Lorem ipsum dolor sit amet, consectetur adipiscing elit. Curabitur eleifend tortor nec augue pretium
The election of Donald Trump and a shift to the right in many European countries threatens to undermine the progress we have made in transitioning to a low-carbon economy in recent decades.
A loud minority of voices claim that the transition is too expensive and will burden ordinary people with unnecessary costs – a view that appears to be gaining traction.
The truth, however, is quite the opposite, with numerous studies highlighting how living standards and GDP will decline should we not ramp up efforts to mitigate and adapt to climate change now.
Successfully communicating the benefits of the transition – and the consequences of inaction – will be critical to gaining public support for green policies and determining our future prosperity. Below, we explore why climate change threatens GDP and living standards, what the impact could look like in practical terms, and how successful climate action could deliver higher wealth and wellbeing for all.
Many of the things we rely on in society depend on natural systems: think freshwater, soil, a stable climate and so on. Pushing past planetary boundaries is a bit like over-spending – you might get by for a while but you’ll gradually run out of road and the whole thing will come crashing down.
Climate change and nature risks, driven by human activity, are now a matter for human security, with populations already feeling the impact of fires, food system shocks, water insecurity, heat stress and infectious diseases. If left unchecked, mass mortality, involuntary mass migration, severe economic contraction and conflict become more likely.
Our risk trajectory is worrying, with catastrophic or extreme climate impacts likely or highly likely by 2050 – the combination of high impact and high likelihood should ring a loud warning bell.
Projecting temperatures to justify these conclusions is easy to do. The current (12-month average) temperature warming is 1.5°C above pre-industrial levels in 2025, and the decadal rate of warming is 0.3°C. Assuming the rate of warming stays constant, we will see 2.1°C in 2045.
As we explain in our Planetary Solvency report, there are a range of factors that may increase warming further, including ongoing high emissions, loss of albedo (less reflectivity), decreases in aerosol cooling, wildfires, degradation of nature carbon sinks, ice melt and the fact that the Earth may be more sensitive to greenhouse gases than our central estimate. Thus 2.1°C is a reasonable lower limit for warming.
It is very unlikely that the rate of warming will decrease. In fact, it could quite feasibly increase further and in a non-linear way, particularly if accelerating climate tipping points are partially triggered – for example, the release of carbon dioxide from melting permafrost.
Depending on your assumption of how resilient GDP is to climate change, a wide range of damages is possible, between 30% to 80% of GDP at 3°C of warming – thus catastrophic or extreme impacts
are possible.
Risks are interconnected; climate and nature impacts are likely to have societal consequences. But as in financial services, a catastrophic level of warming does not mean there will be an immediately catastrophic economic shock or mortality event. For example, today we are at around 1.5°C of warming – severe on the climate dimension, but impacts are still limited on the economic and mortality dimension. However, as climate and nature risks ratchet up, increasingly severe societal impacts become more likely.
Read Planetary Solvency – Finding our Balance with Nature at www.bit.ly/PlanetarySolvency
Our working paper, The Macroeconomic Impact of Climate Change, suggests that every degree of global warming above pre-industrial levels corresponds with a 25% decline in GDP – equivalent to the economic impact of the Great Depression.
If we experience a 3°C increase by the end of this century, we will be looking at lost GDP and living standards two to three times more severe than in the Great Depression. You might have in mind long lines of people waiting for jobs, but the analogy is a little more subtle in the sense that by 2100, we will not be 25%-50% poorer than we are today; we still expect some growth between now and then.
Our numbers indicate that we would be twice as rich by 2100 without climate change than we would be in 2100 with climate change. Another way to think about it is that we would, on average, all be nearly 20% richer today absent of climate change, which represents 10 years of growth.
It’s hard to picture, because there are very few instances in economic history where you see an abrupt 20%-50% decline in GDP per capita – these things typically happen over a much longer timescale.
An analogy you could use to see how climate change impacts growth is to compare various countries in Europe. In countries like Italy growth has been on the slower end over the past 30 years, which means fewer improvements in purchasing power. By contrast, other countries such as the UK or Germany have had higher growth in living standards. Over the past 30 years, these differences add up to a gap of about 20% in living standards. Our study also looked at the economic effects of the warming associated with emitting just one tonne of carbon, and then added them up in dollar terms. That’s how we came up with a present welfare loss and a social cost of carbon in excess of $1,000 per tonne.
To put that into perspective, the price of carbon in the EU’s Emissions Trading System is hovering below $100 per tonne. Under the last US administration, the social cost of carbon to evaluate federal policies was around $200 per tonne of carbon. These numbers are substantially below what we find. Where do our numbers come from? They are mostly due to extreme weather events that are linked to increases in global mean temperature. Some countries are expected to have more droughts, some are expected to have more tropical storms. On average, we found that the losses will be relatively uniform globally. This was a surprise because most previous work found that the effects of climate change varied between countries.
When we compared costs and benefits of climate action, such as subsidies to electric vehicles, decarbonising the power system, and so on, we found that it would be cost effective to decarbonise large swathes of energy use for large economies like the EU.
Read The Macroeconomic Impact of Climate Change at www.bit.ly/NBER-macroeconomic-impact
We have to make the case now, more than ever, that sustainability makes sense economically, financially and practically for everyone in the future.
The low-carbon transition requires us to design new products, improve resource efficiency, harness new technologies, and upskill and train workers, all of which will deliver quality jobs, boost GDP and living standards, transform the world of work, build resilient businesses and drive competitiveness in global markets.
More than 250,000 jobs have been created in the UK’s transition so far, with the Climate Change Committee (CCC) estimating this could reach up to 725,000 by 2030 in sectors such as buildings retrofit, renewable energy generation and the manufacture of electric vehicles.
Meanwhile, the Skidmore review of net zero suggests a 2% boost to GDP when just considering the indirect effects, including higher economic activity, reduced fossil fuel imports, and cost savings such as cheaper household bills. The wider societal benefits will be higher still, including the impact of cleaner air on people’s health and relief for a National Health Service that is under enormous strain.
Looking globally, the World Resources Institute forecasts $26trn in economic benefits by 2030 through bold climate action and more than 65 million new low-carbon jobs – equivalent to the UK and Egypt’s combined workforce.
This opportunity is too good to miss, and more urgent than ever after the average global temperature exceeded 1.5°C above pre-industrial levels for the first time in 2024, which was the warmest year on record going back to 1850.
Grasping this once-in-a-generation opportunity will require public support for green policies, and it’s down to organisations like IEMA to communicate the tangible benefits on offer and dispel myths around the costs of the transition.
We should also admit that, as a sector, we have not served some audiences very well in the past – particularly those who are absolutely crucial to the transition, such as electricians and welders – and we must ensure that voices from disadvantaged backgrounds and marginalised groups are included every step of the way to deliver a just transition for workers.
If climate change continues unabated, GDP, living standards and human health will decline, while events like the unseasonal wildfires that wreaked havoc across California in January will become increasingly common.
Imagine a prosperous economy and society characterised by high-paid quality jobs, where businesses and individuals consume only what they need, where the air we breathe is clean and our rivers are free from pollution, and where humans co-exist in harmony with nature.
This is the alternative on offer, and it is what IEMA will continue to strive towards as we help build a sustainable future.
Visit the Green Careers Hub at www.greencareershub.com
