The Economics of Climate Change in Agriculture

This paper presents a conceptual framework of the impact of climate change on agriculture. It assumes that climate change will result in a fertilization effect and a shift of agro-ecological conditions away from the Equator towards the Poles. The agro-ecological shift is likely to reduce yield because of reduced acreage and the fertilization effect will increase yield. The aggregate effect depends on whichever of the two dominates. The overall effect of climate change may be less significant than its distributional effects and the results are consistent with previous empirical studies. The impact of climate change depends on its pace. Faster changes in climate will result in higher cost. The assessment of the cost has to consider that climate change is a dynamic phenomenon that may require continuous adjustment. Environmental regulation that emphasizes conservation may increase cost of adjustment and environmental policies should emphasize adaptation and flexibility.