Costs and Benefits of Climate Change Inaction

Climate change is happening. To reduce its economic impact and mitigation actions are urgently needed. Faced with the urgency of climate change, many countries are embracing policies to tackle it. These policies are not only reshaping the landscape of global trade flows, but also risking further fragmentation and inequality.

The Intergovernmental Panel on Climate Change (IPCC) showed that the risks to global aggregate economic growth due to climate impacts are projected to be lower by 2100 at 1.5°C than at 2°C. The estimated costs of damages from warming in 2100 for 1.5°C and 2°C were $54 trillion and $69 trillion, relative to 1961–1990.

The Impact and Challenges of Mitigation Policies
The large number of climate mitigation policies; including net zero goals, supply chain due diligence obligations and green subsidies is significantly reshaping global trade flows. Several countries are using green subsidies at the risk of distorting market access to firms from other countries producing green products. These policies are a game-changer in the global trade landscape.

The challenges posed by climate mitigation policies require careful navigation to achieve a just and inclusive transition to a greener world. By implementing bold policies that foster coordination, incentivize de-carbonization, we can promote sustainable practices and facilitate the adoption of green technology.

The Cost of Inaction on Climate Change
Inaction on climate change could cost the world’s economy US $178 trillion by 2070. The global economy could gain US $43 trillion over the next five decades by rapidly accelerating the transition to net-zero. Unchecked climate change could cost the global economy US$178 trillion over the next 50 years, unless global leaders unite in a systemic net-zero transition.

On 23 May 2022 during the World Economic Forum’s annual meeting indicates that if left unchecked climate change could cost the global economy US$178 trillion over the next 50 years, or a 7.6% cut to global gross domestic product (GDP) in the year 2070 alone. 

If global warming reaches around 3°C toward the century’s end, the toll on human lives could be significant disproportionately impacting the most vulnerable and leading to loss of productivity and employment, food and water scarcity, worsening health and well-being, ushering in an overall lower standard of living globally.

The report analysis of 15 geographies in Asia Pacific, Europe, and the Americas, and found that if global leaders unite in a systemic net-zero transition, the global economy could see new five-decade gains of US$43 trillion a boost to global GDP of 3.8% in 2070.

Key Stages for De-carbonization Globally

1. The public and private sectors unite, collaborating to build effective foundational frameworks and policies to drive actionable change.
2. Business and governmental leaders make significant investment, sparking structural changes to the global economy that prioritize low-emissions industries and accelerate the transition to net-zero.
3. The world’s geographies approach their respective ‘turning points’ when the benefits of a net-zero transition begin to outweigh the costs, and ultimately drive regional net-positive growth and value.
4. Following the turning point, society realizes a greener future where interconnected, low-carbon systems underpin a clean economy that grows at an increasingly faster rate than its carbon-intensive alternative.
5. De-carbonization technologies such as battery storage are still considered expensive, and carbon capture and storage (CCS) technology is not yet commercially viable. But technologies such as lithium-ion batteries and electric-produced hydrogen are poised for rapid take-off, just as solar PV and wind power technologies were a decade ago.

The Benefits 

Transforming the economy for a low-carbon future will require extensive coordination and global collaboration throughout industries and geographies. Governments will need to collaborate closely with the financial services and technology sectors leading the charge on sustainable progress through global policymaking, greater investment in clean energy systems, and a new mix of green technologies across industries. 

Economy reliant on fossil fuels to an economy primarily powered by renewable energy would spur new sources of growth and job creation. Global cooperation and regulation are vital to setting the stage for a successful transformation. It is important that the global economy evolves to meet the challenges of climate change. Low-carbon future is not only a societal imperative but an economic one.

Technologies, business models, and policy approaches to simultaneously combat the climate crisis and unlock significant economic growth, but we need governments, businesses, and communities globally to align on a pathway toward a net-zero future. In order to find new and lasting solutions to these societal challenges, we must model new forms of cooperation and pursue a multi-party, holistic approach. 

Conclusion
Increased global cooperation, technical assistance, and financial support are essential to ensure the continued access in global value chains, safeguarding future inclusive growth. Together we can navigate these challenges and create a more sustainable and equitable world.