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This paper estimates that the macroeconomic damages from climate change are an order of magnitude larger than previously thought. Exploiting natural global temperature variability, we find that 1○C warming reduces world GDP by over 20% in the long run. Global temperature correlates strongly with extreme climatic events, unlike country-level temperature used in previous work, explaining our larger estimate. We use this evidence to estimate damage functions in a neoclassical growth model. Business-as-usual warming implies a present welfare loss of more than 30%, and a Social Cost of Carbon in excess of $1,200 per ton. These impacts suggest that unilateral decarbonization policy is cost-effective for large countries such as the United States.
