Research: Global cost of climate change could be six times greater than thought - BusinessGreen

Research: Global cost of climate change could be six times greater than thought | BusinessGreen News

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Paper by US economists claims a further 1C of global warming could trigger a 12 per cent hit to the world's GDP

Economic damages from climate change could be six times greater than previously thought, with a further 1C of global warming potentially wiping out as much as 12 per cent of global GDP, according to fresh research by US economists.

In a research paper published last week in the National Bureau of Economic Research, the economists from Harvard and Northwestern universities in the US estimate that every additional tonne of CO2 emitted could cause social costs of more than $1,000 in damages.

The findings are yet to be peer reviewed, but if they are backed up by other economists and experts, the authors argue their study suggests the economic benefits from taking ambitious, unilateral action to combat climate change at a national level are far greater than many previous analyses have suggested.

Many previous economic analyses of future climate impacts have estimated global GDP could suffer a loss of only around one to three per cent for every 1C of temperature rise, but the paper argues these relatively modest cost projections have failed to drive sufficient policy ambition to tackle climate impacts that could prove to be orders of magnitude larger.

"Climate change is frequently described as an existential threat," the paper states. "This view, however, stands in stark contrast to empirical estimates of the impact of climate change on economic activity, which imply that a 1C rise in the world's temperature reduces world output at most by one to three per cent. Under any conventional discounting, such effects seem hardly catastrophic."

However, unlike most widely used economic measures, last week's research assesses the economic costs of climate change on a global scale, rather than on an individual country basis. This, it argues, better captures the interconnected impacts of global warming and climate shocks worldwide, such as floods, storms, heatwaves, droughts, and more.

The authors asserts the domestic cost of carbon is always lower because damages to a single country are lower than at a global scale and fail to take into account the interconnected way climate impacts are felt through supply chain disruption, increased migration, and wider geopolitical risks.

"For instance, under conventional estimates based on local shocks, the domestic cost of carbon of the United States is $30/tCO2, making unilateral emissions reduction prohibitively expensive," the paper explains. "Under our new estimates however, the domestic cost of carbon of the United States becomes $211/tCO2 and thus largely exceeds policy costs. In that case, unilateral decarbonisation policy becomes cost-effective for the United States."

The paper therefore finds that the negative economic impact of global warming could be several orders of magnitude higher than widely thought, estimating that every 1C increase in global warming could deliver a 12 per cent hit to global GDP, or a cost of around $1,000 per tonne of CO2 emitted.

That is far higher than the most estimates of the social cost of carbon - a measure that tots up the economic damages and benefits of climate change - set out by the US Environment Protection Agency, which last year estimated the range of cost per tonne of CO2 at around $190 in 2020, rising to $410 by 2080.

The study authors - Northwestern University's Diego Känzig and Harvard University's Adrien Bilal - assert their findings suggest the social cost of carbon is far greater, which would significantly boost the economic case for deploying ambitious decarbonisation policies.

The planet's temperature has already warmed by around 1C on average since the Industrial Revolution, and scientists have concluded greenhouse gas emissions need to be halved worldwide by 2030 in order to stand a reasonable chance of limiting temperature rise to 1.5C by 2100.

However, with emissions continuing to rise - bar a blip during 2020 caused by the Covid-19 pandemic - many experts warn the world is on track for around 2.5C to 3C of warming by the end of the century based on current trends, with catastrophic implications for societies and economies.

Last week's paper suggests that based on business as usual trends warming by 2100 would cause a present welfare value loss - a economic measure used to assess economic efficiency impact of government policy - of 31 per cent.

Totting up the potential economic costs of climate change is hugely complex, given the raft of different factors, uncertainties, and policy changes worldwide, and as such all estimates are always speculative and are often subject to fierce criticism from both those who think economies should be decarbonising faster and those opposed to climate action.

However, the research has nevertheless caught the attention of a number of leading economists and climate experts. Gernot Wagner, a climate economist at Colombia University - who was not involved in the research - told The Guardian the paper was significant in linking local impacts of climate change with global temperature changes.

"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," he told the newspaper.

The study also follows a separate analysis from the Potsdam Institute, which similarly warned the economic impacts from rising temperatures could be much higher than expected in the coming decades resulting in $38tr of climate damages a year by 2050 and knocking nearly a fifth off projected GDP.

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