Climate crisis making economic crisis worse

The economic impact of climate change is six times worse than previously believed, with global warming poised to reduce wealth on a scale comparable to the financial losses of an ongoing permanent war, new research indicates.

Researchers have found that a 1°C rise in global temperature results in a 12% decline in global GDP, a much higher estimate than earlier studies. The planet has already warmed by more than 1°C since pre-industrial times, and many climate scientists predict a 3°C rise by the century’s end due to continued fossil fuel use. The new working paper, which has not yet been peer-reviewed, states that such a temperature increase will have enormous economic consequences.

A 3°C rise will lead to “precipitous declines in output, capital, and consumption exceeding 50% by 2100,” the paper reports. This economic devastation is “comparable to the damage caused by a domestic and permanent war.”

“There will still be some economic growth, but by the end of the century, people might be 50% poorer than they would have been without climate change,” said Adrien Bilal, a Harvard economist who co-authored the paper with Diego Känzig from Northwestern University.

Bilal noted that purchasing power would already be 37% higher without the global warming experienced over the past 50 years. This lost wealth will only worsen as the climate crisis intensifies, akin to the economic toll of wartime.

“The comparison to war is purely in terms of consumption and GDP,” Bilal clarified. “The suffering and death from war aren’t included in this analysis. The comparison may seem shocking, but in terms of GDP, there is an analogy. It’s a concerning thought.”

The paper estimates the social cost of carbon— the economic damage per additional ton of carbon emissions— to be $1,056 per ton, far exceeding the US Environmental Protection Agency’s (EPA) estimate of about $190 per ton.

Bilal explained that this research takes a more “holistic” view of climate change’s economic cost by considering it on a global scale rather than focusing on individual countries. This method captures the interconnected effects of heatwaves, storms, floods, and other climate impacts that harm crop yields, reduce worker productivity, and deter capital investment.

“They have linked local impacts with global temperatures,” said Gernot Wagner, a climate economist at Columbia University who was not involved in the research but considers it significant. “If the results hold up, and I see no reason they wouldn’t, they will greatly affect overall climate damage estimates.”

The study found that the economic impact of climate change will be surprisingly uniform worldwide, although lower-income countries will start from a lower wealth base. This finding should motivate wealthy countries like the US to reduce emissions for their own economic benefit.

Even with significant emission reductions, the paper concludes that climate change will still have a substantial economic cost. If global warming is limited to just over 1.5°C by the end of the century— a target that seems increasingly out of reach— GDP losses would still be around 15%.

“That is still substantial,” Bilal said. “The economy may continue to grow but at a slower rate because of climate change. It will be a gradual process, but the impacts will be felt acutely when they occur.”

This paper follows recent research indicating that average incomes will drop by almost a fifth within the next 26 years compared to what they would have been without the climate crisis. Rising temperatures, heavier rainfall, and more frequent extreme weather events are expected to cause $38 trillion in annual damage by mid-century.

Both studies highlight that the cost of transitioning away from fossil fuels and mitigating climate change impacts, though significant, is far less than the cost of unmitigated climate change. “Unmitigated climate change is much more costly than doing nothing about it,” Wagner stated.

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