- Summary report, titled “Costing the Earth - Climate Damage Costs and GDP”, shows sharply rising climate change related economic and non-economic damage costs in a ‘business as usual’ scenario to US$31 trillion/year.
- By contrast, a Paris Agreement-aligned scenario - where temperatures are kept to 2°C above pre-industrial levels, results in these damages peaking at US$1.8 trillion/year in 2070.
- Findings show the damage costs caused by climate change will be triple this level by 2070 and reach costs 17x higher if no mitigation action is taken to cut Green House Gas (GHG) emissions.
- Mitigation costs by contrast offer a cheaper solution peaking at US$7 trillion/year by 2050.
- Feeding back annual damage costs on GDP in the "business as usual" scenario shows a 25% reduction in GDP growth by 2100.
LONDON, 05 OCTOBER 2020: A first-of-its-kind report released today by CDP, a non-profit which runs the global environmental disclosure platform, and University College London (UCL) has modelled the mean damage costs of ‘business as usual’ action on climate change at $5.4 trillion a year by 2070 and $31 trillion a year by 2200. Accounting for these damages will lead to a 10% reduction in GDP growth rate by 2050 and 25% by 2100.
Although there is growing recognition that climate change could have a high impact on long term GDP growth, an important measure of economic health and well-being, attempts to embed climate-related risks into mainstream macro-economic indicators have been limited. This is partly because the impact of climate change on GDP is difficult to capture as there are regional winners and losers and large uncertainties in the modelling approach.
This report uses three comprehensive models to capture climate change impacts in two central long-term scenarios - a 2°C scenario, which is aligned to the Paris Agreement ambitions, and a ‘Reference Scenario’ based on a ‘business as usual’ pathway that implies a temperature rise of 4.4° C by the end of this century.
The study clearly shows the high costs of damages from both economic and non-economic costs*, including environmental damage, in a scenario where no action is taken to cut GHG emissions. This compares to a 2°C scenario where policy action results in a fraction of the costs of damage. This will involve investing in mitigation action but will result in damages peaking in 2070 at a much lower level.
Damage costs in the 2°C scenario peaks at US$1.8 trillion by 2070 and plateaus after this, whereas the ‘business as usual’ scenario shows costs running at triple this level (US$5.4 trillion) and rising steeply beyond 2100 (reaching above US$31 trillion a year toward year 2200).
The report, commissioned by CDP, highlights the importance of capturing climate impacts on GDP using a granular approach, and to understand regional and sectoral differences with some markets and regions more susceptible to climate related risks. A granular approach to modelling agricultural impacts sees significant negative impacts in regions including India and Africa while temperate regions should see net benefits.
Physical impacts from climate change such as heat stress can also impact GDP. For instance, impacts on the productivity of the industrial and service sectors will result in mean global GDP falling in both central scenarios.
How our energy system needs to be adapted is also impacted - a scenario resulting in very high damage costs sees an acceleration in the pace of electrification using renewable sources and high take up of carbon capture technologies.
Carole Ferguson, Head of Investor Research at CDP, commented: “The impact of climate change on GDP varies significantly between regions, with developing economies such as India suffering the most. Given the potential scale of damage costs and the implications for disruption in the global system, economic actors cannot just wait for the right regulatory policies to be put into place. Policy makers, corporates and the financial system, which will be impacted, should be proactive in investing in mitigation and adaptation to avoid these high damage costs.”
Dr Gabrial Anandarajah, Associate Professor from the UCL Energy Institute, commented: “In evaluating the impacts of climate change on GDP, we have attempted to overcome the limitations of a single model by using three different models developed at the UCL Energy Institute and the UCL Institute for Sustainable Resources. Three multi-region global models have been used to estimate economic and non-economic costs of climate change on various economic sectors”.
– Ends –
Notes to editor:
* As climate change will affect a wide range of social, economic and environmental systems, it has become common to split these impacts into non-economic losses and economic losses. Economic losses can be understood as the loss of resources, goods and services that are commonly traded in markets. Whereas, non-economic items are those that are not commonly traded in markets such as life, health, human mobility, territory, cultural heritage, biodiversity and ecosystem services. This report refers to both of these types of losses.
The full report, ‘Costing the Earth – Climate Damage Costs and GDP’ can be found here.
The report uses three comprehensive models: PAGE, ENGAGE and TIAM-UCL (more information on each can be found in the report)
For more information, or exclusive interviews, please contact:
Sara Firouzyar, CDP, tel. +44 (0) 2038 183 973 | email: [email protected]
CDP is an international non-profit that drives companies and governments to reduce their greenhouse gas emissions, safeguard water resources and protect forests. Voted number one climate research provider by investors and working with institutional investors with assets of US$106 trillion, we leverage investor and buyer power to motivate companies to disclose and manage their environmental impacts. Over 8,400 companies with over 50% of global market capitalization disclosed environmental data through CDP in 2019. This is in addition to the over 920 cities, states and regions who disclosed, making CDP’s platform one of the richest sources of information globally on how companies and governments are driving environmental change. CDP is a founding member of the We Mean Business Coalition. Visit https://cdp.net/en or follow us @CDP to find out more.
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