Uncovering the True Economic Impact of Climate Change: Why Estimates May Be Six Times Worse Than Previously Thought

In a groundbreaking new study, assistant professor of economics Adrien Bilal and his collaborator Diego Kanzig of Northwestern University have challenged previous estimates of the economic impacts of climate change. Their research, detailed in a recent working paper, suggests that the damages caused by global warming are likely six times worse than previously thought.

Traditionally, economists have estimated the economic effects of climate change by looking at local temperature changes and their impact on local GDP. However, Bilal and Kanzig argue that this approach fails to capture the full extent of the problem. Climate change involves a planet-wide rise in temperatures, leading to more extreme weather patterns and disruptive events such as tropical storms and heat waves. These conditions have a more significant impact on the global economy than previously acknowledged.

To model the economic impacts of climate change, the researchers analyzed a data set spanning 173 countries over the last 120 years. They looked at the relationship between global temperature increases and changes in GDP, taking into account events such as El Niño weather patterns and volcanic eruptions. Their findings revealed that a 1-degree Celsius rise in global temperature could lead to a 12 percent decline in world GDP, with even more significant losses projected for the future.

According to Bilal, a 2-degree Celsius warming by the end of the century could result in a decline in future GDP of between 30 and 50 percent by 2100. In the United States alone, this could mean a loss of $56 trillion each year, exceeding the current GDP. Individuals would experience a 31 percent drop in purchasing power, comparable to living through the Great Depression of 1929.

The researchers also calculated the social cost of carbon emissions, settling on a figure of slightly more than $1,000 per ton, significantly higher than the commonly cited $150 per ton. These findings have significant implications for policymakers and highlight the urgent need for action to mitigate the economic impacts of climate change.

While the study raises concerns about the potential losses from climate change, Bilal remains hopeful that adaptation measures could help offset some of these damages. However, the effectiveness of adaptation strategies remains uncertain, and more research is needed to understand how societies can best prepare for the challenges ahead.

Overall, Bilal and Kanzig’s research sheds new light on the economic consequences of climate change and underscores the importance of taking decisive action to address this global threat.