The impact of climate change on economic output across industries in Chile

climate change is obtained from a model estimated by Colacito, Hoffmann and Phan [13] for the 50 states and 12 industries of the USA. Since the USA’ states are relatively large economies and it includes a large number of states, then the impact of climate change on each industry can be estimated in a more precise way and with lower standard errors. The difference is that we are applying the value of each Chilean industry on GDP to make the projection for total GDP and this considers that Chile has higher shares of some industries such as Mining or Agriculture and lower shares of other industries. One small note is that we apply the same US coefficients for Agriculture-Fishing and Finance-Insurance-Real Estate to the separate Chilean industries of Agriculture and Fishing plus Financial services and Home property, since those industries are treated separately in the Chilean national accounts data. Table 10 shows the counterfactual exercise of applying the coefficients from Table A21 in Colacito, Hoffmann and Phan (2019) [13]. It shows its strongest impact in 2050 on Construc- tion, which would decline between 12.7% and 23.8%. Home property, Financial Services and Manufactures would also be strongly hit, declining between 9% and 19.5% relative to a sce- nario with no climate change. However, due to the positive coefficient estimated for the Min- ing industry, the impact of climate change on the Chilean GDP in 2050 would be limited to a decline of 0.8% or less. In 2100 the projections for climate change’s impact on total GDP

would again become very positive, because the counterfactual would assume that the log- growth of Mining would add up linearly over time. Table 11 shows a very similar counterfactual exercise with impact coefficients for tempera- ture estimated for the US, but it considers only the statistically significant coefficients from Table A21 in Colacito, Hoffmann and Phan (2019) [13]. The exercise also applies the Agricul- ture-Fishing and Manufacturing industries coefficients from Table A20 in Colacito, Hoff- mann and Phan (2019) [13], since those coefficients were estimated with a smaller standard- error, perhaps due to the higher importance of such industries for the US economy before 1997. The results show a negative impact of climate change for most industries, except for Mining, Energy-Gas-Water (EGA) and Transports-Communications. The strongest impact of climate change is now estimated to be for the Agriculture and Fishing sectors, followed by Construction, Financial services and Home property. In particular, Agriculture and Fishing PLOS ONE The impact of climate change on economic output across industries in Chile PLOS ONE | https://doi.org/10.1371/journal.pone.0266811 April 28, 2022 15 / 21

may decline between 18.7% and 33.9% in 2050, relative to a scenario with no additional climate change. Construction, Financial services and Home property would decline between 10.3% and 23.8% in 2050 due to the impact of worsening climate change. In terms of the total GDP, the effect of climate change in 2050 would imply a deterioration between 6.8% and 12.9%. By 2100 the Agriculture and Fishing industries would decline between 40% and 84.9%, while the Construction, Financial services and Home property would decline between 23.5% and 71.2% due to climate change. Climate change by 2100 could imply a deterioration between 15.5% and 42.3% on the total Chilean GDP. Table 11. Simulated impact (in %) of the climate change on the industry and overall GDP level and growth rates in Chile for the future�. Temperature increase Industries Total GDP (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) Impact on GDP level in 2050 relative to no warming after 2017 1.0˚C -18.7 -18.7 0.0 -4.6 0.0 -12.7 -6.2 0.0 -10.3 -10.3 -7.7 -5.6 -6.8 1.3˚C -23.6 -23.6 0.0 -5.9 0.0 -16.2 -8.0 0.0 -13.2 -13.2 -9.9 -7.2 -8.7 1.4˚C -25.2 -25.2 0.0 -6.3 0.0 -17.3 -8.6 0.0 -14.1 -14.1 -10.6 -7.7 -9.3 2.0˚C -33.9 -33.9 0.0 -8.9 0.0 -23.8 -12.0 0.0 -19.5 -19.5 -14.8 -10.9 -12.9 Impact on GDP level in 2100 relative to no warming after 2017 1.0˚C -40.0 -40.0 0.0 -10.9 0.0 -28.5 -14.6 0.0 -23.5 -23.5 -18.0 -13.2 -15.5 1.8˚C -60.2 -60.2 0.0 -18.7 0.0 -45.4 -24.8 0.0 -38.3 -38.3 -30.0 -22.5 -25.4

2.2˚C -67.5 -67.5 0.0 -22.4 0.0 -52.3 -29.4 0.0 -44.5 -44.5 -35.3 -26.8 -29.6 3.7˚C -84.9 -84.9 0.0 -34.7 0.0 -71.2 -44.3 0.0 -62.9 -62.9 -52.0 -40.9 -42.3 Notes: �Climate change temperature coefficients estimated for the USA industry (post-1997) from Table A21 plus Agriculture- (both years, only statistically significant coefficients) Fishing and Manufacturing industries coefficients from Table A20 (pre-1997) in Colacito, Hoffmann and Phan (2019). (1) Agriculture and Forestry, (2) Fishing, (3) Mining, (4) Manufacturing, (5) EGA, (6) Construction, (7) Commerce, Restaurants, and Hotels, (8) Transport and Communications, (9) Financial Services, (10) Home Ownership, (11) Personal Services, (12) Public Administration https://doi.org/10.1371/journal.pone.0266811.t011 Table 10. Simulated impact (in %) of the climate change on the industry and overall GDP level and growth rates in Chile for the future�. Temperature increase Industries Total GDP (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) Impact on GDP level in 2050 relative to no warming after 2017 1.0˚C -4.6 -4.6 53.4 -9.1 7.0 -12.7 -6.2 0.2 -10.3 -10.3 -7.7 -5.6 -0.8 1.3˚C -5.9 -5.9 74.4 -11.7 9.1 -16.2 -8.0 0.3 -13.2 -13.2 -9.9 -7.2 -0.4 1.4˚C -6.3 -6.3 82.0 -12.5 9.9 -17.3 -8.6 0.3 -14.1 -14.1 -10.6 -7.7 -0.2 2.0˚C -8.9 -8.9 135.2 -17.4 14.4 -23.8 -12.0 0.4 -19.5 -19.5 -14.8 -10.9 2.0 Impact on GDP level in 2100 relative to no warming after 2017

Conclusions and policy implications Based on annual region-industry panel data for the period 1985 to 2017, our study finds that climate change had little effect on the different sectors of economic activity in Chile over the last 35 years. We found a statistically significant negative effect of climate change in Chile, with the channel coming from higher temperatures rather than fluctuations in precipitation. We find that high temperatures in the summer season (January to March) had a negative impact on the Agriculture-Silviculture and Fishing sectors. Furthermore, by separating the weather at a monthly level, we find that it is high temperature in January in particular, which causes the strongest negative impact. Higher temperatures in January may also cause some deterioration of activity for the Construction and EGA (Electricity, Gas, and Water) sectors. However, since Agriculture-Silviculture and Fishing represent just 4% of GDP and summing the sectors of Construction (6.8% of GDP) and Electricity, Gas, and Water (4.0% of GDP), the analysis shows that 85% of the economic activity in Chile was not affected by climate change and that such effect was limited to either the summer season (January to March) or even just a single month (January). We also find that higher temperatures in some seasons, such as the Spring, can have a posi- tive impact on economic growth, which confirms previous results found for the USA [13]. For instance, Agriculture is positively affected by the temperature increases during the month of

November. If we consider the point estimates for all the model coefficients across every month (whether the coefficients are statistically significant or not), then each additional Celsius degree of temperature decreases GDP by -8.8% in Fishing, -1.9% in Mining and -0.7% in the Home property sector, but it shows a positive impact on the output of other sectors, including Agriculture. If one considers just the statistically significant coefficients, then each Celsius degree of temperature decreases GDP by -3% in Agriculture, -8.8% in Fishing, -2.2% in Manufacturing, -3.9% in Energy-Gas-Water, -0.3% in Construction and -0.7% in Commerce, but it still has a positive impact on several other sectors such as Mining, Finance and Personal Services. Unfortunately, extreme weather is often associated with a single month or even shorter periods, therefore the unavailability of regional-industry GDP data at a quarterly or monthly frequency makes statistical identification harder and casts some uncertainty on the interpretation of our findings. We then use our model to present several projections of the impact of climate change on the GDP of each industry and the total national GDP by 2050 and 2100. These projections con- sider the average of the global climate paths published by the United Nations [14, 15], which are widely used in climate stress tests [34]. Over time, the fraction of GDP represented by the sectors economically affected by climate change falls, with Agriculture and Fishing almost dis-

appearing in terms of their weight on the GDP, and this limits the negative impact of climate change on GDP even as global temperatures become worse. The stress test exercises are robust to using either the 2014 or the 2021 scenarios of the IPCC. These projections are very sensitive to whether we consider all the model’s coefficients, only the statistically significant coefficients, or just the negative statistically significant coeffi- cients (that is, ignoring potential positive effects of climate change). Considering all the mod- el’s coefficients we obtain a large and positive impact of climate change on the Chilean GDP level, with a range between +9.8% and +26.% in 2050 and between +36% and 738% by 2100. Note, however, that this positive impact of climate change depends on statistically insignificant coefficients and also on fixed coefficients that do not consider that its effects may change over time. Using only the model’s statistically significant coefficients, we obtain an impact on the Chilean GDP level between -2.3% and +0.4% in 2050 and between +3.2% and +193.2% in 2100. The reason why some increases in temperature can cause increases in GDP is because PLOS ONE The impact of climate change on economic output across industries in Chile PLOS ONE | https://doi.org/10.1371/journal.pone.0266811 April 28, 2022 17 / 21

the sectors that benefit from climate change increase their weight in the Chilean economy, while the negatively affected sectors cannot decrease their product below a GDP level of zero. In our worst forecasts, which apply only negative coefficients that are also statistically signifi- cant (that is, ignoring any potential positive effects), we then obtain an impact on the Chilean GDP level between -14.8% and -9% in 2050 and between -29.6% and -16.8% in 2100. That is, we only obtain a negative impact of climate change on the total Chilean GDP if we deliberately ignore any positive coefficients. A robustness exercise using the industry coefficients of a similar model estimated for the USA [13] would imply that Chile’s GDP would suffer a fall of at most 0.8% by 2050 and would increase substantially by 2100 due to the effects of climate change. However, a second robust- ness exercise that applies only the statistically significant coefficients estimated for the USA [13] would imply that the Chilean GDP would fall between -6.8% and -12.9% in 2050 and between -15.5% and -42.3% in 2100 due to climate change. Our estimates also imply a positive impact on the Chilean growth rate during the period 1985–2017 of +0.1% with all the model’s coefficients, a negative effect of -0.1% with just the statistically significant coefficients, and a negative effect of -0.2% with just the negative statisti- cally significant coefficients. Therefore it does not appear that climate change had an impact for Chilean economic activity in the past. Although there are other caveats, one that is directly

related to the estimation is that the annual frequency of the region-industry data makes it harder to measure the impact of climate change associated with just one month. Another issue that causes uncertainty in our results is that our model has fixed coefficients instead of time- varying parameters that consider the dynamic impacts of climate change over time. Neither issue can be solved in a model based only on an annual frequency panel dataset. One policy implications of this work is that more research is required for knowing whether the effects of climate change are permanent over the long term or not. Our work finds an impact of seasonal temperatures on the growth rate of the GDP of several industries and an effect on the growth rate may have large accumulated impacts over several years, as shown in our exercises for Chile and previous studies for the USA [13]. However, many industries may undertake investments to mitigate the effects of climate change, such as finding alternative energy sources or crops that are better suited to warmer weather [35]. Governments can also implement new regulations and build better infrastructure to adjust for the long run climate. Recent research, however, has found evidence of fairly negative effects of climate change on agriculture even after several decades [29, 36], showing that current adjustments may not be enough to mitigate the negative shock of global warming. It is therefore crucial for economic research to provide greater evidence on all the possible short-run and long-run effects of cli-

mate change on different industries and natural resources [37] in order to evaluate the value of environmental regulations and green investments [23]. Supporting information S1 Appendix. Panel-level heterogeneity and unit root tests. (PDF) S2 Appendix. Other model estimates. This appendix show some robustness checks using the same model of industry-region GDP with temperature and precipitation fluctuations with constant weights for each industry and different clustering options (clusters just by year or clusters by region-year). (PDF) PLOS ONE The impact of climate change on economic output across industries in Chile PLOS ONE | https://doi.org/10.1371/journal.pone.0266811 April 28, 2022 18 / 21

S3 Appendix. Calibrated projections of climate change for Chile using the new IPCC (2021) SSP scenarios. This appendix considers counterfactual exercises using the most recent “Shared Socioeconomic Pathways” (SSPs) scenarios published by the IPCC’s Sixth Assessment Report (IPCC 2021). (PDF) S4 Appendix. Precipitation and temperature evolution statistics between 1950 and 2017. This appendix shows the results of the yearly temperature and precipitation fluctuations by macrozone weighted by the GDP of each region. (PDF) S5 Appendix. GDP across regions. (PDF) Acknowledgments We thank Bridget Hoffmann, Toàn Phan and seminar participants at the Central Bank of Chile for comments. The views expressed in this work do not represent the Central Bank of Chile. All errors are our own. Author Contributions Conceptualization: Carlos Madeira. Data curation: Karla Hernandez, Carlos Madeira. Formal analysis: Carlos Madeira. Investigation: Karla Hernandez, Carlos Madeira. Methodology: Carlos Madeira. Project administration: Carlos Madeira. Resources: Carlos Madeira. Software: Karla Hernandez, Carlos Madeira. Supervision: Carlos Madeira. Validation: Carlos Madeira. Visualization: Carlos Madeira. Writing – original draft: Carlos Madeira. Writing – review & editing: Carlos Madeira. References 1. OECD (2015). “The Economic Consequences of Climate Change”. OECD, Paris. 2. Kahn M., Mohaddes K., Ng R., Hashem Pesaran M., Raissi M. and Yang J. (2021). “Long-Term Macro- economic Effects of Climate Change: A Cross-Country Analysis”. Energy Economics, 104, 105624.

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