IDEAS home Printed from https://ideas.repec.org/a/eee/streco/v75y2025icp108-121.html

Quantifying aggregated economic damages from “fat-tail” extremes high-temperature events in climate change

Author

Listed:
  • Deng, Huai
  • Wu, Xianhua
  • Xu, Hui
  • Wu, You
  • Liang, Xin-Zhong

Abstract

With global warming and the increasing frequency of extreme high-temperature events exhibiting “fat-tail” characteristics, traditional climate-socio-economic models such as Integrated Assessment Models (IAMs) cannot well reflect the related tail trend and economic damages caused by high-temperature risks. We present a dynamic stochastic equation model (referred to as CEM) that incorporates risk factors for a more accurate assessment. Our study reveals: (1) By 2100, the probability of extreme temperature events is expected to increase by about 3.45 times, leading to severe economic damages and confirming a “fat-tail” trend. (2) Extreme high temperatures may cause economic damages that are challenging to quantify, posing difficulties for conventional warming pathways to estimate these impacts accurately. (3) The average increase of temperature tail probability due to an additional carbon emission of 1 ppm is approximately 0.15 × 10–4. The key innovation of this paper lies in its quantitative analysis of the economic damage caused by extreme high-temperatures events and its exploration of the “fat-tail” features of climate change. Our findings offer methodological and empirical insights to support the development of more robust climate policies to address these extreme risks.

Suggested Citation

  • Deng, Huai & Wu, Xianhua & Xu, Hui & Wu, You & Liang, Xin-Zhong, 2025. "Quantifying aggregated economic damages from “fat-tail” extremes high-temperature events in climate change," Structural Change and Economic Dynamics, Elsevier, vol. 75(C), pages 108-121.
    • Handle: RePEc:eee:streco:v:75:y:2025:i:c:p:108-121
    DOI: 10.1016/j.strueco.2025.05.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0954349X25000682
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.strueco.2025.05.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Yongyang Cai & Thomas S. Lontzek, 2019. "The Social Cost of Carbon with Economic and Climate Risks," Journal of Political Economy, University of Chicago Press, vol. 127(6), pages 2684-2734.
    2. Kenneth Gillingham & William Nordhaus & David Anthoff & Geoffrey Blanford & Valentina Bosetti & Peter Christensen & Haewon McJeon & John Reilly, 2018. "Modeling Uncertainty in Integrated Assessment of Climate Change: A Multimodel Comparison," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 5(4), pages 791-826.
    3. Martin L. Weitzman, 2012. "GHG Targets as Insurance Against Catastrophic Climate Damages," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(2), pages 221-244, March.
    4. Yongyang Cai & Timothy M. Lenton & Thomas S. Lontzek, 2016. "Risk of multiple interacting tipping points should encourage rapid CO2 emission reduction," Nature Climate Change, Nature, vol. 6(5), pages 520-525, May.
    5. Matteo Coronese & Francesco Lamperti & Klaus Keller & Francesca Chiaromonte & Andrea Roventini, 2019. "Evidence for sharp increase in the economic damages of extreme natural disasters," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 116(43), pages 21450-21455, October.
    6. Armon Rezai & Frederick Van der Ploeg, 2016. "Intergenerational Inequality Aversion, Growth, and the Role of Damages: Occam's Rule for the Global Carbon Tax," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(2), pages 493-522.
    7. Michael Barnett & William Brock & Lars Peter Hansen & Harrison Hong, 2020. "Pricing Uncertainty Induced by Climate Change," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1024-1066.
    8. Martin Weitzman, 2012. "The Ramsey Discounting Formula for a Hidden-State Stochastic Growth Process," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(3), pages 309-321, November.
    9. Marshall Burke & W. Matthew Alampay Davis & Noah S. Diffenbaugh, 2018. "Large potential reduction in economic damages under UN mitigation targets," Nature, Nature, vol. 557(7706), pages 549-553, May.
    10. Alberto Arribas & Ross Fairgrieve & Trevor Dhu & Juliet Bell & Rosalind Cornforth & Geoff Gooley & Chris J. Hilson & Amy Luers & Theodore G. Shepherd & Roger Street & Nick Wood, 2022. "Climate risk assessment needs urgent improvement," Nature Communications, Nature, vol. 13(1), pages 1-4, December.
    11. William Nordhaus, 2014. "Estimates of the Social Cost of Carbon: Concepts and Results from the DICE-2013R Model and Alternative Approaches," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(1), pages 000.
    12. Jensen, Svenn & Traeger, Christian P., 2014. "Optimal climate change mitigation under long-term growth uncertainty: Stochastic integrated assessment and analytic findings," European Economic Review, Elsevier, vol. 69(C), pages 104-125.
    13. Simon Dietz & Nicholas Stern, 2015. "Endogenous Growth, Convexity of Damage and Climate Risk: How Nordhaus' Framework Supports Deep Cuts in Carbon Emissions," Economic Journal, Royal Economic Society, vol. 0(583), pages 574-620, March.
    14. Benjamin Crost & Christian P. Traeger, 2014. "Optimal CO2 mitigation under damage risk valuation," Nature Climate Change, Nature, vol. 4(7), pages 631-636, July.
    15. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    16. Brian O’Neill & Elmar Kriegler & Keywan Riahi & Kristie Ebi & Stephane Hallegatte & Timothy Carter & Ritu Mathur & Detlef Vuuren, 2014. "A new scenario framework for climate change research: the concept of shared socioeconomic pathways," Climatic Change, Springer, vol. 122(3), pages 387-400, February.
    17. Yongyang Cai & William Brock & Anastasios Xepapadeas, 2023. "Climate Change Impact on Economic Growth: Regional Climate Policy under Cooperation and Noncooperation," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(3), pages 569-605.
    18. Hao Li & Pengru Fan & Yukun Wang & Yang Lu & Feng Chen & Haotian Zhang & Bin Zhang & Bo Wang & Zhaohua Wang, 2024. "Integrated assessment models for resource–environment–economy coordinated development," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 13(3), May.
    19. Martin Weitzman, 2013. "A Precautionary Tale of Uncertain Tail Fattening," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 55(2), pages 159-173, June.
    20. Klaus Desmet & Esteban Rossi-Hansberg, 2013. "Urban Accounting and Welfare," American Economic Review, American Economic Association, vol. 103(6), pages 2296-2327, October.
    21. Ton S. van den Bremer & Frederick van der Ploeg, 2021. "The Risk-Adjusted Carbon Price," American Economic Review, American Economic Association, vol. 111(9), pages 2782-2810, September.
    22. Frederick Ploeg & Aart Zeeuw, 2016. "Non-cooperative and Cooperative Responses to Climate Catastrophes in the Global Economy: A North–South Perspective," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(3), pages 519-540, November.
    23. Gavin Schmidt, 2024. "Climate models can’t explain 2023’s huge heat anomaly — we could be in uncharted territory," Nature, Nature, vol. 627(8004), pages 467-467, March.
    24. Jun’ya Takakura & Shinichiro Fujimori & Naota Hanasaki & Tomoko Hasegawa & Yukiko Hirabayashi & Yasushi Honda & Toshichika Iizumi & Naoko Kumano & Chan Park & Zhihong Shen & Kiyoshi Takahashi & Makoto, 2019. "Publisher Correction: Dependence of economic impacts of climate change on anthropogenically directed pathways," Nature Climate Change, Nature, vol. 9(11), pages 894-894, November.
    25. Mikhail Golosov & John Hassler & Per Krusell & Aleh Tsyvinski, 2014. "Optimal Taxes on Fossil Fuel in General Equilibrium," Econometrica, Econometric Society, vol. 82(1), pages 41-88, January.
    26. Deng, Huai & Wu, Xianhua & Xu, Hui & Zhang, Dawei, 2024. "Aggregated economic damages and the role of dynamic carbon tax under climate change: A dynamic general equilibrium model," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 1099-1119.
    27. Lint Barrage, 2020. "Optimal Dynamic Carbon Taxes in a Climate–Economy Model with Distortionary Fiscal Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(1), pages 1-39.
    28. Dietz, Simon & Stern, Nicholas, 2015. "Endogenous growth, convexity of damage and climate risk: how Nordhaus’ framework supports deep cuts in carbon emissions," LSE Research Online Documents on Economics 58406, London School of Economics and Political Science, LSE Library.
    29. José-Luis Cruz & Esteban Rossi-Hansberg, 2024. "The Economic Geography of Global Warming," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(2), pages 899-939.
    30. Jun’ya Takakura & Shinichiro Fujimori & Naota Hanasaki & Tomoko Hasegawa & Yukiko Hirabayashi & Yasushi Honda & Toshichika Iizumi & Naoko Kumano & Chan Park & Zhihong Shen & Kiyoshi Takahashi & Makoto, 2019. "Dependence of economic impacts of climate change on anthropogenically directed pathways," Nature Climate Change, Nature, vol. 9(10), pages 737-741, October.
    31. Elmar Kriegler & Jae Edmonds & Stéphane Hallegatte & Kristie Ebi & Tom Kram & Keywan Riahi & Harald Winkler & Detlef Vuuren, 2014. "A new scenario framework for climate change research: the concept of shared climate policy assumptions," Climatic Change, Springer, vol. 122(3), pages 401-414, February.
    32. Kumar, Naveen & Maiti, Dibyendu, 2024. "Long-run macroeconomic impact of climate change on total factor productivity — Evidence from emerging economies," Structural Change and Economic Dynamics, Elsevier, vol. 68(C), pages 204-223.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rising, James A. & Taylor, Charlotte & Ives, Matthew C. & Ward, Robert E.t., 2022. "Challenges and innovations in the economic evaluation of the risks of climate change," LSE Research Online Documents on Economics 114941, London School of Economics and Political Science, LSE Library.
    2. Rising, James A. & Taylor, Charlotte & Ives, Matthew C. & Ward, Robert E.T., 2022. "Challenges and innovations in the economic evaluation of the risks of climate change," Ecological Economics, Elsevier, vol. 197(C).
    3. Richard S.J. Tol, 2021. "Estimates of the social cost of carbon have not changed over time," Working Paper Series 0821, Department of Economics, University of Sussex Business School.
    4. Richard S. J. Tol, 2021. "Estimates of the social cost of carbon have increased over time," Papers 2105.03656, arXiv.org, revised Aug 2022.
    5. van der Ploeg, Frederick & Rezai, Armon, 2019. "The agnostic's response to climate deniers: Price carbon!," European Economic Review, Elsevier, vol. 111(C), pages 70-84.
    6. Olijslagers, Stan & van der Ploeg, Frederick & van Wijnbergen, Sweder, 2023. "On current and future carbon prices in a risky world," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    7. van der Ploeg, Frederick & ,, 2018. "Pricing Carbon Under Economic and Climactic Risks: Leading-Order Results from Asymptotic Analysis," CEPR Discussion Papers 12642, C.E.P.R. Discussion Papers.
    8. Huai Deng & Huan Wu & Hui Xu, 2025. "Social cost of carbon under endogenous social adaptation," Climatic Change, Springer, vol. 178(4), pages 1-20, April.
    9. Drudi, Francesco & Moench, Emanuel & Holthausen, Cornelia & Weber, Pierre-François & Ferrucci, Gianluigi & Setzer, Ralph & Adao, Bernardino & Dées, Stéphane & Alogoskoufis, Spyros & Téllez, Mar Delgad, 2021. "Climate change and monetary policy in the euro area," Occasional Paper Series 271, European Central Bank.
    10. Lint Barrage, 2019. "The Nobel Memorial Prize for William D. Nordhaus," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(3), pages 884-924, July.
    11. Yongyang Cai, 2025. "Modeling Uncertainty in Integrated Assessment Models," Papers 2511.00378, arXiv.org.
    12. Gregory Casey & Stephie Fried & Ethan Goode, 2023. "Projecting the Impact of Rising Temperatures: The Role of Macroeconomic Dynamics," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(3), pages 688-718, September.
    13. Frederick van der Ploeg & Armon Rezai & Rick van der Ploeg, 2026. "Climate Change, Climate Policy, and the Macroeconomy," CESifo Working Paper Series 12480, CESifo.
    14. Samuel Jovan Okullo, 2020. "Determining the Social Cost of Carbon: Under Damage and Climate Sensitivity Uncertainty," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(1), pages 79-103, January.
    15. Christoph Hambel & Holger Kraft & Frederick van der Ploeg, 2024. "Asset Diversification Versus Climate Action," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(3), pages 1323-1355, August.
    16. Ton S. van den Bremer & Frederick van der Ploeg, 2021. "The Risk-Adjusted Carbon Price," American Economic Review, American Economic Association, vol. 111(9), pages 2782-2810, September.
    17. Yongyang Cai, 2020. "The Role of Uncertainty in Controlling Climate Change," Papers 2003.01615, arXiv.org, revised Oct 2020.
    18. Frederick Ploeg & Armon Rezai, 2019. "Simple Rules for Climate Policy and Integrated Assessment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(1), pages 77-108, January.
    19. Tol, Richard S.J., 2024. "A meta-analysis of the total economic impact of climate change," Energy Policy, Elsevier, vol. 185(C).
    20. Hambel, Christoph & Kraft, Holger & Schwartz, Eduardo, 2021. "The social cost of carbon in a non-cooperative world," Journal of International Economics, Elsevier, vol. 131(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:streco:v:75:y:2025:i:c:p:108-121. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/525148 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.