Di ec Clima e Damage on Capi al IAMC 2025 Annual Mee ing
Online Pos e Session, 28 h o Oc obe 2025
Benjamin Pee e s, F anziska Pion ek Resea ch Domain III – T ans o ma ion Pa hways
Po sdam Ins i u e o Clima e Impac Resea ch (PIK)
In oduc ion
T adi ional IAMs apply agg ega e damage unc ions linking empe a u e inc eases o GDP losses. This
“ op-down” app oach obscu es ansmission mechanisms and cons ains adap a ion policy analysis
(Pion ek e al. 2021). We de elop a “bo om-up” amewo k explici ly modeling clima e damage o
capi al s ocks ac oss sec o s and egions wi hin he Mul i-Sec o G ow h (MSG) model, in eg a ed wi h
REMIND ene gy supply dynamics. This app oach sepa a es po en ial capi al s ock om p oduc ion
capaci y, enabling ep esen a ion o damage, dep ecia ion, and ebuilding dynamics.
Me hodology
Based on (O o e al. 2022), we decompose he capi al s ock as
K ,s( ) = ξ ,s( )·Kp
,s( )(1)
whe e ξ ,s( )∈[0,1] is he p oduc ion capaci y ac o (undamaged ac ion) and Kp
,s( )is po en ial
capi al. To al in es men spli s: I ,s( ) = Ip
,s( ) + Iξ
,s( )be ween new capi al and ebuilding.
Con inuous-Time Founda ions. Capi al accumula ion wi h clima e damage:
˙
K ,s( ) = I ,s( )−(δ ,s +δD
,s( ))K ,s( )(2)
whe e δ ,s is s anda d dep ecia ion and δD
,s( )is clima e damage a e. Po en ial capi al e ol es as:
˙
Kp
,s( ) = Ip
,s( )−δ ,sKp
,s( )(3)
Disc e e-Time Sys em. In eg a ing o e ime s ep ∆ yields:
Kp
,s, +∆ =e−δ ,s∆ Kp
,s, +Ip
,s,
1−e−δ ,s∆
δ ,s
(4)
ξ ,s, +∆ =e−(δD
,s, +δ ,s)∆ Kp
,s,
Kp
,s, +∆
ξ ,s, +Iξ
,s, +Ip
,s,
Kp
,s, +∆
1−e−(δD
,s, +δ ,s)∆
δD
,s, +δ ,s
(5)
Iξ
,s, ≤min [(1 −ξ ,s, )Kp
,s, , max
,s, Y ,s, , I ,s, ](6)
whe e max
,s, limi s econs uc ion capaci y (he e as ac ion o ou pu ).
No es:
•Capi al se ices speci ica ion: Flexible speci ica ion o ebuilding incen i es independen ly om
capi al s ock dynamics: he ou pu depends only on o al in es men I=Ip+Iξ(see s eady s a e
& Fig. 2). P oduc ion uses capi al se ices Sk=ξ·1.05 ·Kp, incen i izing ebuilding
•Exogenous d i e s: Technological p og ess and popula ion a e exogenous. Capi al accumula ion
is he only endogenous g ow h sou ce
•S eady s a e:Kp
,s =Ip
,s/δ ,s,ξ ,s = [δ ,s/(δ ,s +δD
,s)] ·[(Ip
,s +Iξ
,s)/Ip
,s], and K ,s =I ,s/(δD
,s +δ ,s)
• Simula ions: India, SSP2 socioeconomic pa h, RCP2.6 clima e pa hway (when ele an )
Resul s
Capi al damage implemen a ions: shock and damage unc ions (Figu e 1). Top panels show con-
sump ion and ou pu impac a ios om capi al damage. Bo om-le panel con as s he disc e e
shock (50% capi al loss in 2060) wi h he damage unc ion (∼2% empe a u e-dependen loss, mod-
eled wi h pe ec o esigh ). Bo om- igh panel shows capi al ajec o ies: o he shock scena io,
pe ec o esigh agen s p eemp i ely educe accumula ion be o e he shock, while myopic agen s
ollow he baseline hen espond eac i ely.
• Capi al des uc ion leads o e y pe sis en loss o ou pu and consump ion
• Consump ion loss is la ge han ou pu loss, as economies di e esou ces owa d ebuilding
• High ulne abili y: Clima e haza ds des oying a ound 2% o p oduc i e capi al annually (mean)
lead o a ela i ely la ge d op in consump ion and ou pu (a ound 5% om 2070 onwa ds o bo h)
• High esilience: an unan icipa ed one- ime 50% des uc ion o capi al s ock leads o a d op in
consump ion and ou pu o ”only” a ound 20 % and 16 % espec i ely
Figu e 1: Impac a ios and capi al dynamics unde shock-based s. unc ion-based damage
Pe sis ence and Recons uc ion Cons ain s (Figu e 2). Reco e y om capi al shocks exhibi s sub-
s an ial pe sis ence, wi h consump ion and ou pu hal -li e ( ime o shock impac o decay o 50% o
ini ial alue) a ound 8 yea s. This pe sis ence is only modes ly a ec ed by:
• Recons uc ion capaci y cons ain s (Figu e 2: 5-100% o sec o al in es men )
• Discoun a e o he op imize (when ecalib a ed)
• Magni ude o he shock
• U ili y p e e ences o econs uc ions
Figu e 2: Consump ion and ebuilding unde a ying econs uc ion capaci y cons ain s
S ochas ic Damage and Agen Expec a ions (Figu es 3 & 4). Mon e Ca lo simula ions (200 uns,
exponen ial damage dis ibu ion, mean 3%).
• As o Fig. 1, pe ec o esigh agen s exhibi p ecau iona y capi al accumula ion, while myopic
agen s espond eac i ely o ealized shocks
• Mean ou comes om s ochas ic damage simula ions closely ma ch de e minis ic scena ios using
mean damage a es, o bo h myopic and pe ec o esigh agen s (see Fig. 3)
• Skewness in he damage dis ibu ion p opaga es pa ially o consump ion and ou pu losses
(Fig. 4), wi h subs an ial ou come a ia ion ac oss damage ealiza ions (Q1-Q3 on Fig. 3 and Fig. 4)
• Fo esigh speci ica ion has a no iceable impac on ou pu bu ma ginal impac on consump ion
Figu e 3: Myopic e sus pe ec o esigh unde s ochas ic and de e minis ic damage scena ios (India)
Figu e 4: Myopic o esigh s ochas ic dis ibu ions o consump ion and ou pu (India)
Nex S eps
Recons uc ion. Tes mul iple ebuilding beha io s and econs uc ion capaci y cons ain s.
Mul i-Channel Damage Func ions. In eg a e empi ical es ima es (e.g., om Mandel e al. 2025) o
de elop damage unc ions wi h mul iple ansmission channels (cyclones, loods, hea wa es, e c.).
Sec o al Cha ac e is ics. Re ine sec o -speci ic pa ame e s (dep ecia ion a es, ulne abili y pa -
e ns, and p oduc ion elas ici ies) o be e cap u e he e ogeneous clima e impac s and esponses.
T ade Spillo e s. Inco po a e in e na ional ansmissions h ough ade ne wo ks, examining how
localized capi al des uc ion p opaga es ac oss bo de s h ough supply and demand dis up ions.
Double-C unch Dynamics. In es iga e eedback be ween capi al des uc ion and capi al cos s—how
la ge-scale damage e en s igh en econs uc ion capaci y and aise inancing cos s.
Re e ences
A. Mandel, S. Ba is on, and I. Monas e olo. Mapping global inancial isks unde clima e change. Na u e Clima e Change,
2025. ISSN 1758-6798. doi: 10.1038/s41558-025-02244-x.
C. O o, K. Kuhla, and T. Geige . Incomple e eco e y o enhance economic g ow h losses om US hu icanes unde global
wa ming. Janua y 2022. doi: 10.21203/ s.3. s-654258/ 2. P ep in .
F. Pion ek, L. D oue , J. Emme ling, T. Kompas, A. Méjean, C. O o, J. Rising, B. Soe gel, N. Tacone , and M. Ta oni. In-
eg a ed pe spec i e on ansla ing biophysical o economic impac s o clima e change. Na u e Clima e Change, 11(7):
563–572, 2021. ISSN 1758-6798. doi: 10.1038/s41558-021-01065-y.
Benjamin Pee e s
benjamin.pee e s@pik-po sdam.de
www.pik-po sdam.de
