Environmental Damage May Cost 20% of Your Income in the Next 25 Years

The Staggering Economic Cost of Climate Change by 2050

The debate surrounding climate change mitigation has long included a cost-benefit analysis: would transitioning away from fossil fuels be more expensive than adapting to a changing world? A growing consensus suggests that the answer is a resounding no, further emphasized by a recent study that sheds light on the economic impact of climate change in the near future.

Linking Climate Factors to Economic Impacts

Researchers identified several climate measures, such as average temperatures, daily temperature variability, total annual precipitation, the annual number of wet days, and extreme daily rainfall, that have been linked to economic impacts. Some effects, like extreme rainfall, are likely to have immediate consequences, while others, like temperature variability, may have a gradual impact felt over time.

The study tested each factor for lagging effects, indicating an economic impact sometime after their onset. Temperature factors could have a lagging impact up to eight years after they changed, while precipitation changes were typically felt within four years of climate-driven changes.

Projecting Future Economic Costs

Using climate projections from the Coupled Model Intercomparison Project (CMIP), the researchers estimated the economic costs of future climates. However, uncertainties grow with time, and the future economy may differ significantly from the present. To address this, the researchers performed a random sampling to determine the uncertainty in their system, finding that after 2049, the past economic impacts of climate may no longer apply.

The Committed Damages

By 2050, the researchers’ model suggests that “committed damages comprise a permanent income reduction of 19 percent on average globally,” compared to where growth would have led. The likely range, considering uncertainties, is between 11 and 29 percent. Using a middle-of-the-road scenario for economic growth, this translates to an economic hit of $38 trillion (measured in international dollars).

Kotz, Levermann, and Wenz suggest that this is an indication of warming we’re already committed to, in part because the effect of past emissions hasn’t been felt in its entirety and partly because the global economy is a boat that turns slowly, so it will take time to implement significant changes in emissions.

Uneven Distribution of Costs

The economic hit is not evenly distributed. Wealthy areas in the US and Europe will see incomes drop by only about 11 percent, while Africa and South Asia take a hit of 22 percent. This disparity is likely due to the greater capacity of wealthy countries to adjust to climate-related problems compared to those in the Global South. Ironically, the pace of change is much larger outside the tropics, meaning these countries will face more extreme changes.

The researchers note that the areas with the highest costs tend to have the lowest cumulative emissions, meaning the problems are felt most keenly in the countries that made the smallest contributions to them.

Potential Underestimation of Future Costs

The study’s findings could be an underestimate of future costs due to several factors. Over the long term, a warming climate will produce more unprecedented events, making it difficult to project their economic impact. Additionally, the study does not consider a large number of climate events, such as heat waves, severe tropical storms, and sea level rise, which could have a cumulative impact over time.

Furthermore, the researchers do not fully consider nonlocal impacts, such as how extreme weather in one location can ripple through supply chains to produce impacts elsewhere.

The Cost of Action vs. Inaction

The researchers contrast the estimated cost of committed damages with the IPCC’s estimate of the cost of limiting warming to 2 degrees Celsius: $6 trillion. This comparison highlights that even the short-term impacts of climate change will vastly outweigh the costs of action.

However, the study does not consider the dramatic reduction in the cost of mitigating climate change through renewable energy and efficiency over the past 20 years. By 2050, these advancements could make the difference between the cost of acting and the cost of doing nothing even more striking.