Economic models have systematically underestimated how global warming will affect people's wealth, according to a new study that shows that four degrees of warming will make the average person 40 percent poorer - a nearly four-fold increase on some previous predictions, reports The Guardian.
The study, conducted by Australian scientists, says average global gross domestic product (GDP) per person will be reduced by 16 percent even if warming is limited to two degrees Celsius. This is significantly higher than previous estimates that predicted a decline of about 1,4 percent.
Even if governments around the world meet their short- and long-term climate goals, scientists now estimate that global temperatures will rise by 2,1 degrees.
Criticism has grown in recent years that a set of economic tools known as integrated assessment models (IAMs) – used to guide decisions about how much governments should invest in reducing greenhouse gas emissions – have failed to capture the major risks of climate change, particularly extreme weather events.
A new study, published in the journal Environmental Research Letters, took one of the most popular economic models and enhanced it with climate change forecasts to capture the impacts of extreme weather events on global supply chains.
Dr Timothy Neill, from the University of New South Wales' Climate Risk and Response Institute and lead author of the study, said the new research analysed the likely impact of four degrees of global warming - which many climate experts consider catastrophic for the planet - and found it would make the average person 40 per cent poorer. This compares to around 11 per cent poorer when using models without enhancements, the Guardian reports.
Previous economic models that “inadvertently concluded” that even high levels of global warming would have only a moderate impact on the global economy had “profound implications for climate policy,” Neal said.
He added that economic models have typically only taken into account changes in weather conditions at the local level, not how extreme weather events like droughts or floods can affect global supply chains.
“In a warmer future, we can expect cascading disruptions in supply chains caused by extreme weather events around the world,” said Neil.
Professor Andy Pitman, a climate scientist at UNSW and co-author of the study, said: "Extreme events are when things get real. It's not about average temperatures."
"Reworking economic models to take into account extremes in your part of the world and their impact on supply chains seems like a very urgent thing to do, so that countries can fully assess their economic vulnerabilities to climate change and then do the obvious thing – reduce emissions."
The Guardian writes that some economists have argued that global losses from global warming could be partially offset by warming that could benefit some cold regions, such as Canada, Russia and northern Europe. However, Neil said that global warming will affect countries everywhere, because global economies are linked by trade.
Professor Frank Giotto, a climate policy expert at the Australian National University who was not involved in the research, said that economic climate modelling using IAMs assumes that if climate change makes an activity, such as agriculture, unsustainable in one part of the world, the increase in production will simply come from elsewhere, the Guardian reports.
"The result is that models say that climate change does not make much difference to the future world economy, which is contrary to what the physical impact of science and a nuanced understanding of interdependencies in the economy would suggest," said Jotzo.
A January report from the Institute and Faculty of Actuaries, a profession that supports risk management decisions for insurance companies and pension funds worldwide, said previous economic risk assessments had not taken into account real climate impacts such as “tipping points, extreme events, migration, sea level rise, human health impacts or geopolitical risk.”
“Benign but misleading results could reinforce the narrative that these risks are slowly evolving and have limited impact, rather than being serious risks that require urgent action,” the report said.
Mark Lawrence, who researches climate risks as a professor of practice at the University of Adelaide and previously worked in financial risk management in senior positions at major financial institutions including Merrill Lynch and ANZ Bank, said the results of the new research were credible.
“If anything, I believe the economic impacts of climate change could be even worse,” he said.
As a result of the discrepancy between modeling and actual climate impacts, Lawrence said that “the potential economic benefits of urgent climate policy action have also been significantly underestimated.”
Bonus video:
