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The Economic Impact of Climate Change

According to climate change research, the global economy will lose as much as 18% of its total economic value by 2050 if we don’t reduce greenhouse gas emissions in line with Paris Agreement Targets. These economic impacts are projected to be disproportionately felt by countries in Asia, with China estimated to be at risk of losing 24% of its GDP in severe scenarios. The U.S. and Europe are projected to lose up to 10% and 11% of their GDPs, respectively. 

What is the Paris Agreement?

Adopted in 2015, the Paris Agreement is an international treaty on climate change. It is a joint agreement between 195 countries that focuses on advancing climate change mitigation, adaptation, and financing. As members of the Paris Agreement, countries are committed to reducing their greenhouse gas emissions to meet specified targets over the next century. These targets aim to limit cumulative global temperature increases to no more than 1.5 degrees Celsius – the temperature at which the IPCC’s 2018 special report suggests we will reach the “tipping point” of climate change.

Current Progress Toward Paris Agreement Targets

According to a report released by UN Climate Change in October 2022, countries are beginning to reduce their greenhouse gas emissions. Still, these reductions are occurring at a rate that remains insufficient to limit global temperature increases to no more than 1.5 degrees Celsius by the end of the century. Furthermore, current assessments of our Global Carbon Budget – a measure of how much wiggle room we have before our carbon emissions result in irreversible climate change – suggest that our current emissions rates leave us only nine years before we reach the 1.5 degrees Celsius tipping point. 

In short, while we are progressing toward reduced emissions, there’s still a long way to go.

The Economic Impacts of Climate Change if We Don’t Act Now

Numerous research has been published about the potential effects of climate change if we don’t reach Paris Agreement and IPCC targets. Anticipated economic impacts include decreased per capita income, disproportionately adverse impacts on economic productivity, and greater economic instability worldwide. 

Lower Per Capita Income and Disproportionate Impacts on Economic Productivity

According to research during the last half of the 20th century, an average temperature rise of 1 degree Celsius over any given year was correlated with a 1.4% decrease in per capita income for the area affected. Moreover, the impacts of lower per capita income continued for prolonged periods, contributing to diminished economic performance over time. Additional research has since demonstrated that increases in global temperatures have disproportionately affected countries with already warm climates. Whereas some countries with naturally cooler climates experienced higher economic productivity and income when temperatures increased, countries with already warm climates experienced dramatic declines in productivity. 

Therefore, not only do higher temperatures correlate with lower per capita income, but countries with already warm climates are more likely to be adversely affected by climate change, especially when it comes to levels of economic productivity.

Natural Disasters and Compromised Economic Integrity

In addition to impacting economic productivity and generating lower per capita income, research demonstrates that climate change has the potential to create a world of more frequent and intense natural disasters that compromise the integrity of many developing countries’ economies. Moreover, countries in south and southeast Asia, such as Malaysia, Thailand, India, the Philippines, and Indonesia, are particularly vulnerable. These countries are not only most likely to be impacted by natural disasters caused by climate change, but they are also the least equipped to recover from the economic instability caused by them. In comparison, many countries in the northern hemisphere are projected to be comparably less impacted, with the U.S., Canada, Switzerland, and Germany being the least likely to be significantly affected.

Where do we go from here?

The economic impacts of climate change cannot be overstated. Without timely action, our greenhouse gas emissions will result in tangible blows to the economic well-being of our world. However, it’s not too late to reverse this trajectory.

The effects of climate change can be reduced if we come together to accelerate our transition to 100% clean and renewable energy sources. Our commitment to reducing emissions must be intensified and prioritized, and members of the public and private sectors must come together to develop collaborative solutions that advance the future of energy. 

Climate change is a complex problem that requires collaborative solutions. If we don’t act now, we risk losing our chances of creating a better, more economically-sound world where future generations can thrive.  

Interested in learning more about how to mitigate climate change? Check out to learn more about how Colorado is bringing leaders across government, industry, and academia together to accelerate the energy transition and reduce our greenhouse gas emissions.