“If temperatures rise above 2°C by 2100, global GDP would fall by 46%”
- According to an assessment of the economic cost of climate change, global GDP will fall by more than 20 % when the global temperature rises by more than 1°C.
- The more greenhouse gas emissions are reduced, the more economic growth will be shielded from climate-related damage.
- However, it is entirely possible to achieve long-term economic growth despite climate change if it is kept below 0.5°C per century.
- It is economically beneficial for a wealthy region to decarbonise its economy, even if others do not.
You recently published an article1 assessing the economic cost of climate change. What are your findings?
Adrien Bilal. Our estimates show that global GDP falls by more than 20% when the global temperature rise by 1°C. In a climate change scenario where the temperature rises by a further 2°C by 2100, GDP is reduced by 46%. Beyond these figures, our study highlights the uniformly damaging impact of climate change. Economists have long believed that poor countries were the most vulnerable. However, we show that the vast majority of countries stand to lose out, even rich countries with initially temperate climates.
Your estimates differ significantly from those of other economists, in particular the Nobel laureate in economics William Nordhaus, who estimates the losses2 at around 2% of GDP for a 2°C rise in temperature, compared with 46% in your estimates.
For a long time, economists have assessed economic impacts based on locally perceived temperature. To do this, the method relies on historical data on economic growth and temperature within individual countries. This makes it possible to estimate the relationship between temperature and economic growth, and thus to assess future trends.
However, this method implicitly focuses on just one effect of climate change: the rise in average temperatures across a given territory. In reality, the repercussions are far more numerous, and climate change brings about systemic transformations: changes in evaporation patterns, precipitation and wind patterns; an increase in droughts, coastal storms and extreme weather events, etc. In our study [editor’s note: as well as some recent work by other research teams3], we take all these phenomena into account, which explains the much greater economic impacts.
What is the difference between your work and previous economic studies?
We base our analysis on global temperature trends, rather than local ones, as William Nordhaus does, for example. We use the same statistical methods: by comparing fluctuations in GDP with those in global temperature, we establish a link between the effects of climate change and economic activity. This approach, based on global temperature, is key to incorporating the full range of climate change impacts.
All economic models, whether based on local or global temperatures, always have certain limitations. For example, to what extent will societies adapt and limit the negative impacts of climate change? This is the subject of lively debate amongst economists, and it is very difficult to account for this uncertainty. Another limitation is non-linear phenomena. Also known as tipping points, such as a sudden collapse in agricultural yields, these are equally difficult to take into account.
Given these limitations and the wide variability in the results, one might question the relevance of these models…
Economics is a relatively new and complex science. Unlike climatology, for example, we cannot rely on stable physical laws to make projections. And even climatology is fraught with uncertainties because it studies systems of a similar complexity. It is not unusual to observe a certain degree of variability in results in economics. However, in the case of climate change, a consensus can be observed: the vast majority of studies show that climate change has an economic cost. And as our understanding advances, this trend is intensifying and the costs are constantly being revised upwards.
Variability is significant and normal in scientific debate, and it must not paralyse the discussion. All public policy development is based on a cost-benefit analysis. Being able to quantify costs, even imperfectly, is crucial for assessing the returns on each investment and thus making informed collective decisions on how to allocate our resources.
In the light of economic studies, which societal choices seem preferable?
Firstly, it is important to understand that long-term economic growth is entirely possible despite climate change. In fact, this is the most plausible scenario. However, growth will be significantly slowed and will depend on mitigation measures. Indeed, the more greenhouse gas emissions are reduced, the more economic growth will be shielded from climate-related damage. Of course, reducing emissions also comes at a cost to the economy.
In a more recent study4, we assessed the balance between these two effects. Our research shows that growth is optimal if we limit global warming to below 0.5°C per century. If this ambitious climate policy is implemented, the benefits are substantial: long-term economic growth is doubled compared to what it would be without climate action. In practice, this requires a significant decarbonisation of the economy. It is important to bear in mind, however, that this policy entails a temporary and moderate slowdown in growth in the short term, in order to deliver major benefits in the long term.
However, this argument based on economic interests is not enough to bring about a drastic change in human activities, as we can see that greenhouse gas emissions continue to rise globally.
There are numerous political barriers to climate action: rising energy prices, domestic political constraints, long-term governance issues, and the need for global cohesion. But these barriers may be less insurmountable than previously thought. In another study5, we assessed the cost-benefit ratio of decarbonisation at a regional level. However, when taking into account the regional climate cost, rather than the global social cost, per tonne of carbon, we find that it is economically viable for a wealthy region to decarbonise its economy, even if others do not. This is the case, for example, with the United States and the European Union: if these regions were to unilaterally decarbonise more than 60% of their economic activities, the investment would be economically viable, regardless of the actions taken by the rest of the world.
