Economic analysis of climate change

[11][12][13] They also take into account that some regions or sectors benefit from low levels of warming, for example through lower energy demand or agricultural advantages in some markets.

For example, in some areas, policies designed to mitigate climate change may contribute positively towards other sustainable development objectives, such as abolishing fossil fuel subsidies which would reduce air pollution and thus save lives.

[10]: 2495 [39]: 755  This approach can causatively identify effects of temperature, rainfall and other climate variables on agriculture, energy demand, industry and other economic activity.

[39]: 755  Other econometric studies show that there are negative impacts of hotter temperatures on agricultural output, and on labour productivity in factories, call centres and in outdoor industries such as mining and forestry.

[41]: 428 [42]: 238–239 The CBA framework requires (1) the valuation of costs and benefits using willingness to pay (WTP) or willingness to accept (WTA) compensation[43][44][45][46] as a measure of value,[47] and (2) a criterion for accepting or rejecting proposals:[47] For (1), in CBA where WTP/WTA is used, climate change impacts are aggregated into a monetary value,[43] with environmental impacts converted into consumption equivalents,[48] and risk accounted for using certainty equivalents.

Risk management can be used to evaluate policy decisions based a range of criteria or viewpoints, and is not restricted to the results of particular type of analysis, e.g., monetized CBA.

[75] Two related ways of thinking about the problem of climate change decision-making in the presence of uncertainty are iterative risk management[76][72] and sequential decision making.

Stringent near-term emissions reductions allow for greater future flexibility with regard to a low stabilization target, e.g., 450 parts per million (ppm) CO2.

In comparison, limiting global warming to 2 °C would by 2050 cost about $6 trillion per year, or far less than the anticipated annual damages, emphasizing the economic benefits of proactive climate mitigation.

One 2020 study estimated economic losses due to climate change could be between 127 and 616 trillion dollars extra until 2100 with current commitments, compared to 1.5 °C or well below 2 °C compatible action.

[106] One 2018 study found that potential global economic gains if countries implement mitigation strategies to comply with the 2 °C target set at the Paris Agreement are in the vicinity of US$17 trillion per year up to 2100, compared to a very high emission scenario.

[105] The Stern Review from 2006 for the British Government predicted that world GDP would be reduced by several percent due to climate related costs.

[1] According to a study by reinsurance company Swiss Re in 2021 the economies of wealthy countries like the US would likely shrink by approximately 7%, while some developing nations would be devastated, losing around 20% or in some cases 40% of their economic output.

[113] A United States government report in November 2018 raised the possibility of US GDP going down 10% as a result of the warming climate, including huge shifts in geography, demographics and technology.

[121] The health benefits of phasing out fossil fuels measured in money (estimated by economists using the value of life for each country) are substantially more than the cost of achieving the 2 degree C goal of the Paris Agreement.

[122] As extreme weather events become more common and more intense, floods and droughts can destroy crops and eliminate food supply, while disrupting agricultural activities and rendering workers jobless.

[130] Notably, one estimate suggests that a warming of 3 °C (5.4 °F) relative to late 20th century (i.e. closer to 4 °C (7.2 °F) when compared to preindustrial temperatures – a level associated with the SSP5-8.5 scenario) would cause labour capacity in Sub-Saharan Africa and Southeast Asia to decline by 30 to 50%, as the number of days when outdoor workers experience heat stress increases: up to 250 days the worst-affected parts of these two continents and of Central and South America.

[131]: 717 : 725 Similarly, North China Plain is also expected to be highly affected, in part due to the region's extensive irrigation networks resulting in unusually moist air.

If an approach is taken where the interests of poorer people have lower weighting, the result is that there is a much weaker argument in favour of mitigation action in rich countries.

Because the industrialized countries have contributed more than two-thirds of the stock of human-induced GHGs in the atmosphere, this approach suggests that they should bear the largest share of the costs.

[220][clarification needed] No regret options are social and economic benefits developed under the assumption of taking action and establishing preventative measures in current times without fully knowing what climate change will look like in the future.

Assessing climate change impacts and mitigation policies involves a comparison of economic flows that occur in different points in time.

The DICE model uses discount rates, uncertainty, and risks to make benefit and cost estimations of climate policies and adapt to the current economic behavior.

These estimates depend on future emissions, climate sensitivity relative to increase in greenhouse gas concentrations, and the seriousness of impacts over time.

[237] Discounting is a relatively controversial issue in both climate change mitigation and environmental economics due to the ethical implications of valuing future generations less than present ones.

Non-economists often find it difficult to grapple with the idea that thousands of dollars of future costs and benefits can be valued at less than a cent in the present after discounting.

[246]: 622  Macroeconomic costs in 2030 were estimated for multi-gas mitigation (reducing emissions of carbon dioxide and other GHGs, such as methane) as between a 3% decrease in global GDP to a small increase, relative to baseline.

On the other hand, cost estimates could be reduced by allowing for accelerated technological learning, or the possible use of carbon tax/emission permit revenues to reform national tax systems.

The conclusions of these studies are as follows:[250]: 776 There have been different proposals on how to allocate responsibility for cutting emissions:[251]: 103 Economic components like the stock market underestimate or cannot value social benefits of climate change mitigation.

Climate policies-induced future lost financial profits from global stranded fossil-fuel assets would lead to major losses for freely managed wealth of investors in advanced economies in current economics.

Estimated median income loss or gain per person by 2050 due to climate change, compared to a scenario with no climate impacts (red colour indicates a loss, blue colour a gain). [ 1 ]
Annual greenhouse gas emissions in the various NGFS climate scenarios 2022, based on the REMIND-MAgPIE model by the Potsdam Institute for Climate Impact Research [ 19 ]
This graph shows estimation confidence intervals from a meta-analysis of researchers as well as by the Stern Review in 2006 (damage costs measured as percent GDP ). [ needs update ]
Scaling the effect of wealth to the national level: richer (developed) countries emit more CO 2 per person than poorer (developing) countries. [ 62 ] Emissions are roughly proportional to GDP per person, though the rate of increase diminishes with an average GDP/pp of about $10,000.
Estimates of damage to GDP vary widely, and even this approach to predicting damage does not consider impacts of climate tipping points, climate-driven extreme events, human health impacts, resource or migration-driven conflict, geopolitical tension, nature-driven risks, or sea level rise. [ 88 ]
After 2050, the global impacts of the high-emission scenario on economic output estimated to exceed those of the low-emission scenario at 1% statistical significance [ 1 ]
There is a growing number of weather-related disasters in the United States costing above one billion dollars [ 89 ] [ 90 ]
The amount by which greenhouse gas emissions are reduced is forecast to substantially affect the number of Winter Olympic Game venues that will have reliably cold conditions. [ 108 ]
Countries with the lowest GDPs per capita (yellow) and the lowest cumulative emissions will often suffer the greatest declines in their income relative to a hypothetical future where the impacts of climate change were not happening [ 1 ]
Economic impacts differ by region, North Africa, Middle East, South, Southeast and East Asia show statistical significance , with no statistical difference for Central Asia/Russia [ 115 ]
The distribution of warming impacts from emitters has been unequal, with high-income, high-emitting countries benefitting while harming low-income, low-emitting countries. [ 116 ]
Climate change is expected to exacerbate heat stress over at the North China Plain , which is particularly vulnerable as widespread irrigation results in very moist air. There is a risk that agricultural labourers will be physically unable to work outdoors on hot summer days, particularly under the scenario of greatest emissions and warming. [ 123 ] [ 124 ]
Projected economic impacts of 2 degrees of global warming on Senegal
The emissions of the richest 1% of the global population account for more than twice the combined share of the poorest 50%. Compliance with the 1.5 °C goal of the Paris Agreement would require the richest 1% to reduce their current emissions by at least a factor of 30, while per-person emissions of the poorest 50% could increase by a factor of about three. [ 172 ]
Though total CO 2 emissions (size of pie charts) differ substantially among high-emitting regions, the pattern of higher income classes emitting more than lower income classes is consistent across regions. [ 173 ] The world's top 1% of emitters emit over 1000 times more than the bottom 1%. [ 173 ]
Companies, governments and households have committed increasing amounts to decarbonization, including renewable energy (solar, wind), electric vehicles and associated charging infrastructure, energy storage, energy-efficient heating systems, carbon capture and storage, and hydrogen. [ 180 ] [ 181 ] [ 182 ] [ 183 ]
Investments in sustainable energy (clean energy) is an example of climate finance. As of 2023, it has increased due to high fossil fuel prices and growing policy support across various nations. [ 214 ]