'Inaction is a far costlier choice': How 3C of climate warming could cost global economy $178tr

While unchecked global warming could knock 7.6 per cent off GDP, net zero could boost global GDP by 3.8 per cent, according to Deloitte

Climate change could cost the global economy $178tr over the next 50 years if left unchecked, amounting to a 7.6 per cent cut in GDP in the year 2070 alone, according to a sobering new assessment from Deloitte.

A major new report by the consulting giant warns that if global average temperatures rise to around 3C above pre-industrial times by the end of the century, as is entirely plausible based on current emissions trends, it would have a catastrophic impact on human lives. The resulting scarcities in food and water, combined with dire health and wellbeing impacts, would trigger both humanitarians and a huge decline in productivity and employment, the report disaster warns.

As a result, it points to a significant fall in global living standards that would hit the poorest and most vulnerable the hardest, unless urgent action is taken to drive down the temperature to within the Paris Agreement’s 1.5C-2C warming threshold pathways.

The UK alone would suffer a £220bn hit to its economy with five million fewer jobs available by 2070 in such a scenario, which would amount to a net loss of 90,000 jobs every year over the next half century, the report estimates.

Europe as whole, meanwhile, would likely see 110 million fewer jobs in a climate-ravaged economy, according to yesterday’s report, which analysed 15 geographies across Asia-Pacific, Europe and the Americas.

However, the report also emphasized the massive economic benefits from taking bold action to shift towards a net zero economy that go far beyond merely avoided damages from unchecked global warming pathways. As such, it argues a low carbon future is now both a social and economic imperative.

The report estimates the transformation to a more climate-friendly economy could add £160bn to the UK economy over the next 50 years, in present value terms, while in the year 2070 alone the net benefit to the country could amount to £40bn.

On a global level, the estimated gains are monumental, according to Deloitte. If global political and business leaders unite to deliver a systemic net zero transition, it contends the global economy could enjoy economic gains of $43tr over the next five decades, which would amount to a 3.8 per cent GDP boost in 2070.

Deloitte’s global CEO, Punit Renjen, said the research findings could scarcely be clearer that the costs of inaction on climate change would be devastating, and several orders of magnitude greater than the investment needed to build a net zero economy.

“The time for debate is over,” he said. “We need swift, bold and widespread action now – across all sectors. Will this require a significant investment from the global business community, from governments, from the non-profit sector? Yes. But inaction is a far costlier choice. The data bears that out. What we have before us is a once-in-a-generation opportunity to re-orient the global economy and create more sustainable, resilient, and equitable long-term growth. In my mind the question is not why we should make this investment, it’s how can we not?”

In order to deliver a net zero emissions economy and avert the most catastrophic and economically-damaging climate scenarios, however, extensive coordination and collaboration between industries and governments will be needed in order to drive up green investment and robust and consistent policies and regulations, according to Deloitte.

But it stresses that collectively transitioning away from an economy reliant on fossil fuels towards a system primarily powered by renewable energy would spur new sources of growth and job creation.

Moreover, once tipping points reached when the benefits of net zero outweigh the costs, the green economy will be poised to grow at an faster rate compared to carbon intensive fuelled industries, the report states.

These turning points, however, are likely to be reached at different times in different geography, depending on governance structures, economic systems, climate risk profiles, and marketplace strengths and capabilities, as no two net zero pathways are the same, it argues. While Europe may not see a return on its investment in net zero until the 2050s, it contends that the Asia-Pacific region could well start to reap the rewards within the current decade.

“It’s important that the global economy evolves to meet the challenges of climate change,” said Dr. Pradeep Philip, lead partner at the Deloitte Economics Institute. “Our analysis shows that a low-carbon future is not only a societal imperative but an economic one. We already have the technologies, business models, and policy approaches to simultaneously combat the climate crisis and unlock significant economic growth, but we need governments, “, and communities globally to align businesses on a pathway toward a net zero future.”

Of course, precise estimates of the economic benefits of a transformational net zero economy compared against the exceedingly unpredictable damage wrought by spiralling climate change must always be with a pinch of salt, given the sheer scale of unknowns, differentials and complex factors at play. It is entirely possible that the costs of the transition could prove higher than expected, especially if governments fail to provide a consistent policy framework. Equally, truly catastrophic climate risks could knock a lot more than a few percentage points off GDP if they trigger conflicts and other crises.

However, the consensus around the net impact of both climate change and the net zero transition is more robust than ever, whatever certain HSBC executives may think to the contrary. The Deloitte study is far from the first time an economic analysis has attempted to tot up the costs of climate change, and the benefits of achieving net zero emissions. A study last year by New York University’s Institute for Policy Integrity, for example, put the costs of climate change at roughly $30tr a year by 2075, or around five per cent of global GDP. In the UK, meanwhile, the Office for Budget Responsibility has put the net cost of achieving net zero at £321bn over the next three decades, while also warning that unmitigated global warming could see Britain’s public debt spiraling to a terrifying 290 per cent of GDP . Over a decade ago, the famous Stern Review made it crystal clear that climate change represented the biggest market failure in history.

While the precise figures may vary, overwhelming evidence endorses Stern’s central conculsion: that the costs of unchecked climate change far outweigh the investment needed to drive down emissions and avoid the worst impacts of global warming.

What’s more, given the difficulty of knowing with precision exactly how – and how quickly – the planet’s biosphere will react to still rising CO2 emissions, it would seem likely the multi-trillion-dollar cost estimates of 3C of warming are conservative at best.

But as long as leading figures in politics and the media continue to cast doubt on the benefits of the net zero transition, while seeking to hype up the ‘costs’ of the transition, the mounting collection of economic evidence and startling figures counteracting their claims remain Hugely effective weapons in combat for a ambitious climate policy.

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