Economy: How much will Climate Change Cost?

8 minute read

Updated on: 12 Aug 2020

The word economy describes how much money a country makes and spends. GDP is the total price of all the goods and services a country produces and is often used to measure how well an economy is doing.

How much will climate change cost us?

If the world heats up by 2°C, we are likely to lose between 0.2 and 2.0% of the world’s money. This might sound small, but 2% of today’s global GDP is over a trillion US dollars! If warming increases beyond 2°C, costs will be even higher, although we can’t be sure of the exact numbers.

Adapting to a 2°C warmer world (such as building higher sea walls) has been estimated to cost at least US$70-100 billion per year. That’s enough to buy you 12,000,000,000 pizzas per year!

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Where do these costs come from?

Fixing the damage caused by climate-related events will cost money. Unfortunately, we only have estimates of these costs for a few places.

Storms - including hurricanes, thunderstorms, and rainstorms currently cause 38% of the cost of disasters globally, because they can destroy houses, roads and other infrastructure. Hurricane Katrina alone cost the USA US$168 billion.

Image of Proportion of losses caused by each type of disaster (US$)

Image: Proportion of losses caused by each type of disaster (US$)

Billions of dollars will also be needed to repair buildings and transport networks damaged by other weather-related events. High temperatures can soften and damage pavements and railways, while flooding can destroy bridges.

Climate change can damage our health, for example through heatwaves, worsening diseases, and air pollution (see previous chapter!). To deal with this, we will need to spend more money on healthcare, including training more doctors and buying more supplies.

Changes to the amount and types of food we can produce will also affect the economy indirectly. If food is more expensive, people have less money to spend in other parts of the economy, such as restaurants, entertainment and tourism.

Image of The cost of food can affect other parts of the economy

Image: The cost of food can affect other parts of the economy

Would spending money now save money later?

We can avoid some of the future costs of climate change.

We don’t have to choose between reducing emissions and preparing for the effects of climate change: in fact, we need both.

We need to prepare because some effects are going to happen whatever we do due to emissions that have already been released. But we also need to prevent the even worse outcomes that would happen if emissions continue as they are.

If we don’t spend more on trying to stop climate change, we could lose up to US$10 trillion by 2050! That said, if we use less energy and protect natural carbon sinks like rainforests, we may actually gain money by 2050.

Will all countries’ economies be affected the same?

It’s estimated that developing countries will bear 75-80% of the costs of climate change, and the greater the warming, the higher these costs will be. So although inequality between rich and poor countries has decreased in recent decades, global warming is slowing this progress.

Image of Many more countries will lose money with 2°C of climate change than with 1.5°C of climate change

Image: Many more countries will lose money with 2°C of climate change than with 1.5°C of climate change

Why will the effects be worse for poorer people?

The poorest people in the world have to spend most of their money on food. Climate change will make food more expensive, making it even harder to afford.

Image of Poorer households spend more of their income on food

Image: Poorer households spend more of their income on food

The impact of disease will also be worse for people with less money, who often have to pay for treatment themselves.

And there’s more. The economies of developing countries are often more affected by changing weather. Across countries in Africa, around 70% of working people are employed on small farms, so farming makes up a large part of the continent’s GDP. This is another reason why developing countries are more likely to be affected by climate change.

Even if richer countries lose more money in total, the proportion of GDP lost due to climate change will be highest in poorer countries.

Some countries and companies will benefit from climate change! Countries near the Arctic, like Canada and Russia, will be able to make money as the ice melts. Less ice will make it possible to reach gas and oil in the seabed and for ships to travel around the countries.

Companies paid to respond to disasters (like fires or floods) could profit too.

How accurate are these predictions?

Predicting how much climate change will cost is really difficult, partly because its effects will vary in different countries and industries. We also don’t know exactly what these effects will be or if there will be dramatic changes from crossing tipping points. What’s more, the costs will depend on how businesses adapt to the changing climate, which very few studies have looked at.

Economic models tend to put more value on the impacts happening now, meaning that impacts in the future are overlooked.

In addition, many consequences of climate change that affect the economy are difficult to measure in money. For example, how much is a human life or ecosystem worth? Models have to choose values for these, even though it’s pretty impossible to put a number on! Therefore, statistics that say climate change will cost us a certain amount of money can rarely tell the whole story.

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Conclusion

Climate change will cost us, although predicting exactly how much is difficult. It will also make money less equally spread out both within and between countries.

Stopping climate change, and preparing for the effects we’re too late to stop can reduce these costs and inequalities in the short and long term.

So far, we’ve looked at the effects of climate change on people and the economy. But we’re not alone on the planet! In the next chapters, we’ll look at consequences for wildlife…

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