Economics of climate change: GDPs to fall worldwide

economics of climate change
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A new study on the economics of climate change has found that global gross domestic product (GDP) will fall by around 7% by 2100 as a direct result of the climate emergency.

The ‘Long term macroeconomic effects of climate change: a cross-country analysis’ report, published in the National Bureau of Economic Research journal this week by researchers from the Universities of Cambridge and Southern California, Johns Hopkins University, National Tsing Hua University in Taiwan and the International Monetary Fund, draws on economic and meteorological data from 174 countries to determine the future economics of climate change worldwide. Its authors conclude that, in contrast to current prevailing economic theories positing that the most severe financial effects of climate change will hit predominantly hot and low income countries, the impact will be felt more or less equally in developed and cooler nations.

Dr Kamiar Mohaddes of Cambridge’s Faculty of Economics, a co-author of the study, said: “Whether cold snaps or heat waves, droughts, floods or natural disasters, all deviations of climate conditions from their historical norms have adverse economic effects. Without mitigation and adaptation policies, many countries are likely to experience sustained temperature increases relative to historical norms and suffer major income losses as a result. This holds for both rich and poor countries as well as hot and cold regions.

“Canada is warming up twice as fast as rest of the world. There are risks to its physical infrastructure, coastal and northern communities, human health and wellness, ecosystems and fisheries – all of which has a cost. The UK recently had its hottest day on record. Train tracks buckled, roads melted and thousands were stranded because it was out of the norm. Such events take an economic toll and will only become more frequent and severe without policies to address the threats of climate change.”

If the greenhouse gas emissions continue worldwide at the current rate, temperatures are projected to rise globally by four degrees Celsius by 2100. In this scenario, the study predicts a 10.5% fall in GDP in the USA, with national income losses of 13% in Canada and 12% in Switzerland. India, Japan and New Zealand will each lose 10% of GDP; Russia will lose 9%; and the UK’s GDP will fall by 4%. A variety of sectors including manufacturing, industry, tourism, trade and infrastructure will all suffer from the increasingly extreme weather events precipitated by climate change.

If the world’s nations adhere strictly to the terms of the Paris climate agreement on reducing emissions and slowing the rate of global heating, however, the study says the economic impacts will be correspondingly less dire; with Canada and the US both able to keep their GDP losses under 2%.

Dr Mohaddes added: “The economics of climate change stretch far beyond the impact on growing crops. Heavy rainfall prevents mountain access for mining and affects commodity prices. Cold snaps raise heating bills and high street spending drops. Heatwaves cause transport networks to shut down. All these things add up. The idea that rich, temperate nations are economically immune to climate change, or could even double and triple their wealth as a result, just seems implausible.”

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