Economic Impacts of Projected Climate Change in Pennsylvania

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Economic Impacts of Projected Climate Change in
Pennsylvania

• Dave Abler
• Penn State University

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The Research Team

• Team leader Jim Shortle (Penn State)
• Team members Dave Abler, Karen Fisher-Vanden,
  Marc McDill, Rich Ready, and Tom Wilson (all Penn
  State), and Ian Sue Wing (Boston University)

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We Were Asked by DEP to

• Develop quantitative estimates of potential
  impacts of projected climate change on
  Pennsylvania economy
• Sectors of special focus agriculture, forestry,
  fisheries, energy, human health, property and
  insurance, recreation and tourism, and commerce
  and industry at large

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Our Methodology

• Develop a dynamic computable general equilibrium
  (CGE) model of the Pennsylvania economy
• Use the model to project the PA economy to 2050,
  first without climate change (baseline) and then
  with climate change (scenario)
• The impact of climate change difference between
  baseline and scenario

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What Is a Dynamic CGE Model?

• Dynamic traces the path of the PA economy on an
  annual basis to 2050
• Computable computer-based model
• General the model covers the entire PA economy,
  with the economy divided into 32 sectors
• Equilibrium businesses, households, and markets
  adjust and adapt to economic changes

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Strengths of Our Approach

• Dynamic CGE models represent the state of the art
  in economic modeling of climate change impacts
• Our study is the only state-level study of
  climate change impacts to date that uses a
  dynamic CGE model

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Our Approach Captures Climate Change Impacts on

• Productivity and production costs in
  climate-sensitive sectors of the PA economy
• Demand for goods produced in climate-sensitive
  sectors of the PA economy
• Labor supply and productivity in PA
• Property losses in PA
• PA government revenues

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Our Approach Also Captures

• General equilibrium impacts on PA sectors not
  directly affected by climate change
• Multiplier impacts on PA personal income
• Impacts on PA economy due to effects of climate
  change on the rest-of-US and rest-of-world
  economies

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Climate Change in Other Places and the
Pennsylvania Economy

• PA businesses compete with businesses in other
  states and countries
• PA businesses and households purchase goods from
  other states and countries
• PA businesses and households borrow and invest in
  other states and countries
• People migrate into and out of Pennsylvania

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Dynamic CGE Model Results

• This presentation will discuss the model results
  for 2050 for Pennsylvanias
• Agriculture
• Forestry
• Energy
• Economy as a whole
• Other results are presented and discussed in our
  report

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Agriculture Results

• Grains, oilseeds, fruits and vegetables
• Climate change increases productivity and
  production in PA
• Climate change also increases productivity in
  other states, lowering prices received by PA
  farmers
• Net result small changes in revenues for PA
  grain and oilseed farmers, revenues increase for
  fruit and vegetable farmers

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Agriculture Results (continued)

• Beef, dairy, poultry, eggs, and hogs
• Climate change reduces PA productivity
• Climate change reduces productivity even more in
  other states
• Net result climate change gives PA livestock
  farmers a competitive advantage relative to other
  states, shifting production from other states to
  PA

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Agriculture Results (continued)

• Food processing
• Changes in agricultural production and prices
  affect PA food processing sector
• PA food processing output increases, as some
  production shifts from other states to PA

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Forestry Results

• Two scenarios, optimistic and pessimistic
• Optimistic scenario climate change increases
  forest productivity because of longer growing
  seasons, higher temperatures, more rainfall, etc.
• Pessimistic scenario rapid dieback of existing
  northern species reduces PA productivity, until
  PA rebuilds its forestry sector with more
  southern species

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Forestry Results (continued)

• Optimistic scenario
• Climate change increases productivity in PA,
  increasing PA forestry and wood products
  manufacturing production
• Productivity in other states also increases,
  reducing prices received by PA producers
• Net result revenues for forestry producers
  increase, basically no change in wood products
  revenues

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Forestry Results (continued)

• Pessimistic scenario
• Climate change reduces productivity in PA but
  increases productivity elsewhere
• Production and prices received by PA forestry
  producers both fall
• PA wood products manufacturers hold their own,
  using more wood from other states

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Energy Results

• Climate change leads to lower heating demand in
  winter but higher air conditioning demand in
  summer
• Net result an increase in annual electricity
  demand of 2 in 2050
• Increase in electricity demand leads to slight
  increases in energy prices (0-1)

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Energy Results (continued)

• Higher energy prices increase costs of production
  in energy-using sectors, leading to very slight
  reductions in production (all less than 0.3)
• No discernible change in overall consumer and
  producer prices

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Economy-Wide Results

• Impact of climate change on Pennsylvanias gross
  state product (GSP) is very small, less than 0.1
  either way
• Impact on overall consumer and producer prices is
  very small, about a 0.2 increase
• Changes in total consumption expenditures,
  investment, and government revenues are also very
  small

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Economy-Wide Results (continued)

• Why are the aggregate impacts small?
• The impacts of climate change on
  climate-sensitive sectors are mixed, with some
  negatives and some positives
• Pennsylvania has a large and diverse economy,
  shielding it from major changes in any one sector

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Conclusions

• Climate change presents challenges and
  opportunities for Pennsylvanias economy
• The sectors most affected by climate change are
  agriculture, food processing, forestry, wood
  products, and energy
• Impacts of climate change on the Pennsylvania
  economy as a whole are likely to be small