Climate change’s economic costs are six times greater than previously estimated

According to new research by US economists, the economic costs of climate change could be six times more than previously estimated, with an additional 1C of global warming possibly wiping out as much as 12% of the world’s GDP.

The world has already warmed by over 1C since pre-industrial times, and climate scientists predict a 3C rise by the end of this century due to continued burning of fossil fuels. The new paper highlights the significant financial costs. The new working paper, which has not yet undergone peer review, outlines the significant financial costs associated with this scenario.

According to the research, “precipitous declines in output, capital, and consumption that exceed 50% by 2100” will result from a 3C increase in temperature. It goes on to say that the magnitude of this economic loss is “comparable to the economic damage caused by fighting a war domestically and permanently.”

“There will still be some economic growth happening but by the end of the century people may well be 50% poorer than they would’ve been if it wasn’t for climate change,” said Adrien Bilal, an economist at Harvard who wrote the paper with Diego Känzig, an economist at Northwestern University. “I think everyone could imagine what they would do with an income that is twice as large as it is now. It would change people’s lives.”

Bilal stated that if global warming hadn’t occurred over the previous 50 years, people’s purchasing power would already be 37% more than it is today. If the climate issue becomes worse, this lost wealth will spin out of control, resembling the kind of economic loss that happens during times of war.

“Let’s be clear that the comparison to war is only in terms of consumption and GDP – all the suffering and death of war is the important thing and isn’t included in this analysis,” Bilal said. “The comparison may seem shocking, but in terms of pure GDP there is an analogy there. It’s a worrying thought.”

The social cost of carbon is $1,056 per tonne, a higher estimate than previous research, and significantly higher than the US Environmental Protection Agency’s estimated cost of $190 per tonne, which is based on a range of emissions.

According to Bilal, the new study analyses the economic cost of climate change globally rather than just for a single nation, giving it a more “holistic” perspective. The interconnectedness of the effects of heatwaves, storms, floods, and other escalating climatic impacts that harm crop yields, lower worker productivity, and lower capital investment, he claimed, was reflected by this technique.

“They have taken a step back and linking local impacts with global temperatures,” said Gernot Wagner, a climate economist at Columbia University who wasn’t involved in the work and said it was significant. “If the results hold up, and I have no reason to believe they wouldn’t, they will make a massive difference in the overall climate damage estimates.”

The study reveals that climate change will have a significant economic impact worldwide, even with significant emissions reductions. Lower-income nations will begin at a lower wealth level, but the economic effects will be similar. This should encourage wealthier nations like the US to reduce emissions for their own economic benefit. The GDP losses would still be about 15% even if global warming was limited to 1.5C by the end of the century.

“That is still substantial,” said Bilal. “The economy may keep growing but less than it would because of climate change. It will be a slow-moving phenomenon, although the impacts will be felt acutely when they hit.”

The study is in line with other data that was published last month and indicated that, in the next 26 years, typical salaries will decrease by nearly a fifth from what they would have been in the absence of the climate catastrophe. According to the research, by the middle of the century, rising temperatures, more frequent and stronger extreme weather events, and greater rainfall are expected to wreak $38 trillion in annual destruction. The two studies demonstrate that, although not insignificant, the expenses associated with shifting away from fossil fuels and mitigating the effects of climate change are insignificant when compared to the overall cost of the phenomenon. Wagner stated, “It is evident that taking action against climate change is far less expensive than leaving it unchecked.”