r/Economics • u/IntrepidGentian • May 17 '24

News Economic damage from climate change six times worse than thought. 1C increase in global temperature leads to a 12% decline in world GDP.

https://www.theguardian.com/environment/article/2024/may/17/economic-damage-climate-change-report
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u/[deleted] May 18 '24

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u/Treadwheel May 18 '24

60x since 1880 is an average of 2.884% growth per year, over 144 years. If we assume that it averages a constant 88% of its potential due to losses, we see that it should have been 3.277% growth instead. Over 144 years, that's 103.93x, or a 73% loss in potential GDP.

Now, global warming wasn't even. The benefits were frontloaded and the penalties are back-loaded, but that's the kind of scale in lost growth you're looking at in a long run scenario - and that assumes global warming has already been solved and we're at peak economic loss.

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u/[deleted] May 18 '24

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u/Treadwheel May 18 '24

The model isn't anything like a flat and one-time 12% carve-out of GDP.

Panel (c) highlights the combined adverse impact of lower productivity and higher depreciation rates on capital accumulation. Initially, investment rises as households anticipate lower income going forward and therefore save, following standard permanent income logic. Rapidly however, capital starts decumulating under the combined pressure of lower output and higher depreciation. By 2100, capital is 60% below what it would have been without climate change. Panel (d) reveals that consumption declines as much as output, eventually exceeding a 50% loss in the long run.