General equilibrium effects from partial equilibrium-driven climate impacts: Implications from FREDI-USREP

Abstract: To evaluate the general equilibrium (GE) effects of partial equilibrium (PE) impacts on buildings, labor, roads, and transportation through 2100, we link sector-specific damages from the Framework for Evaluating Damages and Impacts (FrEDI) to the MIT’s U.S. Regional Energy Policy (USREP) computable GE model to quantify economy-wide effects. 

We distinguish between market outcomes (e.g., GDP) and nonmarket valuation of mortality risk. We explain how PE effects propagate and amplify through GE channels. U.S. GDP falls by about 0.75% by 2100, with aggregate damage increasing by about 20% in 2050 and about 50% in 2100 from the PE result to the GE result. For road repairs in 2100, GE losses exceed PE damages by about 90%. Losses are often larger in the Southern Plains and Southeast. Lower-income households bear welfare losses many times the average. 

We also assess the valuation of climate-related mortality risk using the value of statistical life (VSL). We embed VSL directly in the utility function, allowing the valuation to evolve endogenously with income and demographic change. Nonmarket valuation of mortality-related losses, equivalent to about 6% of US GDP in 2100, is reported separately and should not be interpreted as part of a typical GDP accounting.