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$38 trillion per year in economic losses expected due to climate change

Climate change is no longer a distant threat. The economic impacts are already being felt globally, and substantial new studies quantify the financial risks associated with a warming planet.

If left unchecked, climate change could severely destabilize national and global economies by reducing Gross Domestic Product (GDP).

Climate change and GDP

Let’s be absolutely clear on one thing: Doing nothing about climate change is not an affordable option.

ETH Zurich researchers determined that a 37.4 °Fahrenheit (3ºC) increase in average global temperatures could significantly reduce worldwide GDP by a substantial 10%.

This GDP loss represents a major disruption to the overall economic activity and productivity of nations around the globe.

It’s important to note that the 37.4 °F warming scenario is alarmingly within reach if current greenhouse gas emission trends continue.

Climate change impact on economic growth sectors

While past projections considered rising temperatures, the ETH Zurich study highlights an often-overlooked aspect: climate variability.

Factoring in more extreme temperature swings and unpredictable rainfall patterns reveals that the negative economic consequences of climate change are likely more severe than previously estimated.

The Potsdam Institute for Climate Impact Research has issued a stark warning about the economic consequences of climate change. Their recent study predicts a potential income reduction of a staggering 19% for the world’s economy by 2050.

To put this 19% reduction in perspective, the PIK study translates it into a real-world figure: a staggering $38 trillion in annual losses by 2050.

This immense sum represents the estimated cumulative financial burden of climate change on the global economy every single year.

Why it’s worse than we thought

“It turns out that the estimated impact of spiking temperatures is worse than previously thought,” explains Paul Waidelich, an economist at ETH Zurich who led one of the studies.

The past estimates have mainly looked at rising average temperatures. Now we know we need to consider how our whole climate system is getting more erratic. Possible reasons include the following.

Rainfall disruptions

Climate change is leading to more erratic rainfall patterns, with some regions experiencing extreme downpours while others face prolonged droughts.

This disruption is particularly problematic in places not accustomed to heavy rainfall, leading to substantial economic damages.

Unusually heavy rainfall events can overwhelm existing drainage systems, flood roads and buildings, damage crops, and disrupt supply chains.

This can result in significant costs for repairs, lost productivity, and reduced economic activity. The US and China are particularly vulnerable to these damages due to the scale and value of their infrastructure.

The economic losses caused by extreme rainfall events can be immense on a regional and national scale. The reference to the 2021 European floods provides a tangible example of the magnitude of costs that can be incurred.

Economic toll of heat waves

While the most obvious consequences of heat waves are health-related, the economic impacts of the climate change are often overlooked. However, as temperatures rise globally, the economic consequences of heatwaves are escalating.

Extreme heat can cause heat stress, reduce labor productivity across multiple sectors (agriculture, construction, manufacturing), and even lead to temporary business shutdowns. These factors add up to significantly reduced economic output.

Heatwaves increase heat-related illnesses and hospitalizations, straining healthcare systems and diverting economic resources.

Even traditionally cooler countries will face worsening heat extremes as average temperatures rise. This means no nation is truly immune to the economic consequences, underscoring global vulnerability to heatwave-induced disruption.

Global economy threat

“Some people still say that the world cannot afford rapid decarbonization, but the global economy will also suffer from the impacts of climate,” says Sonia Seneviratne, ETH Zurich professor and IPCC expert.

In future, transitioning to clean energy sources and a low-carbon economy requires upfront investments in research, development, and infrastructure upgrades.

There will be costs associated with developing renewable energy technologies, building new power grids, and potentially replacing existing fossil fuel infrastructure.

Investing in clean energy now, though it comes with upfront costs, is a much wiser financial decision compared to the astronomical burden and human suffering that will result from a warming planet.

Climate change injustice and economic losses

Climate change isn’t just an environmental issue. It’s a story of profound injustice. The nations bearing the least responsibility for causing the climate crisis are the ones projected to suffer the most severe economic consequences.

Many countries near the equator already experience harsh climates and limited resources. Further temperature increases will devastate agriculture, cripple fragile infrastructure, and severely endanger public health in these regions.

Research paints a grim picture. Less-developed nations could see income losses a staggering 60% greater than those experienced by wealthier nations due to climate change. This will exacerbate existing global inequality.

Why the disparity?

Wealthy, industrialized nations fueled their economic growth by emitting massive amounts of greenhouse gases throughout history. This created the climate crisis the world now faces.

On the other hand, poorer countries often cannot afford the infrastructure upgrades, climate-smart technologies, and early warning systems needed to shield their economies and populations from the worst effects of climate change.

“Our study highlights the considerable inequity of climate impacts: We find damages almost everywhere, but countries in the tropics will suffer the most because they are already warmer. Further temperature increases will therefore be most harmful there,” said says Anders Levermann, Head of Research Department Complexity Science at the Potsdam Institute and co-author of the study.

“The countries least responsible for climate change, are predicted to suffer income loss that is 60% greater than the higher-income countries and 40% greater than higher-emission countries. They are also the ones with the least resources to adapt to its impacts. It is on us to decide: structural change towards a renewable energy system is needed for our security and will save us money. Staying on the path we are currently on, will lead to catastrophic consequences. The temperature of the planet can only be stabilized if we stop burning oil, gas and coal,” Levermann concluded.

Reducing the climate change economic impact

Having acknowledged the grave implications, two essential actions emerge:

Cut emissions, now

There’s no avoiding it – stabilizing the climate requires phasing out fossil fuels (coal, oil, and gas) and fundamentally transforming how we power our economies and lives. This is a complex but achievable task.

The good news is, renewable energy technologies like solar, wind, and geothermal power, alongside increased energy efficiency measures, provide a blueprint for decarbonization. The technology exists – what’s needed is accelerated investment, political will, and widespread adoption

Moreover, swift action is essential. The Intergovernmental Panel on Climate Change (IPCC) clearly states that limiting warming to 1.5ºC demands deep cuts in carbon emissions within this decade.

Every fraction of a degree of warming avoided translates to significantly reduced economic losses and human suffering.

Support for vulnerable countries

Wealthy nations, who have historically emitted the bulk of greenhouse gases, bear a responsibility to support countries facing the most dire climate consequences. Climate justice demands this.

The obligation of the top polluting nations extends beyond financial aid and includes:

  • Technology transfer: Sharing clean energy technologies and climate-resilient infrastructure solutions.
  • Capacity building: Helping less-developed countries strengthen their expertise in climate adaptation planning and disaster risk reduction.
  • Loss and damage: Addressing compensation for climate impacts that are unavoidable even with adaptation measures.

Support for vulnerable nations isn’t just about fairness. Climate-driven instability in the least-developed countries has ripple effects across the globe, affecting trade, migration patterns, and potentially even security. Helping these nations adapt is a form of self-preservation for the international community.

Climate change isn’t an off-in-the-future issue. We’re already seeing real costs, and they’re only going to get worse. The economic consequences are undeniable and hit every corner of the world. The smart choice – the only affordable one – is investing in a clean energy future.

The studies are published in the journals Nature Climate Change and Nature.


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