Distinguishing short-term and long-term climate impacts in damage functions

Abstract Climate change presents substantial challenges to global economic stability, with damage functions widely applied to evaluate its potential impacts. However, differing assumptions within damage functions lead to significant variability in estimated climate damages, with limited quantitative investigation into the reasons for these discrepancies. This study addresses this gap by distinguishing between short-term and long-term climate impacts in damage assessments, using the Dynamic Integrated Climate-Economy (DICE) model as a case study, alongside other assessments. Short-term impacts capture immediate economic disruptions, whereas long-term impacts encompass enduring effects on economic growth, such as reductions in capital stock. The results demonstrate that accounting for long-term impacts increases estimated damages by approximately 30% in the DICE model. Comparative analysis across multiple models reveals that different treatments of short-term and long-term climate impacts contribute significantly to variations in projected economic damages. This study emphasizes the urgent need for future damage functions to clarify both long-term and short-term climate damages to inform robust climate policies.