Heating our climate damages our economies - study reveals greater costs than expected

August 19, 2020

Rising temperatures due to our greenhouse gas emissions can cause greater damages to our economies than previous research suggested, a new study shows. Scientists from the Potsdam Institute for Climate Impact Research (PIK) and the Mercator Research Institute for Global Commons and Climate Change (MCC) took a closer look at what climate change does to regions at the sub-national level, such as US states, Chinese provinces or French départments, based on a first-of-its-kind dataset by MCC. If CO2 emissions from burning fossil fuels are not reduced rapidly, a global warming of 4°C until 2100 can make that regions lose almost 10% of economic output on average and more than 20% in the tropics.

"Climate damages hit our businesses and jobs, not just polar bears and coral reefs," says Leonie Wenz from PIK, one of the two authors of the study. "Rising temperatures make us less productive which is relevant in particular for outdoor work in the construction industry or agriculture. They affect our harvests and they mean extra stress and thus costs for our infrastructure as for instance computer centres need to be cooled. By statistically evaluating climate and economic data from the past decades, we found that the aggregated economic damages from rising temperatures are even greater than previously estimated because we looked at the sub-national effects which provide a more comprehensive picture than national averages."

Damages from weather extremes would come on top

Previous research suggested that a 1°C hotter year reduces economic output by about 1%, whereas the new analysis points to output losses of up to three times that much in warm regions. Using these numbers as a benchmark for computing future damages of further greenhouse gas emissions, the researchers find significant economic losses: 10% on a global average and more than 20% in the tropics by 2100. This is still a conservative assessment since the study did not take into account damages from, for example, extreme weather events and sea-level rise, which will also be substantial but are hard to pin down for single regions.

The new insight was made possible by building a novel MCC-dataset of climate and economy for 1500 regions in 77 states around the world that, for some regions, dates back to the 1900s. Data coverage is best for industrialized countries, however, with economic information lacking in particular for large parts of Africa. While the calculations show a substantial impact on economic production, they do less so for permanent economic growth reductions, which might be a reason for hope once emissions are reduced. Importantly, the damages are distributed very unevenly across the world with tropical and already poor regions suffering most from continued warming whereas a few countries in the North might even profit.

The economic cost of each tonne of CO2 emissions: 70-140 US-dollars

The findings have important implications for climate policy, and namely CO2 pricing. "If you update the widely-used climate-economy model DICE developed by Nobel prize winner William Nordhaus with the statistical estimates from our data, the costs of each tonne of carbon emitted to society are two to four times higher," highlights the lead-author of the study, Matthias Kalkuhl from MCC. "According to our study, every tonne of CO2 emitted in 2020 will cause economic damage amounting to a cost between 73 to 142 dollars in 2010 prices, rather than 37 dollars shown by the DICE model. By 2030, the so-called social cost of carbon will already be almost 30 percent higher due to rising temperatures."

By way of comparison: the carbon price in European emissions trading currently fluctuates between 20 and 30 euros per tonne; the national carbon price in Germany rises from 25 euros next year to 55 euros in 2025. These current carbon prices thus reflect only a small part of the actual climate damage. According to the polluter-pays principle, they would need to be adjusted upwards significantly.
Article: Kalkuhl, M., Wenz, L. (2020): The Impact of Climate Conditions on Economic Production. Evidence from a Global Panel of Regions. Journal of Environmental Economics and Management [DOI:10.1016/j.jeem.2020.102360]

Potsdam Institute for Climate Impact Research (PIK)

Related Climate Change Articles from Brightsurf:

Are climate scientists being too cautious when linking extreme weather to climate change?
Climate science has focused on avoiding false alarms when linking extreme events to climate change.

Mysterious climate change
New research findings underline the crucial role that sea ice throughout the Southern Ocean played for atmospheric CO2 in times of rapid climate change in the past.

Mapping the path of climate change
Predicting a major transition, such as climate change, is extremely difficult, but the probabilistic framework developed by the authors is the first step in identifying the path between a shift in two environmental states.

Small change for climate change: Time to increase research funding to save the world
A new study shows that there is a huge disproportion in the level of funding for social science research into the greatest challenge in combating global warming -- how to get individuals and societies to overcome ingrained human habits to make the changes necessary to mitigate climate change.

Sub-national 'climate clubs' could offer key to combating climate change
'Climate clubs' offering membership for sub-national states, in addition to just countries, could speed up progress towards a globally harmonized climate change policy, which in turn offers a way to achieve stronger climate policies in all countries.

Review of Chinese atmospheric science research over the past 70 years: Climate and climate change
Over the past 70 years since the foundation of the People's Republic of China, Chinese scientists have made great contributions to various fields in the research of atmospheric sciences, which attracted worldwide attention.

A CERN for climate change
In a Perspective article appearing in this week's Proceedings of the National Academy of Sciences, Tim Palmer (Oxford University), and Bjorn Stevens (Max Planck Society), critically reflect on the present state of Earth system modelling.

Fairy-wrens change breeding habits to cope with climate change
Warmer temperatures linked to climate change are having a big impact on the breeding habits of one of Australia's most recognisable bird species, according to researchers at The Australian National University (ANU).

Believing in climate change doesn't mean you are preparing for climate change, study finds
Notre Dame researchers found that although coastal homeowners may perceive a worsening of climate change-related hazards, these attitudes are largely unrelated to a homeowner's expectations of actual home damage.

Older forests resist change -- climate change, that is
Older forests in eastern North America are less vulnerable to climate change than younger forests, particularly for carbon storage, timber production, and biodiversity, new research finds.

Read More: Climate Change News and Climate Change Current Events
Brightsurf.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.