Economic Impacts of Projected Climate Change in Pennsylvania Dave Abler Penn State University

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)

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

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

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

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

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

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

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

Dynamic CGE Model Results This presentation will discuss the model results for 2050 for Pennsylvania’s: –Agriculture –Forestry –Energy –Economy as a whole Other results are presented and discussed in our report

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

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

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

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

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

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

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%)

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

Economy-Wide Results Impact of climate change on Pennsylvania’s 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

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

Conclusions Climate change presents challenges and opportunities for Pennsylvania’s 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