This UA study found that climate change has reduced income in the U.S. by 12%

2025 was the third hottest year on record. That sobering statistic hit the news this week from the World Meteorological Organization, which said last year continued a trend of “extraordinary global temperatures.”

Here in Arizona, 2025 was our second hottest year on record — with 122 days above 100 degrees and higher nighttime and winter temperatures as well.

So, we know climate change is making the weather more extreme. But, how is it affecting our bottom line?

Derek Lemoine is a professor of economics at the University of Arizona and co-director of the university’s Consortium for Environmentally Resilient Business. And, in a new study he crunched the numbers and found climate change has reduced income in the U.S. by 12%.

The Show spoke with him more about it — beginning with some context for that. How big of an impact is that?

Full conversation

DEREK LEMOINE: 12% is the kind of income impact you'd expect from big policy changes that you might think about, let's say big changes to immigration policy are often estimated to have an impact of that size. And we're seeing an impact of that size already from the climate change that's already here. And that's an ongoing impact that's going to be year after year. So climate change is like a really big type of policy that is hurting income instead of trying to help income.

LAUREN GILGER: Were you surprised by the amount here, by that, that big picture number? Did you expect more, less?

LEMOINE: I can't say that I had a strong opinion about what the size of number would be. I'm more surprised where it came from. And so I would have thought that what would drive losses would be, it's hot where you live or weather's, whatever it is where you live. And the weather's going to affect your productivity and it's going to affect the income where you live.

But that's really not what's driving the number here. The effects of local weather on your income that amounts to less than 1% of U.S. income. If we just kept it at like, climate change changes weather where you live today and doesn't do anything else.

GILGER: Right.

LEMOINE: It's when you broaden the picture to recognize to some extent that climate change's impacts are persistent on weather. You know, weather's different year after year. But the big one is that climate change changes weather everywhere around the country at once.

And once you account for that, that climate change is widespread and also persistent. That's when the number jumps up from 1% to, you know, it's uncertain exactly how big it is. But something on the on the order of at if not even 12% or more. And that's what I didn't expect, that it was about the weather everywhere else that affected your county, not just about your own county's weather.

GILGER: Yeah, that is really interesting. Okay, so let's back up for a moment and talk about how you did this, Derek. Like how do you measure something like climate change's impact on the economy? This did come down to kind of very local data, right?

LEMOINE: It did. We're often limited by the data we have. And so the data we have in this case are data on U.S. counties' income going back several decades. And so what we can, there's two steps. We need to know how climate change affects the weather and we need to know how weather affects income.

So for how climate change affects the weather we have for many years now, climate scientists have been developing physics based models of the global climate system and they can simulate them with and without climate change, with human contributed greenhouse gases and other factors, they can replicate recent temperatures pretty well.

Without all that, they get more of a flat temperature trend. You wouldn't see much global warming if it weren't for the human contribution. That's one of the reasons we know where climate change comes from. So I basically leave that to the climate scientists to figure out what the weather would have been in the absence of climate change. You think about it as approximating what was the weather in the first half of 20th century and compare that to what the weather is today. It looks something like that, yeah.

Then the other side, where really I'm bringing the economics to it, is thinking about what that weather, what that change in weather is going to mean for the economy. And so what economists have been really interested in and almost exclusively in the past is projecting the future impacts of climate change. And that's a very different society, very different scale of warming and all that. And here are the question simpler like hey, let's just see what's happening today with the data we've already got and the economy we've already got. And let's start there and then if we, if we can't do that, well, we're certainly not going to do the other thing very well.

The weather everywhere else is going to matter through what we would call generic equilibrium channels. So what they weather everywhere else can matter by affecting trade between counties. It can also matter like maybe you're looking at weather elsewhere in the country and updating your beliefs about climate change and then changing your investments in your county locally. So we can kind of account for all these sorts of factors.

So with data you can basically say if a county has a year that's, let's just say for example, hotter than average, it's got more hot days than average for that county. How does that county's income change? Does that counties income tend to go up or down? And then from that point on it's just statistics. Different days of different types, cold, cool, warm, hot, have different effects on income. You then know how climate change affected weather and then you bring the two together and you get the climate effect of climate change and current income.

GILGER: So let's talk about what this might look like in real life, right? Like how do you think climate change is impacting people's personal income? Like it's probably a million little ways, right? When you're talking about the weather.

LEMOINE: I think that's right. There's, there's a lot of previous work now that's looking at the effects of weather and all sorts of different outcomes. And usually there is an effect. I mean weather's been shown to affect labor productivity, it's been shown to affect crop yields, it's been shown, I think it's fairly obvious we go crops in the weather.

It's been shown to affect capital productivity, it's been shown to affect time use. Like where do you spend your time at work or at recreation or even other options. So there's a whole host of things, mortality and health are also directly affected by weather. Yeah, so there's a whole host of things that are affected. And I'm kind of like looking at the all in effect in the bottom line without being able to decompose exactly where that's coming from. I think the interesting thing for me is why is it that weather everywhere else matters so much and there I'm limited by the data we have as it is.

I can say with some confidence that I do think it's trade and not, not this effect of like updating my beliefs about future climate change. And so imagine that you're a farmer in Iowa and so you get hit by a randomly hot year. It's bad for your corn crop. So it's too, it's too hot for corn. Basically your yields go down. That's going to be a negative income hit for you. That's going to show up in the data as an income loss. And in a more agricultural county; however, if everybody else in Iowa and throughout the Midwest also has hot weather, then everybody's yields went down. Prices of your output of corn are going to tend to go up. And so your income might actually be higher.

But corn is an input to all sorts of other things. Not only do we eat it for food, but it's an input to all sorts of production processes, including livestock. And so all these other sectors are now going to have a more expensive input and those sectors are spread all around the country. And so those income effects start getting, or the effects on product production and prices is going to start getting spread out through all sorts of different sectors and all different locations and affect people even where who aren't living in Iowa or aren't even living in the Midwest.

GILGER: Right. You've got the ripple effects mapping out there.

LEMOINE: Exactly. Things are very tightly connected. They don't stay local.

GILGER: Yeah, absolutely. OK, so let me ask you lastly Derek, about I guess the flip side of this. Like I wonder, you also run the U of A consortium of environmentally resilient business, right? Like there's got to be an upside here if you're looking at an opportunity, at least for an upside in addressing climate change for businesses. Like I think the whole clean energy economy, the green economy, right. Like is this going to balance out at some point?

LEMOINE: I think it's a great question, like what would this mean for day to day operations? So on how we adapt today, I think there is an interesting upshot that we tend to think of ... adaptation is what we refer to as the process of getting better at living with certain kinds of temperatures and a certain kind of climate. Like you might install air conditioning as one common example.

We tend to think of adaptation as being protection against the physical weather risk. And here I'm just looking at temperature, not disasters or anything. And we can all think of all different ways we adapt to temperature. But what I'm showing is that a lot of adaptation needs to be to the effects of climate change. Not just the physical weather risk where you live, but to the effects of climate change on your supply chains and products that you had purchased and coming from weather elsewhere, which isn't the kind of adaptation that we tend to just knee jerk think about.

So it's not just about building a seawall or installing air conditioning in your current location. It's also about your whole supply chain is going to look different as a business and the cost of everything you want to buy, some things could be higher, some things could be lower, but everything is going to change and, and it's being resilient to these sort of broader effects in your inputs and not just to the weather outside.

GILGER: A tiny silver lining to end on.