What is the economic cost of climate change?

Windmills are seen through the morning mist rising from a field in Sehnde near Hanover, northern Germany, on Sept. 22, 2016. Credit: Julian Stratenschulte/DPA/AFP via Getty Images
Windmills are seen through the morning mist rising from a field in Sehnde near Hanover, northern Germany, on Sept. 22, 2016. Credit: Julian Stratenschulte/DPA/AFP via Getty Images

The number of ways to calculate the cost of climate change is growing, as scientists refine our understanding of climate impacts and those impacts play out. One measure in the United States is the National Oceanic and Atmospheric Administration’s ongoing billion-dollar disaster tally, which measures everything from the derecho that battered the Midwest with hurricane-force winds in 2020 to the drought plaguing the West, including the wildfires that scorched more acreage in California and Colorado in 2020 than ever before in recorded history. Large-scale weather disasters linked to climate change have been rising steadily, with the costs totaling $95 billion in 2020.

The insurance industry also keeps tabs on climate costs. The Swiss Re Group estimated that global insurance-industry losses in 2020 from natural catastrophes were $76 billion, making it the industry’s fifth-costliest year in a half-century.

But measures like these fail to take into account many significant losses, including the long-lasting psychological impacts of extreme weather events and the devastating costs to climate refugees. The World Economic Forum’s Global Risks Report also identifies biodiversity loss and ecosystem collapse as one of the top five threats humanity will face in the next decade. 

Akanksha Khatri, who leads the forum’s Nature Action Agenda in Geneva, points out that climate impacts to the natural world amount to roughly $13 trillion of the global economy. Construction, agriculture, food and beverages—they all depend on nature. Rainfall and weather linked to global warming, as well as the spread of invasive species, harms agriculture and the functioning of the bread baskets and rice bowls of the world.

“You’re talking about 15 percent of the global GDP, which is directly impacted by climate change and nature loss,” she said.

Meanwhile, the Fourth National Climate Assessment cites research suggesting that, in the worst-case scenario, global warming costs could total 10 percent of U.S. GDP by the end of the century. And, by reducing emissions from their current high rate (RCP 8.5) to lower levels by midcentury (RCP 4.5), the estimated costs of climate change could be reduced from $494 billion annually to nearly $217 billion.

Khatri sees opportunity in the food, land and ocean sector, as well as risk. She estimates that this sector by itself could yield about $3.6 trillion of additional annual revenues or cost savings by 2030 as well as creating 191 million new jobs. But looking towards the economy as a whole, taking action that leads to net-zero emissions and other practices that are positive for the climate and nature could open the door to $10.1 trillion in opportunities and 395 million jobs by transitioning away from business-as-usual, her research shows.

“So I think anyone who says it is being done at the cost of economic growth, it’s not really true,” she said. “It requires a systems transformation and moving away from this extractive fossil-fuel based economy that frankly, all of us are addicted to.”

Khatri pointed to recent successes in addressing the global pandemic and the prospect of cooperation in upcoming climate talks as reasons for optimism. “I really believe that as humanity, we can fix it. Just look at what we’ve been able to do with Covid,” she said. 

Judy Fahys

Ask Us a Question

Is there a climate science question that’s been bouncing around in your head? Submit your question to Climate 101 and we may be able to answer it for you.