Hidden climate costs: Rising heat is draining U.S. incomes

For decades, most analyses framed climate change as a looming cost that will financially impact societies worldwide. 

Derek Lemoine, a professor of economics at the University of Arizona’s Eller College of Management, argues that the bill has already arrived. 

Professor Lemoine estimates that shifting temperatures have reduced U.S. personal income by roughly 12% – a drag comparable to a major nationwide policy shock.

 “If we can’t figure out what climate change is already costing us with the data we have, projecting the future becomes almost hopeless,” he said.

Earlier estimates missed climate costs

Past studies often measured only local, short-term weather blips – a hotter day here, a milder winter there. Using that lens, the hit looked tiny, less than one percent. 

Lemoine’s model widens the picture. It treats climate change as persistent, nationwide, and deeply interconnected – and then traces how those shifts ripple through prices, productivity, energy use, and trade across states. 

“A lot of the real cost comes from how temperature changes across the whole country ripple through prices and trade,” he explained.

“It’s not just about the weather where we live. When every region is affected at the same time, the economic consequences add up quickly.”

National diagnosis of climate costs

The study blends climate counterfactuals with half a century of county-level data. First, Lemoine uses climate models to simulate a world without human-caused warming, yielding a county-by-county picture of how temperatures would have looked absent emissions. 

He then matches those hypothetical weather patterns against actual daily temperature records and Bureau of Economic Analysis income data from 1969 to 2019.

That pairing allows him to estimate how changes in the number of hotter and colder days, both locally and nationally, map onto personal income per capita.

The key insight is the economy’s web of linkages. “The reason the effects get so much larger is that climate change operates through the whole economy,” Lemoine said.

“Places are linked through trade, so temperatures in California or Iowa can influence income in Arizona.” 

In other words, local discomfort is only the visible tip. The larger loss accrues as temperature shifts in one region reshape markets and costs nationwide.

Everyday heat versus climate disasters

Importantly, the analysis is not a tally of hurricanes, wildfires, or floods. It isolates the quieter, ubiquitous pressure of routine temperature shifts – more hot days, fewer cold ones – and how those alter productivity, demand, and costs. 

Temperature makes a useful yardstick precisely because it’s measured everywhere, day after day, allowing a consistent connection from climate physics to economic outcomes.

Thus, once persistence, national scope, and cross-regional trade are accounted for, the income loss balloons from under one percent to around 12 percent.

The exact figure carries statistical uncertainty, but the direction is unambiguous: the true effect is “far larger than one percent.”

What this means right now

Treating climate change as a continuous economic factor reframes practical decisions. Persistent temperature shifts alter energy loads, labor productivity, crop yields, logistics costs, and price dynamics. 

That has implications for site selection, supply chain design, insurance coverage, and capital planning. 

“If you want to decide where to direct adaptation resources, you have to know what’s already happening on the ground,” Lemoine explained.

Real-time accounting of the drag can help businesses prioritize resilience where the returns are largest.

For policymakers, an institutionalized estimate could become as routine as an inflation print.

Agencies could publish annual updates on climate’s current income impact, not just 2100 projections, guiding how adaptation dollars are allocated and which sectors or regions need the fastest support.

Climate costs beyond the U.S.

Methodologically, the study offers a portable framework: marry climate counterfactuals with granular economic data to quantify losses as they accrue.

The framework can expand to include additional climate variables, longer time horizons, and international datasets, tightening the error bars and sharpening its guidance. 

“We would love to know how this number is changing over time,” Lemoine noted. “That’s exactly why I think its calculation should be institutionalized, so that we calculate numbers like this every year.”

Delayed climate action has a price tag

The finding doesn’t replace forward-looking assessments; it grounds them. By demonstrating that climate change has already shaved a sizable share off U.S. incomes – without counting headline disasters – it undercuts the notion that costs lie primarily in the future.

The research also strengthens the economic case for near-term adaptation and mitigation: every year of warmer baselines entrenches losses across the interconnected national economy.

The headline number may evolve as models and data improve. What’s unlikely to change is the core message. The climate isn’t just warming. It’s already billing us and the invoice is large enough to matter for every balance sheet, public and private.

The research is published in the journal Proceedings of the National Academy of Sciences.

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