This paper develops a macro heterogeneous-agent model to quantify the distributional impacts of higher temperatures from climate change in the US. Households adapt to temperature through two channels: an intensive margin– adjusting energy use for heating and cooling– and an extensive margin– deciding whether to purchase temperature-control equipment such as a heater, air conditioner or heat pump. I estimate the production functions for household heating and cooling from a unique product-level data set and calibrate the remaining parameters to match variation in energy expenditures and budget shares with income. I find that the welfare effects of climate change vary substantially with income and region. In colder areas, climate change increases inequality in lifetime welfare. While all households experience greater cooling needs, the costs are particularly acute for lower-income households, who purchase air conditioners that they did not previously need. In warmer areas, the opposite pattern reduces welfare inequality.
Suggested citation:
Fried, Stephie. 2025. “A Macro Study of the Unequal Effects of Climate Change.” Federal Reserve Bank of San Francisco Working Paper 2024-18. https://doi.org/10.24148/wp2024-18