New study reveals how a 3 degree Celsius rise in temperature will make world considerably poorer

The economic impact of climate change could be much higher than previously estimated, a new study by a group of Australian researchers has concluded, suggesting that a 3 degree Celsius warmer world by the end of the century could result in as much as a 40 per cent hit on the per capita global GDP.

The researchers said that the crucial difference in their study is that it accounts for the interconnectedness of the global economy. A climate change-induced weather event disrupts not just the economy of the country where it has occurred but elsewhere too. The study, ‘Reconsidering the macroeconomic damage of severe warming’, has been published in the journal Environment Research Letters.

“To date, projections of how climate change will affect global gross domestic product (GDP) have broadly suggested mild to moderate harm. This in part has led to a lack of urgency in national efforts to reduce greenhouse gas emissions. However, these models often contain a fundamental flaw — they assume a national economy is affected only by weather in that country. Any impacts from weather events elsewhere, such as how flooding in one country affects the food supply to another, are not incorporated into the models,” Timothy Neal, senior lecturer in economics at the Institute for Climate Risk and Response, University of New South Wales in Sydney, and the lead author of the study, wrote in a post on The Conversation.

Making this correction, the researchers found that the estimated damage to the global economy, in per capita GDP terms, from a 3 degree Celsius temperature rise by the end of the century increased from an average of 11 per cent in previous studies to 40 per cent.

“Adding global weather to the (previously used econometric) models leads to severe losses through much of the mid-latitudes of the northern hemisphere… particularly Europe, the United States, China and India,” the study said.

It said that previous conclusions about the colder regions of the world benefiting from global warming could also be off the mark.

“Previous models have asserted economies in cold parts of the world, such as Russia and northern Europe, will benefit from warmer global temperatures. However, we found that the impact on the global economy was so large that all countries will be badly affected,” Neal wrote.

A 3 degree rise in temperature by the end of the century looks a distinct possibility, considering that the world is way off the track to meet the Paris Agreement targets of keeping global rise in temperature to within 2 degree Celsius. Average annual mean temperature in 2024 crossed the 1.5 degree threshold for the first time, and indications are that this could become the norm in just about a decade.

With the Donald Trump administration in the United States taking a series of steps that seriously undermine climate action at the global level, the progress on the Paris Agreement targets is expected to slow down even further.

The study hypothesises that, in future, the benefits of international trade would not be able to shield countries facing economic disruptions due to extreme weather events.

“In a stable climate during any given year, a number of countries will experience favourable weather conditions while a number of others will experience relatively poor weather. If poor weather causes adverse outcomes such as crop failures or capital loss, that country can usually rely on good conditions in other countries to import the affected commodities at a competitive price. When globally averaged weather is particularly warm or dry in a given year, it increases the likelihood of more countries experiencing poor weather simultaneously and can have a large impact on the global supply chains of important commodities and can push inflation,” it said.

Neal made a similar argument in his blog.

“Global warming affects economies in many ways. The most obvious is damage from extreme weather. Droughts can cause poor harvests, while storms and floods can cause widespread destruction and disrupt the supply of goods. Recent research has also show heatwaves, aggravated by climate change, have contributed to food inflation,” Neal wrote.

“Heat also makes workers less productive. It affects human health, and disease transmission, and cause mass migration and conflict. Most prior research predicts that even extreme warming of 4 degree Celsius will have only mild negative impacts on the global economy by the end of the century – between 7 per cent and 23 per cent. Such modelling is usually based on the effects of weather shocks in the past. However, these shocks have typically been confined to a local or regional scale, and balanced out by conditions elsewhere,” he said.

“For example, in the past, South America might have been in drought, but other parts of the world were getting good rainfall. So, South America could rely on imports of agricultural products from other countries to fill domestic shortfalls and prevent spikes in food prices. But future climate change will increase the risk of weather shocks occurring simultaneously across countries and more persistently over time. This will disrupt the networks producing and delivering goods, compromise trade and limit the extent to which countries can help each other,” he wrote.