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A new international study has revealed a worrying fact: the effects of climate change could reduce global personal wealth by up to 40%. In addition to environmental damage, the economic impacts could affect investments, savings and markets, especially in more vulnerable regions.
By the end of this century, global warming could reach a new target: people's pockets. world population. A study published in the journal Environmental Research Letters shows that climate change will not only reshape geographical maps, but also directly affect global income. The forecast is stark: if temperatures rise by 4°C by 2100, average incomes could fall by up to 40%.
Even a more moderate increase of 2°C — just above the Paris Agreement target — would still result in losses of 16%. According to the authors, the current trajectory puts the world close to a 3°C increase.
Climate change: the mistakes of old models
The study criticizes the economic models used to date. Traditionally, they only considered the local impacts of climate change. In other words, a drought in India would also affect global income, not just the Indian economy, for example.
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According to Dr Timothy Neal, lead author of the study and a researcher at the University of New South Wales, this led to erroneous conclusions. “Because these damages were not taken into account, previous economic models inadvertently concluded that even severe climate change was not a big problem for the economy — and had profound implications for climate policy.”, he said to the Daily Mail.
To correct this error, Neal and his team updated a well-known economic model to incorporate the global effects of extreme weather events. The new scenario they presented is far more worrying.
The real impact of extremes
Climatologists already know that averages don’t tell the whole picture. An average increase of 2°C doesn’t mean that every day will be just two degrees warmer. It also means extreme events, such as heat waves of 45°C in previously temperate regions.
Economists, however, tend to work with national and annual averages of temperature and precipitation. This leaves out the real economic impact of these extremes — and that’s exactly what the new study seeks to include.
The new methodology
Neal’s team reran three influential economic models: those by Marshall Burke, Matthew Kahn and Max Kotz. All of them relate historical climate data to economic growth. The difference was that they included global temperature and precipitation data.
A total of 2.500 simulations were conducted using 22 climate models. The study compared extreme emissions scenarios with more moderate trajectories.
The results changed dramatically with the addition of the global factor. In Kotz’s model, for example, the GDP loss in 2100 went from 11% to 40%. In Burke’s model, the jump was from 28% to 86%. Kahn’s model was the most conservative, rising from 4% to 19%.
Recalculating climate policy
These numbers are considered enormous. They indicate that the costs of climate change are much higher than previously thought. As a result, some measures to curb global warming may end up saving money rather than generating costs.
The researchers used the new data in the DICE model, which combines climate science, economics and the carbon cycle. When the new results were plugged in, it became clear that reducing warming from 2,7°C to 1,7°C became a more cost-effective choice.
This data reinforces the importance of acting urgently to meet the goals of the Paris Agreement. If economic risks are taken seriously, more aggressive climate policies will be inevitable.
Warning reinforced by other studies
Neal and his team’s findings echo other recent warnings. A 2023 report from the Potsdam Institute estimated that climate change could reduce global income by nearly 19 percent over the next 25 years. Damage to infrastructure, agriculture and public health could cost $38 trillion a year by 2050.
These numbers are only expected to increase if no measures are taken to curb warming.
Collaboration between areas
One of the clearest messages from the study is the need for collaboration. Climate scientists need to work with economists to better understand how climate extremes affect human systems.
There is an urgent need to review current models. They need to reflect not only local effects, but also indirect impacts caused by events in other parts of the world. This can help governments make more informed decisions.
Impacts of climate change beyond where it occurs
Weather events don’t just affect where they occur. A drought in one country can affect food prices in another. A heatwave in the US can affect supply chains in Europe. This kind of interconnectedness needs to be factored into the equation.
According to Professor Andy Pitman, co-author of the study and a climate scientist at UNSW, the moment demands action: “Countries can fully attribute their economic vulnerabilities to climate change and then do the obvious: reduce emissions.”, he told the The Guardian.
A vulnerable system
The study’s takeaway message is clear: we need to rethink how we analyze the effects of climate on the economy. Models that ignore global connections are failing. And the price of this failure could be paid by everyone.
If an extreme weather event hits a distant nation, it may be time to stop seeing it as an isolated event. It could be a ripple that ripples across the planet and affects the entire global economy—fragile, interconnected, and exposed to climate change.
With information from ZME Science.
