A new study by University of New South Wales researchers has revealed concerning data about climate change and the future of global economies. From their analysis, lead researcher Dr Timothy Neal and his colleagues found that 40% of the world’s global economic output could be erased if global temperatures were to rise by 4°C by 2100.
Their findings suggest that the current projections of the macroeconomic implications of climate change severely underestimate the extent to which rising temperatures will affect global economies. As the researchers explain, this is because current models “assume that weather impacting a single country is all that affects the economy of that country.”
Dr Timothy Neal stresses that a more accurate study of macroeconomics and climate change would instead consider the complexities of globalisation through trade, supply chains, and financial systems: “The interconnectedness of the global economy makes individual countries vulnerable to weather changes that impact other countries.”
Essentially, current climate policy is created under the illusion that the only climate that affects a country’s GDP is its own; in reality, poor weather conditions in separate countries are likely to have knock-on effects internationally.
Dr Timothy Neal’s study finds that with these considerations, damage to world GDP caused by global warming in 2100 increases from 11% (under previous economic models) to 40%.
Economists may be taking for granted the ability to maintain international trade under our current climate, where during any given year, some countries will experience favourable weather while others suffer from poorer conditions. This allows some countries the freedom to cover their losses by negotiating different trades when they are faced with bad deals due to adverse weather conditions.
“If poor weather causes adverse outcomes such as crop failures or capital loss, that country can usually rely on good conditions in other countries to import the affected commodities at a competitive price,” write the researchers.
However, with global temperatures rising, we are more likely to experience widespread dry or warm weather in a given year, which directly increases the likelihood of more countries experiencing poor weather simultaneously. Unsurprisingly, this can have a “large impact on global supply chains of important commodities and cost-push inflation.”
Why is our climate important for the economy?
With 80% of world trade materials being transported via waterways, climate change’s effects on sea levels are detrimental to essential trade infrastructure. Seaports, for example, are also vulnerable to other climate related issues like storms, waves, harsh winds, and flooding. Climate change’s threat to the maritime industry has been particularly noticeable in areas such as the Panama Canal, where there was a reduced throughput of roughly 15 million tons due to drought restrictions in 2023.
Droughts, which are made more intense and more frequent by climate change, lead to devastating economic consequences beyond the maritime industry as they also reduce crop yields, increase food prices, and lead to higher energy costs, livestock losses, soil degradation, and, of course, disruptions to supply chains.
Warmer temperatures also affect agriculture through the workers, as they are at risk of occupational heat-related mortality. The job of the agricultural worker is becoming harder and puts them at further risk due to these climate change related issues. Occupational heat-related mortality is reported to be 35 times higher among agricultural workers compared to workers from other industries. Naturally, this health issue impacts productivity, thus resulting in an impaired trade economy.
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Climate change can also result in water scarcity that tangibly leads to a negatively impacted economy. Economic growth is reliant on water as a vital factor of production, so diminishing water supplies can result in slower growth that threatens economic prospects. A World Bank Group report estimates that “[s]ome regions could see their growth rates decline by as much as 6% of GDP by 2050 as a result of water-related losses in agriculture, health, income, and property.”
Can it be avoided?
Only if we implement immediate policy action to adjust to this rate of planetary insolvency. An urgent and updated policy response should involve a stronger collaboration between scientists and economists to jointly assess how climate models might be used to develop economic forecasts.
Dr Timothy Neal’s study also provides a new figure for what is considered to be a safe level of temperature increase. Previous models supported targets of up to 2.7°C, whereas Dr Timothy Neal demonstrates that we will see an accelerated rate of economic damage if temperature increases surpass a 1.7°C rise. This falls in line with the goals of the Paris Agreement “to limit the temperature increase to 1.5°C above pre-industrial levels.”
Ultimately, as Dr Timothy Neal suggests, there is a necessity for urgent policy changes to protect our environment from further deterioration:
“We continue learning from how we see climate change impacting our economy right now, from rising food prices to insurance costs, and we need to be responsive to new information if we’re going to act in our best interest.”
Editor’s Note: The opinions expressed here by Impakter.com columnists are their own, not those of Impakter.com — In the Cover Photo: The Pine Gulch fire in Colorado, United States, August 2, 2020. Cover Photo Credit: Kyle Miller / Wyoming Hotshots / National Interagency Fire Center.
