Global Warming and the American Economy

Global Warming and the American Economy

A Regional Assessment of Climate Change Impacts

New Horizons in Environmental Economics series

Edited by Robert Mendelsohn

The impact of climate change on seven regions of the United States is studied in this new and accessible collection. The study examines how the different regions of the United States may be affected by climate change. In particular, the study explores whether warming would be beneficial to the northern (colder) regions but harmful to the economies of the southern (warmer) regions.

Chapter 7: Energy: Cross-sectional analysis

Robert Mendelsohn

Subjects: economics and finance, environmental economics, environment, climate change, environmental economics, environmental sociology

Extract

Robert Mendelsohn INTRODUCTION This study uses a cross-sectional analysis to estimate the climate sensitivity of regional energy demand (Morrison and Mendelsohn 1999, 2000). Energy expenditures of individual households and firms are regressed on a number of control variables and climate to estimate climate sensitivity. Because an approximately constant interior temperature is maintained in homes and buildings across all climates in the United States, the change in energy expenditures required to cope with a climate change provides an approximate measure of the welfare effects. Larger energy expenditures imply damages, or additional costs to maintain the same level of comfort, whereas lower energy expenditures would imply benefits, or savings in costs for energy. Using energy expenditures to measure welfare is only an approximation because it may not take into account changes in building expenditures and comfort levels. Building expenditures can be important as firms and households change building characteristics such as insulation and cooling capacity in response to warming. To measure the importance of building characteristics, both a short-run measure that freezes building characteristics and a long-run measure that allows building characteristics to change are estimated. The difference between the two measures provides an indication of the importance of changing buildings to adjust to climate changes. The energy expenditure measure is also approximate because households may respond to warming by changing their comfort levels. This may be especially important with respect to cooling, where many households currently do not purchase adequate cooling capacity to remain cool during hot summer days. This...

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