The Distributional Effects of Temperature Changes: Evidence from China's Cement Industry

The distributional effects of climate change are important, yet understudied. Using a panel of firm-level data on the cement industry and plausibly exogenous variation in temperature within counties in China, this article investigates how producers and consumers split the economic cost of high temperatures. The results suggest that extremely high temperatures reduce TFP and increase the marginal cost of cement production. However, there is an incomplete pass-through of the increased cost to consumers in the form of higher product price. Relative to a day with a mean temperature between 12-15 degrees C, an additional day with a temperature exceeding 30 degrees C can increase the price by approximately 0.22%. On average, consumers bear more than 50% of the cost burden associated with high temperatures.