World can avoid economic damages of 11% to 27% of cumulative GDP by limiting global warming below 2°C
* Climate mitigation investments could return 5 to 14 times of original investment * Report urges ...
World can avoid economic damages of 11% to 27% of cumulative GDP by limiting global warming below 2°C
* Climate mitigation investments could return 5 to 14 times of original investment
* Report urges 9-fold rise in investments for mitigation and 13-fold for adaptation by 2050
* Investment in both mitigation and adaptation could bring a return of around tenfold by 2100
A recent report said the world can avoid economic damages of 11% to 27% of cumulative GDP by limiting below 2°C. This corresponds to nearly 90% of the potential avoidable economic damages expected if we continue on the current trajectory of 3°C.
This means that climate mitigation investments could return 5 to 14 times of original investment, according to the report entitled Too Hot to Think Straight, Too Cold to Panic.
The report – prepared by Cambridge Judge Business School, BCG and the University of Cambridge’s climaTraces Lab – argues that failing to invest comes with significant economic consequences.
Given the GDP at risk, rapid and sustained investments in mitigation (cutting emissions) and adaptation (reducing vulnerability to climate change) would yield high returns. But investments in both must rise significantly by 2050—9-fold for mitigation and 13-fold for adaptation. We estimate that the total investment required equals 1% to 2% of cumulative economic output to 2100.
Without the investment necessary to limit further global warming, the economic growth and resilience on which the world relies will be severely diminished along with societies’ ability to achieve their broader goals.
The report suggests that the cumulative economic output could be reduced by 15% to 34% if the global average temperature is allowed to rise by 3°C by 2100 rather than being limited to below 2°C. And it’s likely that the economic damages will be at the upper end of the range (or even higher) due to the limitations of current models. They do not, for example, fully account for the economic damage of passing tipping points, such as the loss of coral reefs or the Amazon forest dieback.
“Governments, businesses, and people worldwide are paying the price for the storms, floods, heatwaves, and droughts that are caused by climate change,” the report highlighted.
“Without investment to avoid future climate change, it’s likely that the world’s economic output will be severely diminished, threatening the livelihoods of billions of people. This report sets out the economic case for climate action – and how we can make it influence decisions today.”
Kamiar Mohaddes, Associate Professor in Economics and Policy at Cambridge Judge Business School and Co-Director of the University of Cambridge climaTRACES Lab, and a co-author of the report, said “Research on climate change impacts across all regions and sectors is expanding rapidly. What stands out is that productivity loss – not merely capital destruction – is the primary driver of economic damage. It is also clear that climate change will reduce income in all countries and across all sectors, affecting industries ranging from transport to manufacturing and retail, not only agriculture and other sectors commonly associated with nature.”
Annika Zawadzki, BCG managing director and partner, and a co-author of the report, said “The economic case for climate action is clear, yet not broadly known and understood. Investment in both mitigation and adaptation could bring a return of around tenfold by 2100.”
Five barriers to climate action:
Despite the economic case for achieving the goals of the Paris Agreement, there are five barriers to climate action.
The first is that the economic case for climate action is not widely or deeply understood by leaders. Climate change slows growth and weakens resilience, undermining societies’ ability to achieve their broader objectives, including improving health care and strengthening security.
The second is that many costs of climate action come before 2050, but the bulk of the economic benefits will be evident after 2050.
The third barrier is that the costs and benefits of climate action are unevenly distributed among countries. Even with the Paris Agreement, there is no global consensus on how emissions should be reduced.
The fourth is that the transition threatens to create winners and losers within economies, requiring a just transition and equitable economic development.
Finally, the fifth barrier is that the economic damages of climate change are not understood by economists to their full extent or with enough detail.
Five ways to overcome these barriers:
There are five key steps that can help address the world’s climate-change challenges; namely reframing the debate on the costs of climate change, creating transparency on the net cost of inaction across all actors, strengthening national climate policies to accelerate mitigation and adaptation, reinvigorating international cooperation on climate change, and advancing our understanding of the net cost of inaction.
The economic impacts of climate change and the reasons to adapt are already tangible, making it crucial to overcome these barriers. By recognizing the cost of inaction and taking steps to overcome the barriers to action, leaders can put the world on a more sustainable path for current and future generations.
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