The latest forecasts from the UNSW Institute for Climate Risk & Response (ICRR) indicate that a global temperature increase of 4°C could reduce worldwide GDP by approximately 40% by the year 2100, a figure that starkly contrasts with previous estimates of about 11%.
This newly released study corrects a crucial mistake in the economic model that underpins current global climate strategies, thereby challenging the earlier carbon benchmarks that were considered acceptable. The findings bolster the argument for maintaining global warming within a 1.7°C limit, aligning with the ambitious targets set by international agreements such as the Paris Agreement and significantly below the 2.7°C previously deemed acceptable under older models.
Dr Timothy Neal, a Scientia Senior Lecturer at the School of Economics and affiliated with the ICRR, spearheads this research. He employs traditional economic models that balance the immediate costs of transitioning away from fossil fuels against the prolonged damages caused by climate change, refining critical components of these models. According to Dr Neal, while economists have traditionally relied on historical data to correlate weather events with economic growth to assess climate damage, they have overlooked the broader impacts on the global supply chain, which buffers economic shocks. He anticipates that future scenarios of heightened global temperatures will lead to widespread disruptions in supply chains due to extreme weather events across the globe.
Dr Neal argues convincingly for the necessity of robust actions against climate change. He points out that excluding these broader economic damages in previous models led to a significant underestimation of the economic threats posed by severe climate changes, which has had profound consequences for climate policies. Financial models that only accounted for localised damages have been integral to economic forecasts shaping major world powers’ climate policies and have been pivotal in forming international climate agreements.
Dr Neal also highlights that no country is safeguarded against the detrimental effects of climate change, debunking the myth that colder nations like Russia or Canada might benefit from such changes. The interdependencies within global supply chains ensure that no nation is insulated from the impacts. However, Dr Neal acknowledges that the research is not yet complete. His current models do not consider potential adaptations to climate change, such as human migration, which are both politically and logistically complex and have not been fully integrated into existing models.
As we continue to witness the effects of climate change on our economies—from escalating food prices to rising insurance costs—our responses must remain adaptable to new information to safeguard our collective interests effectively. Dr Neal’s work underscores the urgent need for an updated approach to understanding and mitigating the economic impacts of global climate change, urging all nations to recognise their vulnerability and act swiftly to counteract these changes.
More information: Timothy Neal et al, Reconsidering the macroeconomic damage of severe warming, Environmental Research. DOI: 10.1088/1748-9326/adbd58
Journal information: Environmental Research Provided by University of New South Wales