Climate change costs may reach $31trn annually if it’s ‘business as usual’: study

On the 10/05/20 at 7:31AM


Tuba Raqshan

Sharply rising climate change related economic and non-economic damage costs in a business-as-usual scenario are pegged at €31trn per year, according to the latest report by Carbon Disclosure Project (CDP) and University College London (UCL).

The report – titled ‘Costing the Earth - Climate Damage Costs and GDP’ – uses three comprehensive models to capture climate change impacts in two central long-term scenarios: a 2°C scenario aligned to the Paris Agreement ambitions and a ‘Reference Scenario’, calculated based on a ‘business as usual’ pathway that implies a temperature rise of 4.4° C by the end of this century.

In the latter scenario, where no action is taken to cut greenhouse gas emissions, the high costs of damages from both economic and non-economic costs, including environmental damage, could be around $5.4trn a year by 2070 and $31trn annually by 2200.

In comparison, a Paris Agreement-aligned scenario, where temperatures are under 2°C above pre-industrial levels, limits these damages, which would peak at $1.8trn/year in 2070, before hitting a plateau. This could be achieved by policy actions and mitigation efforts, which could offer a cheaper solution, peaking at $7trn/ year by 2020. On the flip side, the ‘business as usual’ scenario would result in costs tripling ($5.4trn) and rising steeply beyond 2100 (reaching above $31trn/ year closer to 2200), according to the report.

These damages will lead to a 10% drop in GDP growth rate by 2050 and 25% by 2100, stated CDP. Three multi-region global models have been used to estimate economic and non-economic costs of climate change on various economic sectors, said Dr Gabrial Anandarajah, associate professor from the UCL Energy Institute. Underlining the importance of capturing climate impacts on GDP using a granular approach, the report points out that some markets and regions are more susceptible to climate related risks.

 Total costs (damage and mitigation) with uncertainty (range 5% 95%). In red, the Reference case and in green, the 2°C scenario

The impact of climate change on GDP varies significantly between regions, with developing economies such as India suffering the most, said Carole Ferguson, head of investor research at CDP. "We started this exercise to see if we could capture the impact on global economy and the GDP is one of the biggest measures. However, it does not capture social wellbeing or other forms of capital. That is why we were interested in measuring the GDP as well as forecasted the use of energy over a longer time-period. The damage costs for developing economy are going to be huge, especially for countries like India, Bangladesh and the southern hemisphere. The trade-off is that you start investing, fix mitigation costs now to start avoiding large scale damage," Ferguson told Asset News.

While 2200 is a long way off, why should we care? The important thing here is the trajectory, said Ferguson. "According to our research, damages start around 2075. Sea level rise takes off at the end of the century because climate models are structured that way. The costs are anyway going to shoot up by 2050. Yes, $31trn is a long way off but by mitigating now, we are taking away the uncertainty," she explained.

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, underlined Ferguson. She added, “Policy makers, corporates and the financial system, which will be impacted, should be proactive in investing in mitigation and adaptation to avoid these high damage costs.”