Global GDP could face a decline of between 15% and 34% if global average temperatures rise by 3°C by 2100, a new report by BCG alongside Cambridge Judge Business School and the University of Cambridge’s climaTRACES Lab has suggested.
This equates to an annual reduction in GDP of 0.56%, the study, Too Hot to Think Straight, Too Cold to Panic: Landing the Economic Case for Climate Action with Decision Makers, noted.
However, the implementation of significant climate mitigation and adaptation investments, to keep temperatures below 2°C, could safeguard between 11% and 27% of GDP, it added.
The economic case
“Investment in both mitigation and adaptation could bring a return of around tenfold by 2100,” commented Annika Zawadzki, BCG managing director and partner, and a co-author of the report. “The economic case for climate action is clear, yet not broadly known and understood.”
According to the study, climate action investment needs to be front-loaded, with approximately 60% of investment required before 2050, even though more than 95% of the avoided economic damages will occur after that point.
Investment in climate action
Total required investment in climate action will amount to between 1% and 2% of cumulative GDP from 2025 to 2100, which would represent a ninefold increase in mitigation investments and a 13x increase in adaptation spending by 2050.
At the same time, much of the damage is already done, according to the report, with economic damages of between 2% and 4% of cumulative GDP unavoidable due to residual warming.
‘Economic damages are mainly driven by productivity losses and reduced capital accumulation from climate change including extreme weather events, rather than the destruction of physical assets,’ the study noted, adding that so-called ‘tipping events’ such as coral reef extinction, permafrost thawing, glacier melt, and Amazon rainforest dieback could lead to even further economic damages.
“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,” added Kamiar Mohaddes, associate professor in Economics and Policy at Cambridge Judge Business School and director of the University of Cambridge climaTRACES Lab. Read more here.
