Consumer welfare and climate change in Greenland

Abstract

This manuscript aims to assess the potential impact of climate change on consumer welfare in Greenland, an arctic economy that has been historically affected by climate variation. Three proxies for climate change: (i) annual mass change anomaly of the ice cap, (ii) annual temperature anomalies, and (iii) annual heating degree days anomalies are used to test the hypothesis that climate is a potential determinant of consumer expenditure. The Quadratic Almost Ideal Demand System, in its original specification, is used to test this hypothesis. The empirical analysis, supported by Granger-causality tests, shows that the annual mass change anomaly of the ice cap is a statistically and economically significant determinant of consumption of non-durable goods in Greenland. A counterfactual analysis predicts that climate change could have decreased the wealth of consumers with an aggregate cumulative social welfare loss of 2010-US$ 21.63 million between 2003 and 2017.