Have economists been underestimating the cost of climate change?

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🗞️ Driving the news: A new economic study suggests climate change could be far more damaging to the global economy than previously believed, potentially cutting global GDP by up to 30% for each degree of warming.

🔭 The context: Rethinking climate economics
• Traditional economic models estimate that 1°C of warming reduces global GDP by only 1–3%
• These estimates underpin widely used climate tools such as the Social Cost of Carbon (SCC)
• The new research instead analyzes global temperature shocks, rather than local weather changes
• The study finds global warming triggers systemic effects — including more extreme weather, ocean warming and productivity losses — that amplify economic damage over time

🌍 Why it matters for people and the planet: The research suggests climate impacts on productivity, investment and capital accumulation may be long-lasting
• Following a 1°C global temperature shock, global output initially drops about 2–3%, but could fall 12–18% after several years
• If global temperatures rise roughly 2°C by 2100, global GDP per capita could decline more than 50% compared to a no-warming scenario
• The findings challenge the assumptions underlying many climate policies and economic forecasts

⏭️ What’s next: The study implies current carbon pricing frameworks may severely underestimate the real cost of emissions
• Using the new damage estimates, the Social Cost of Carbon could exceed $1,200 per tonne
• Governments, investors and financial institutions may need to reassess climate risk models and policy targets
• If damages are indeed higher, the economic case for rapid decarbonisation becomes significantly stronger

📈 One stat: The study estimates that each 1°C increase in global temperature could reduce global GDP per capita by more than 20%, with some estimates approaching 30%

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