A new study has highlighted alarming new projections regarding the global economy’s response to climate change. Researchers found the global economy is on track to face a staggering 19% reduction in income within the next 26 years due to climate change, compared to a hypothetical baseline with no climate change impacts.

Economic damage — worth $38 trillion a year — is estimated to be up to six times higher than the costs associated with weaning off fossil fuels and limiting warming in line with the Paris Climate Agreement requirements.

Most importantly, this projected damage is locked in no matter what. The global economy could face up to 20% of average regional income loss even if the world manages to keep global warming at no more than 2°C. Average global temperatures have already increased by a little more than 1° Celsius — two-thirds of which has occurred since 1975. In a scenario where no mitigation takes place, the damage can increase to up to 60% income loss.

The economic toll of climate change

Virtually all countries are projected to incur significant economic losses and opportunity costs due to the effects of climate change. However, some countries will be more harshly impacted than others. The data indicates that countries with lower incomes and historically lower emissions are poised to suffer disproportionately. These countries show projected income losses 61% greater than those in higher-income countries, and 40% greater than higher-emission countries. This reveals a harsh reality where the nations least responsible for climate change could face the most severe economic downturns.

“Understanding how climate change affects our economy — and with that our prosperity — is crucial. It can help us (governments, central banks, private businesses, households, [et cetera]) plan and adapt accordingly to avoid at least some of these damages,” lead researcher Leonie Wenz from the Potsdam Institute for Climate Impact Research in Germany told ZME Science.

“It shows us how beneficial climate change mitigation is, even from a purely economic point of view. In the public debate, there’s been a lot of focus on how costly protecting the climate is. What’s much less known and discussed is how expensive the alternative would be.”

“While we were expecting to find considerable economic damages from climate change, we were still surprised to see how big they really are. We also did not expect them to be that much higher than the cost needed to limit global warming to 2°C warming. We were also surprised that we found damages for the majority of countries worldwide, also for highly-developed ones that are currently still rather cool such as Germany or France. Finally, the injustice dimension is shocking.”

“In the second half of the century, a lot of economic damages and thus costs for society can still be avoided if we cut down our emissions drastically and immediately.”

The price of mitigation versus inaction

This projection, which showed significantly greater losses than previous models suggested, incorporates not just average temperature increases but also day-to-day variability and extreme weather events like heavy rainfall and intense heatwaves.

The team of researchers leveraged an empirical approach to assess the economic damage from more than 1,600 regions worldwide over the past four decades. By analyzing regional climate and income data in concert with advanced econometric models, the researchers were able to isolate the economic impacts of climate variability on a much finer scale than in earlier studies.

The climate impact assessment was based on temperature and precipitation data for the previous 40 years. Based on how heatwaves and rainfall have affected the economy in the past, the researchers extrapolated into the future considering current emission scenarios and projections from 21 climate models.

“These can affect the economy through various channels such as reduced labor productivity, lower agricultural yields or damaged infrastructure,” Wenz wrote in an email.

Who suffers most?

Tropical countries, which are already warmer, will suffer the brunt of the damage. The U.S. has a projected median income reduction of 11%. Only Canada, Russia, Norway, Finland, and Sweden are projected to see an uptick due to new land and resources freed up by an ice-free Arctic. This highlights a disturbing disparity: the regions projected to suffer the most significant economic hits are those that have historically contributed the least to global emissions.

It could get even worse. The researchers did not account for quite a few factors known to be heavily impacted by climate change, such as sea level rise or tropical storms. Previously, The Dragas Center calculated that taking no action to mitigate harm from rising sea levels would result in a $79.1 billion decline in economic output by the end of the century. Tropical storms have caused a yearly average of around $50 billion in losses over the last decade.

“While our study is more comprehensive than previous assessments, there are still a number of important impact channels missing that could further raise estimates of the economic damages from climate change. For example, we do not consider economic impacts from tropical storms, wildfires, or sea level rise (yet). Furthermore, by looking at changes in economic output, we are focusing on market impacts but climate change has of course various further impacts such as for example loss of life, cultural heritage, and nature,” Wenz said.

These findings amplify the call for immediate and decisive policy action on climate change. If these findings serve as any indication, we are now in dire need of strategies that go beyond mere adaptation. We need to push for a holistic overhaul of how economies account for and address the burgeoning risks posed by climate change.

The findings appeared in the journal Nature.