A first-of-its-kind report released on 5th of October 2020 by CDP, a non-profit which runs the global environmental disclosure platform, and University College London (UCL) has modeled 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 modeling 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 and by doing so offers a wide frame of reference to estimate climate change-related economic and non-economic damage costs.
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. Policymakers, 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.”.
*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.
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The full report, ‘Costing the Earth - Climate Damage Costs and GDP’ can be found here.