The Economic Climate

To date, farmers have only planted 67 percent of their corn crop compared to last June, when they had planted 96 percent. This lost yield could cause prices for animal feed and ethanol to rise, and potentially disrupt marketplaces at home and abroad. As a result of climate change impacts, the Midwest is projected to lose up to 25 percent of its current corn and soybean yield by 2050. We also estimate that the pandemic will likely lower long-term interest rates in the advanced economies by about 100 basis points below their pre-Covid-19 lows. This is because the crisis raises precautionary savings and dampens investment demand. However, the same cannot be said with certainty about emerging market economies where borrowing rates can increase rapidly.

Detailed benchmark input-output statistics from BEA, which serve as the source data for REI reports, come out roughly every five years; as such, the 2016 study used a base year of 2007, while the 2020 study uses a base year of 2012. Furthermore, there were changes to the REI modeling methods for estimating recycling process inputs, which can result in substantial changes in total impacts.

According to a 2014 Rhodium Group study, the largest climate change-related economic losses in the U. S. will be from lost labor productivity. In addition to flooding, increased heat and drought will likely reduce crop yields. According to a 2011National Academy of Sciences report, for every degree Celsius the global thermostat rises, there will be a 5 to 15 percent decrease in overall crop production. Many commodity crops such as corn, soybean, wheat, rice, cotton, and oats do not grow well above certain temperature thresholds. In addition, crops will be affected by less availability of water and groundwater, increased pests and weeds, and fire risk. And as farmers struggle to stay afloat by finding ways to adapt to changing conditions, prices will likely increase and be passed along to consumers. The National Oceanic and Atmospheric Administration expects the coming months to bring even more flooding, which could impact our food supply.

Economy

Climate volatility may force companies to deal with uncertainty in the price of resources for production, energy transport and insurance. And some products could become obsolete or lose their market, such as equipment related to coal mining or skiing in an area that no longer has snow. Temperature extremes are also projected to cause the loss of two billion labor hours each year by 2090, resulting in $160 billion of lost wages. Because of heat exposure, productivity in the Southeast and Southern Great Plains regions is expected to decline by 3 percent, and some counties of Texas and Florida could lose more than 6 percent of labor hours each year by 2100.

In a recent paper (Chudik et al. 2020), we depart from single-country analyses and develop a multi-country econometric model that is augmented with global volatility threshold variables. These are intended to capture the effects of rare events such as Covid-19, and account for spillovers and interconnections of countries and markets.

We first document that excessive global volatility can affect output growth in many advanced economies and several emerging markets. The novelty of our work compared to the standard threshold-regression models is that non-linearity is triggered by a measure of global uncertainty rather than country-specific shocks or volatility episodes. In scenario #3, with 55% of people vaccinated, the population could be surveillance tested just once a month. At this point, immunity in this very large segment of the population allows a return to pre-Covid-19 normal. The differences between the 2020 REI Report and the 2016 REI Report are primarily in the base years of data and recycling trends.

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