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Climate economics - costs and benefits: What are the costs of climate change, and the costs and benefits of tackling it? (Energy & Climate Intelligence Unit)

January 17, 2022

Policymakers and politicians rely on economics to guide decision making on the risks posed to society by climate change. Central to that task are economic models. They can be used to estimate the future costs of climate change impacts such as heatwaves, flooding and sea-level rise, alongside the economic benefits of preparing for them. Models also estimate the costs and benefits of measures that reduce greenhouse gas (GHG) emissions.

Costs and benefits

The future costs and benefits of climate change are uncertain and unevenly distributed. For example. the costs of dealing with the impacts of climate change fall disproportionately on developing countries, whilst the financial costs of cutting emissions to mitigate those impacts fall mostly to developed nations.

According to Morgan Stanley, climate-related disasters cost the world $650 billion from 2016-2018. The Organisation for Economic Co-operation and Development (OECD) puts the cost of achieving the UN’s Sustainable Development Goals, in a way compatible with Paris, at $6.9 trillion a year, to 2030. And a 2019 World Bank estimate suggests the necessary global infrastructure investment would cost $90 trillion by 2030.

Already, more variable weather has likely made crops more difficult to grow. A warming world could depress growth in agricultural yields up to 30% by 2050, affecting as many as 500 million small farms worldwide. Large coastal and delta cities are predicted to flood more frequently, incurring clean-up and, in some cases, moving costs.

Measures that help people adapt to these impacts also incur costs, but evidence shows that the future benefits of action overwhelmingly outweigh the future costs of inaction. The UK National Audit Office, for instance, estimates that for every £1 spent on protecting communities from flooding, around £9 in property damages and wider impacts can be avoided.

It has been clear since Nicholas Stern’s landmark 2006 review of the economics of climate change that the costs of not acting to tackle climate change are much higher than the costs of taking action. And whilst the costs of projected impacts have only grown since then, the costs of many of the technologies for tackling climate change have fallen considerably.


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