A recent headline says that climate change will cost the millennial generation $8.8 trillion. But from where does this number come? The trail leads to a 2015 study by Marshall Burke of Stanford University and two colleagues from the University of California at Berkeley in which they attempted to measure the relationship between temperature and economic productivity.

We know that global temperatures are increasing, and we can estimate how much they will increase if nothing is done to mitigate climate change (the “business-as-usual” scenario). How can you measure the relationship between temperature and economic productivity? You can’t do it simply by comparing the economies of warmer and cooler countries, since there are many cultural and environmental differences between, for example, Sweden and Nigeria. But if you compare the productivity of each country during warmer- and cooler-than-usual years, each country serves as its own control group.

However, other variables that influence the economy may take on different values during warmer and cooler years. For example, a global trade agreement may have increased productivity in certain countries in certain years, and those years may also have happened to be warmer (or cooler). These confounding variables have to be measured and statistically removed from the data.

Burke and his colleagues gathered data from 166 countries over the 50-year span between 1960 and 2010. They used multiple regression to calculate the relationship between temperature and productivity, while eliminating the effects of “common contemporaneous shocks,” such as global price changes or technological innovations, “country-specific . . . trends in growth rates,” such as those produced by changing political institutions or economic policies, and the lagged effects of previous years’ temperature and rainfall. Their final curve is an average of the impact of temperature on productivity in the 166 countries, weighted by the countries’ population size.

They found that the relationship between temperature and productivity is a curve which peaks at 55 degrees Fahrenheit (13 degrees Celsius). That is, countries are most productive when their average annual temperature is 55 degrees, and their productivity declines the more the average deviates from that temperature in either direction. The curve is shown below, along with the average yearly temperatures of selected countries. The blue shaded area represents the 90% confidence interval around their best estimate. At right are separate breakdowns for rich and poor countries, years of measurement, and agricultural and non-agricultural productivity.

Next, they used this relationship to calculate the effects of expected future climate change, assuming business-as-usual, on future global income and the incomes of each country. The model predicts that global productivity will decline approximately 23% by 2100, as compared to the same future without global warming. While some cooler-than-average countries, such as Canada and Russia, will see their economies improve, the majority (77%) will see declines in income, especially those countries near the Equator. Since the countries that can anticipate the worst effects are already poorer than average, the result will be an increase in global inequality. Here is a brief presentation of their findings by Dr. Burke.

How can these results be explained? The authors found that agricultural productivity peaks at around the same temperature (see the chart above). They also mention increased energy costs and declines in health at warm and cool temperatures. Finally, they cite research showing that human cognitive errors and interpersonal conflicts increase at warmer temperatures.

Can we trust these predictions? An optimist might note that there is a danger of overestimating the damage climate change will cause if the peak in productivity at 55 degrees is actually due to confounding variables unrelated to temperature that are not controlled in their analysis. However, it’s difficult to think of phenomena not caused by temperature that would still produce a productivity curve peaking at 55 degrees.

The authors also point out that between 1960 and 2010 annual temperatures fluctuated fairly randomly. This provided little incentive for people to adapt to warmer or cooler temperatures. However, future temperatures are expected to increase consistently, which may instigate successful efforts to adapt to these warmer temperatures.

Optimists might also argue that the assumption of no climate action at all between now and 2100 is unrealistic. To the extent that effective action is taken to mitigate climate change, the loss of productivity will not be as great.

On the other hand, a pessimist could think of reasons why their analysis might underestimate climate change’s damage to the economy. The authors note that their model focuses only on the effects of temperature and those other phenomena that are directly influenced by temperature. But climate change will affect other things besides temperature, such as sea level rise and extreme weather events. If these other effects reduce productivity, the harm due to climate change will be greater than they predict.

They also note that their model predicts the effects of annual temperatures only within the range that they have been observed between 1960 and 2010. But if global temperatures increase substantially, the future may not be predictable from the past. For example, if temperature increases cause sustained droughts over large areas, the cumulative effects on agricultural productivity may be much greater than the effects of any known previous droughts. In reality, we probably have little idea of what future catastrophes await us.

We can now return to the effect of climate change on the incomes of millennials. Two nonprofits, Demos and NextGen Climate, have published an analysis of the lifetime cost of climate change to American millennials, using the data from Burke and his colleagues. The Burke analysis predicts that, in the absence of climate action, the United States economy will shrink 5% by 2050 and 36% by 2100—slightly more than the global average of 23%.

Millennials are typically defined as people born between the early 1980s and the early 2000s. The Demos/NGC paper calculated the lifetime earnings lost by Americans who turned 21 in 2015 (born in 1994) and those born in 2015. This is simply a matter of arithmetic, and the formulas are given in their appendix. Using these formulas, you can calculate the cost of climate change to any birth cohort. Obviously, the later the birth year, the greater the cost. The $8.8 trillion figure is the aggregated cost to all millenials.

The chart below illustrates the average cost of climate change to Americans turning 21 in 2015, calculated separately for college graduates and non-graduates.

The second chart compares wealth lost by 2015 college graduates due to climate change to two other drains on the income of their generation—college debt and the lingering effects of the Great Recession.

Of course, the accuracy of these figures depends entirely on the validity of the analysis by Burke and his colleagues.

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