World economy could lose up to 18% GDP from climate change
Alack of action in combatting climate change over the next 30 years could cause the global economy to shrink by some 18 per cent, a report by the Swiss Re Institute reveals.
In its latest Climate Economics Index stress test analysis, the risk research firm noted that as the global temperatures will possibly rise to over three degrees Celsius (°C), the impact of weather-related natural disasters will be more severe, thereby leading to substantial income and productivity losses over time.
The stress test examines how 48 economies would be impacted by the ongoing effects of climate change by 2050 under four different temperature increase scenarios — 18 per cent if no mitigating actions are taken (3.2°C increase); 14 per cent if some mitigating actions are taken (2.6°C increase); 11 per cent if further mitigating actions are taken (2°C increase); and four per cent if Paris Agreement targets are met (below 2°C increase).
“In a severe scenario of a 3.2°C temperature increase, China stands to lose almost one quarter of its gross domestic product (24 per cent) by mid-century. The US, Canada and the UK would all see around a 10 per cent loss. Europe would suffer slightly more (11 per cent), while economies such as Finland or Switzerland are less exposed (six per cent) than, for example, France or Greece (13 per cent),” the report stated.
However, it further indicated that the impact can be lessened if decisive action is taken to meet the targets set in the Paris Agreement. This will require more than what is pledged today, in addition to the public and private sectors crucial role in accelerating the transition to net zero.
The Paris Agreement is an agreement within the United Nations Framework Convention on Climate Change, on climate change mitigation, adaptation, and finance, signed in 2016.
Jérôme Haegeli, Swiss Re’s group chief economist, said, “Climate change is a systemic risk and can only be addressed globally. So far, too little is being done. Transparency and disclosure of embedded net-zero efforts by governments and the private sector alike are crucial. Only if public and private sectors pull together will the transition to a low-carbon economy be possible.”
He pointed out that Swiss Re’s analysis shows that by adding just 10 per cent to the US$6.3 trillion of annual global infrastructure investments would limit the average temperature increase to below 2°C.