With $38trn a year in climate impacts, the economy needs action now

On Earth Day, many people try to create awareness about the need to protect the earth and its natural resources. What is important now, however, is to understand the impact of our failure to do so. With recent research showing $38 trillion in annual damages from the way we do business today, it's time to act.

The world is committed to a 19% reduction in income due to climate change

Even if CO2 emissions are drastically reduced from today, the global economy is already committed to a 19% reduction in income by 2050 due to climate change, according to a new study published today. Nature. These damages are more than six times the cost of mitigation needed to limit global warming to two degrees.

The research saw scientists at the Potsdam Institute for Climate Impact Research (PIK) assess the future impacts of changing climate conditions on economic growth and their sustainability. Overall, global annual damages are estimated at $38 trillion dollars, with a range of $19-59 trillion by 2050. These damages result mainly from temperature rise but also from changes in precipitation and temperature variability. Accounting for other weather extremes, such as hurricanes or wildfires, can increase these figures even more.

That doesn't mean everyone will lose 19% of their income, it's a figure for the world as a whole. As with most things, there will be winners and losers. However, no one can deny how damaging it can be. „Our analysis shows that climate change will cause massive economic damage in the next 25 years in all countries around the world, and in the most developed countries such as Germany, France and the United States,” said PIK scientist Leonie Vance. study

Income reduction affects every region

PIK scientist and first author of the study, Maximilian Koetz, said: „”Stronger income reductions are expected in most regions, with South Asia and Africa being the most strongly affected, including North America and Europe. These are caused by the impact of climate change on various aspects relevant to economic development, such as agricultural yields, labor productivity or infrastructure.

Unsurprisingly, countries least responsible for emissions will suffer the most from its impacts. Anders Levermann, head of research in the Department of Complex Sciences at the Potsdam Institute and co-author of the study, said: „Countries least responsible for climate change are projected to experience 60% more income losses than high-income countries. And 40% more than high-emission countries.”

However, it is not a question of negative impacts on someone else, far from it – it has an impact everywhere. The research builds on work that has been warning for some time about the economic impact of climate change. Extreme weather events such as storms, floods, extreme heat and wildfires are on the rise. Frequent and severe heat waves cause public health problems, economic loss, human suffering and increasing mortality rates.

In fact, a 2022 research paper estimated that Between 1992 and 2013, $16 trillion was lostDue to the impact of high temperatures on human health, productivity and agricultural production – an amount in the lower range, costs up to $50 trillion annually.

Only in the US, please Extreme Heat: Economic and Social Consequences for the United States, the economic costs of extreme heat are estimated to reach $100 billion each year, just from „heat-induced productivity losses.” The report states: „All U.S. counties are feeling the economic burn of extreme heat, with labor-productivity losses expected to cost half a trillion dollars annually by 2050.” The report also predicts that extreme heat will kill 60,000 people a year by 2050.

Today's climate impact is shot, and we need to change course going forward

Vance also explains that increased adaptation will be required to avoid these near-term damages and some of their impacts as a result of past emissions. But also, he says: „We must reduce our emissions drastically and immediately – otherwise, the economic losses will be even greater in the second half of the century, up to 60% of the global average by 2100. This clearly shows that protecting our climate is much cheaper than not doing so, and it is Without even considering non-economic impacts such as loss of life or loss of biodiversity.

One of the most challenging aspects of this type of analysis is that it is published, read, and then the world moves on. Despite the clear link between current economic behavior and negative economic impacts, there is still little appetite to assess those impacts and link costs to corporate behavior. At some point, the recognition that an economy can function effectively only in a healthy environment must be achieved.

It goes without saying that economics cannot exist outside of nature and the context in which we all exist. The PwC analysis indicated that it is over Half of global gross domestic product, or $58 trillion, is moderately or heavily dependent on nature. However, research by the World Standardization Alliance shows that Few companies know how much their operations depend on natureLet alone reveal their impact.

The challenge here is that if we ignore the need for action on emissions and nature and environmental protection, we effectively cut the economy at its knees. The problem is that our current political and financial systems focus on short-term or longer-term revenue maximization – without factoring in the social and environmental problems ultimately borne by the taxpayer.

There are also economic opportunities

While the failure to take action on emissions and environmental protection is hard to fathom, the opportunities that arise from doing business differently are enormous. The latest figures from the International Energy Agency show that clean energy will add about $320 billion to the global economy by 2023. That's 10% of global GDP growth – more than the value added by the global space industry in 2023, or the equivalent of adding an economy the size of the Czech Republic to global output.

This figure comes from a combination of three things: manufacturing clean energy technologies; deployment of clean (or low-carbon) power generation capacity and networks; Sales of clean equipment such as EVs and heat pumps. In the US, GDP saw growth of 2.5% and clean energy contributed a significant 6% of that growth. Deinflation legislation and bipartisan infrastructure legislation boosted investment in clean energy production, and sales of EVs grew strongly. In China, clean energy accounted for one-fifth of the country's 5.2% economic growth, while in Europe that figure was projected to account for one-third of GDP by 2023.

As Leverman puts it: “It's up to us to decide: A structural shift toward a renewable energy system is what we need for security and will save money. The path we are currently on will lead to catastrophic consequences.” Given the potential for a low-carbon future and the dangers of ignoring the cost of inaction, how can we continue to ignore what needs to be done?