The world has already suffered billions in economic losses from climate change, and developing countries are taking the brunt of that impact. A new report published Tuesday before COP28 climate negotiations estimates that impacts from human-caused climate change cut 6.3 percent from global economic output last year when weighted across populations. The figures reflect both direct consequences of climate change — such as disruptions to agriculture and manufacturing, reduced productivity from heat stress or flooding — and spill-over impacts on global trade and investments.
Those losses add up quickly, with countries like Senegal, Malaysia, and Thailand seeing their wealth decline by one-third compared to what they would see in a scenario with no climate change. According to Citigroup and the Nature Journal research, a four-degree Celsius jump in global temperature would shave nearly $72 trillion from the global economy. It would drive up the cost of food, housing, and energy and slash profits in sectors like insurance, banking, timber, real estate, and emerging market stocks.
Climate change also threatens international peace and security, as heatwaves, droughts, and typhoons wreak havoc and force people from their homes. The United Nations warned that such disasters heighten competition for resources like land and water, fueling social unrest and mass migration. At last year’s COP27 talks in Egypt, nations agreed to set up a fund to help vulnerable countries cope with “loss and damage” from climate change and extreme weather. But so far, the fund has seen only modest progress.
At the heart of the debate over how much climate change hurts the world economy is a fundamental disagreement about how impacts should be measured. Some economists favor disaggregated assessments, looking at various effects, including changes to crop yields or biodiversity loss. In contrast, others prefer monetized approaches that convert all impacts into money terms and weigh them equally.
A recent study examining both approaches found that the monetized approach was more accurate than the disaggregated method. It’s worth noting that the two methods have different assumptions about what should be included in the calculations, and both methods could be better.
The monetized approach also relies on more precise data than previous studies of climate change costs, incorporating a more complete set of economic data. However, the methodology used by the researchers to estimate the impacts of climate change may still need to be revised in some ways. For example, the authors rely on a “replacement cost” calculation that assumes each person will replace their lost good or service with something else available in the exact location at a similar price. This ignores ecological benefits such as improved air quality or less pollution from the replacement good or service. It also doesn’t include some costs, such as the value of species extinction or the costs of repairing damage to natural systems.