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The Economic Impacts of Climate Change

Climate change is one of the biggest threats to economic stability. Heatwaves reduce productivity, cyclones devastate communities, and droughts shrink crop harvests. The World Bank warns us: if we don't do something immediately, climate change could push 100 million more people into poverty by 2030. Without a coordinated policy response, the world economy is unlikely to factor in one of the greatest negative externalities ever faced.

Global warming will primarily influence economic growth through damage to property, lost productivity, mass migration and security threats. Many will find that it is not worth replacing capital stock unless preventative measures can be taken, or there is an opportunity to move the business to safer ground. At best, this could involve a short period of disruption as businesses relocate; at worst, a permanent loss of capital stock. We would see a downward shift in world production as each labour unit produces less output. Higher global temperatures will also affect food security, promote the spread of infectious diseases and impair those working outdoors. Inflation is likely to rise as shortages emerge, particularly in agriculture. Higher global food prices will likely squeeze consumers’ income in the process, and climate change risks are already pushing insurance costs higher.


In 2006, recognising the potentially devastating impacts of climate change on the economy, the British government was the first to commission an economic report on the climate. It chose the World Bank's former chief economist to conduct this: Nicholas Stern. The main conclusion of the Stern Report was that we need to invest the equivalent of at least 2% of global GDP to mitigate the effects of climate change. Adopting ambitious measures may generate profits of $26 billion by 2030, creating 65 million new jobs with low carbon emissions. These may include:


  • Clean energy systems

Decarbonising the energy system coupled with decentralised, digitised electrification technologies could give a billion more people access to modern energy services.

  • Smarter urban developments

More compact, connected and coordinated cities would save $17 billion by 2050 and stimulate economic growth by improving access to work and housing.

  • Sustainable land use

A switch to more sustainable farming methods combined with strict forestry protection could generate economic benefits of around $2 billion per year.

  • Smart water management

Gross National Production falls in areas with water shortages could be prevented by making more efficient technological improvements and investment in public infrastructure.

  • Circular industrial economy

Today, 95% of the value of the material from plastic packaging is lost after the first use. Policies that encourage more circular use of materials could improve global economic activity by reducing waste and pollution.


At the same time, the Global Commission on the Economy and Climate is urging public and private sector leaders to take urgent measures in the next few years: to implement a carbon tax, force companies to disclose climate-related financial risks, speed up investment in sustainable infrastructure, and adopt a people-centric focus to ensure equitable growth. As temperatures continue to climb, the damage wrought by climate change will become increasingly permanent. However, the United Nations Organisation says there is still time to minimise its effects. Humans have the organisational and technological capacity to counteract the damage we have done to the planet, if we act now.




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