, explicitly include this convergence effect,” said Anthony Harding, an assistant professor in the Carter School and author on the paper. “But it makes a huge difference.”
 

Main Findings

The study was published in Energy Economics by Harding and co-authors Juan Moreno-Cruz, Martin Quaas, Wilfried Rickels, and Sjak Smulders.

The researchers find that empirical models ignoring convergence can calculate average global income losses of up to 19% by the end of the century in one study, while allowing for convergence reduces these losses to around 8.5%.

Additionally, including convergence spreads the damage more evenly across all countries, resulting in more moderate estimated increases in global income inequality — around 8% by 2100 rather than the up to 118% increase that another empirical model suggested.  

Finally, accounting for convergence also predicts economic impacts from climate change that are more in line with what we expect: the more temperatures increase, the more economic damage is done. Without convergence, empirical models can predict exponential benefits for “winning” countries (such as large northern nations like Canada and Russia) that eventually outpace the losses to losing countries (which can only go to zero), causing it to look like climate change has a net economic benefit in the long run (it doesn’t).  

“This model consistently pushes countries back together in a way, so you don’t get that counterintuitive result,” Harding said. “Including convergence moderates the effects of climate change relative to models without convergence, but they are still large and require immediate action to address.”
 

Why Isn’t Convergence Always Accounted For?

Convergence is an economic theory, while empirical models are based on observable past data. This data is the only way we can forecast future trends, such as the economic impacts of climate change, but using the data alone is not enough.  

“When we use data to estimate a historical relationship between temperature and economic growth, we find evidence of convergence, but it doesn’t directly affect that estimated climate-economy relationship” Harding explained. “So, if you’re building a model about what predicts the relationship between temperature and economic growth, you wouldn’t think to include convergence because it doesn’t show up as meaningful in that backward-looking model.”  

However, it matters when projecting the effects of climate change in the future because convergence changes the persistence of climate change impacts. When temperatures increase, economic growth slows. But when growth slows, convergence offsets that, increasing growth and recovering some of those economic losses. Without convergence, those economic losses are never recovered.

When Harding and his colleagues incorporate convergence into the empirical model, they obtain results that are much closer to those from the more widely used theory-based integrated assessment models, thus calibrating the empirical model and pinpointing the discrepancy between the two.
 

Policy Impacts

Harding and his team are working on a second paper using this model to calculate the value of carbon sequestration. Right now, there are many different ways to predict the economic costs and benefits of capturing and storing carbon out of the air. The results range from a negative economic benefit up to a thousand dollars per ton of carbon, Harding said, which is a “massive, massive spread.”  

But having an accurate number is critical for policymakers determining the economic value of conservation efforts like forest protection and reforestation efforts, which naturally sequester carbon. As organizations and governments choose and build these models, Harding’s work shows how important considering convergence is.

“Distribution of climate damages in convergence-consistent growth projections” was published in Energy Economics. It is available at https://doi.org/10.1016/j.eneco.2025.108705.

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  • Created By:dminardi3
  • Created:10/16/2025
  • Modified By:dminardi3
  • Modified:10/16/2025

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