Climate change will affect economies of all countries — rich or poor, hot or cold — under the business-as-usual carbon emissions scenario, researchers say (1). And will likely result in a loss of seven per cent of global GDP by 2100, according to a new analysis was published on 22 August as a National Bureau of Economic Research (NBER) working paper, a forum for early publication to promote comment and discussion on important topics in economics.
The economists from the University of Cambridge examined the long-term impact of climate change on economic activity across countries. They used a so-called stochastic growth model based on data from 1960 to 2014 in 174 countries. And, in particular, assessed at how labour productivity will be affected by country-specific climate variables such as deviations from historical norms of temperature and precipitation.
They found that per-capita real output growth is adversely affected by persistent changes in the temperature above or below its historical norm. In other words, economies in both colder and warmer climates will be significantly impacted by global warming. However, changes in precipitation do not seem to have the same effect.
The authors emphasise that the temperature itself is not the most important factor, but rather its deviation from the norm. And one particularly interesting finding is that, on average, richer, colder countries lose just as much income to climate change as poorer, hotter nations.
“Whether cold snaps or heat waves, droughts, floods or natural disasters, all deviations of climate conditions from their historical norms have adverse economic effects”, says Dr Kamiar Mohaddes of the Cambridge Faculty of Economics and co-author of the study.
Adding that “without mitigation and adaptation policies, many countries are likely to experience sustained temperature increases relative to historical norms and suffer major income losses as a result. This holds for both rich and poor countries as well as hot and cold regions”.
If no action is taken, 7 per cent of global GDP will likely disappear by 2100. More specifically, the United States could lose 10.5 per cent of GDP by 2100 and Canada — which many currently believe will benefit from the temperature increase — is projected to lose over 13% of its income, based on the projections. In fact, Canada is warming at twice the rate as the rest of the world.
Moreover, New Zealand, Japan, and India are on course to lose 10 per cent of its income; Switzerland’s economy is likely to shrink by 12 per cent; Russia will lose 9 per cent of GDP; and the UK, 4 per cent of its income.
The losses can be attributed to increased risks to physical infrastructure, coastal and northern communities, human health and wellness, as well as ecosystems and fisheries — and of course, the corresponding costs.
The analysis suggests meeting the target set out by the Paris Agreement — keeping the global rise in temperature to within 2 degrees — could considerably reduce these losses. Although, the potential outcomes seem to vary quite significantly across regions.
On the other hand, under the business-as-usual scenario, average global temperatures are projected to increase by over 2 degrees Celcius by the end of the century — and the economic impact will be widespread.
(1) Kahn, M.E. et al. Long-Term Macroeconomic Effects of Climate Change: a Cross-Country Analysis. NBER working paper (2019). DOI: 10.3386/w26167