If nothing is done to combat climate change, global temperatures could rise by 3.2°C within the next 30 years, shrinking the world economy by 18%, according to new research from Swiss Re, which was rolled out on Earth Day, 51 years after the first Earth Day in 1970.
Climate change poses the biggest long-term threat to the global economy, but the impact could be lessened if decisive action is taken to meet the targets set in the Paris Agreement, said Swiss Re. (The Paris Agreement commits to keep average global temperature increase under 2 degrees Celsius, or 3.6 degrees Fahrenheit).
However, Swiss Re emphasized that climate change will have economic costs even if the Paris Agreement goals are met.
The Swiss Re Institute conducted a stress test to examine how 48 economies (representing 90% of world economy) would be affected by the ongoing effects of climate change under four different temperature increase scenarios.
Expected global GDP impact by 2050 under these four scenarios compared to a world without climate change are:
- An 18% decline if no mitigating actions are taken (with a 3.2°C increase in temperatures);
- A 14% decline if some mitigating actions are taken (with a 2.6°C increase in temperatures);
- An 11% decline if further mitigating actions are taken (with a 2°C increase in temperatures);
- A 4% decline if Paris Agreement targets are met (below a 2°C increase)
In a severe scenario of a 3.2°C temperature increase, China stands to lose almost one-quarter of its GDP (24%) by mid-century, said the report. On the other hand, the U.S., Canada and the UK would all see around a 10% loss, while Europe would suffer slightly more (11%). Economies such as Finland or Switzerland are less exposed (6%) than, for example, France or Greece (13%).
“As global warming makes the impact of weather-related natural disasters more severe, it can lead to substantial income and productivity losses over time,” the report said. “For example, rising sea levels result in loss of land that could have otherwise been used productively and heat stress can lead to crop failures. Emerging economies in equatorial regions would be most affected by rising temperatures.”
Countries’ Resilience to Climate Change
In addition to looking at the expected economic impact on each country, Swiss Re Institute also ranked each country on its vulnerability to extreme dry and wet weather conditions, as well as their capacity to cope with the effects of climate change.
It found that the countries most negatively affected are the ones with fewest resources to adapt to and mitigate the effects of rising global temperatures. “The most vulnerable countries in this context are Malaysia, Thailand, India, the Philippines and Indonesia. Advanced economies in the northern hemisphere are the least vulnerable, including the US, Canada, Switzerland and Germany.”
Should the more severe 3.2°C temperature scenario play out, said Swiss Re, the potential output loss of the most negatively affected emerging economies could increase up to 45% of GDP.
“Climate change will have economic costs even if the Paris Agreement goals are met, but the costs could be significantly more severe in alternative scenarios. Hence, the Paris targets remain the best achievable outcome,” the report affirmed.
Mitigating climate change requires a whole menu of measures, said Swiss Re. For example, more carbon-pricing policies combined with incentives for nature-based and carbon-offsetting solutions are required. “As part of corporate reporting, institutions should also disclose their roadmaps on how they intend to reach the Paris and 2050 net-zero targets.”
Swiss Re explained that there is a unique opportunity at hand “to green our economies.” “The public and private sectors, including insurers as providers of risk transfer capacity, risk knowledge and long-term investment, can facilitate transition to a low-carbon
economy,” the report said.
“Re/insurers also play a role in providing risk transfer capacity, risk knowledge and long-term investment, using their understanding of risk to help households, companies and societies mitigate and adapt to climate change,” according to Swiss Re in a press release accompanying the report.
The transition to a low-carbon economy will only be possible if public and private sectors pull together, said Jérôme Haegeli, Swiss Re’s group chief economist, in the release. “Global cooperation to facilitate financial flows to vulnerable economies is essential. We have an opportunity to correct the course now and construct a world that will be greener, more sustainable and more resilient.”
Haegeli said Swiss Re’s analysis shows the benefit of investing in a net-zero economy. “For example, adding just 10% to the US$6.3 trillion of annual global infrastructure investments would limit the average temperature increase to below 2°C. This is just a fraction of the loss in global GDP that we face if we don’t take appropriate action.”
“Climate risk affects every society, every company and every individual. By 2050, the world population will grow to almost 10 billion people, especially in regions most impacted by climate change,” said Thierry Léger, group chief underwriting officer and chairman of Swiss Re Institute.
“So, we must act now to mitigate the risks and to reach net-zero targets. Equally … nature and ecosystem services provide huge economic benefits but are under intense threat. That’s why climate change and biodiversity loss are twin challenges that we need to tackle as a global community to maintain a healthy economy and a sustainable future,” Léger continued.
The Swiss Re Institute report is titled: “The economics of climate change: no action not an option”.
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