New research suggests that if global temperatures rise by more than 3°C above pre-industrial levels this century, global GDP could be reduced by up to 40 %. These findings represent a fundamental shift in understanding the economic consequences of climate change, as traditional economic models have so far underestimated the impact of extreme weather events and disruptions to global supply chains.

Why are the economic consequences much more serious?

According to a new analysis by a group of scientists from Australia and published in the prestigious journal Environmental Research Letters, global warming above 3°C will not only result in an increased frequency of extreme weather events – such as severe storms, floods and prolonged droughts – but also have serious impacts on international trade networks and supply chains. These extreme events can cause a “cascading” disruption to production processes, which in turn leads to a significant decline in economic activity.

Linking local and global damages

While traditional models have focused largely on the local effects of climate change, the new approach emphasizes the interconnectedness of the global economy. For example, if extreme droughts hit major agricultural areas, it is not just a local loss – global supply chains and markets can suffer, leading to significant declines in incomes and living standards in many countries.

Mitigation and adaptation options

The research also highlights that even relatively mild warming of around 2°C could lead to a reduction in GDP per capita of around 16 %, which is still an alarming figure. It is therefore essential that governments and international organisations immediately adopt ambitious policies to reduce greenhouse gas emissions while investing in adaptation to the necessary changes. Key measures include introducing a single carbon price, promoting low-carbon technologies and improving infrastructure to cope with extreme weather events.

Call for international cooperation

While the research highlights enormous risks, it also offers hope – with an emphasis on rapid and coordinated international action, it is possible to limit global warming to levels that minimize economic damage. Experts warn that any delay in action only increases future costs and reduces adaptation options, which could lead to long-term and irreversible damage to the global economy.

New analysis clearly suggests that without immediate and ambitious action, we face serious economic risks that could dramatically reduce the living standards of billions of people. If we are to protect our global economy and future generations, we need to act now. Spring

Glossary of key terms

• Integrated Assessment Models (IAMs): Models that combine knowledge from different disciplines (e.g. climatology, economics, energy) to analyse complex issues such as climate change and its economic consequences, and to evaluate different policy measures.
• Damage function: A mathematical relationship in IAMs that quantifies economic damage (usually as a percentage decrease in GDP) depending on the level of global warming.
• SSP (Shared Socioeconomic Pathways): Scenarios of future socio-economic development that are used in climate models to project future greenhouse gas emissions and subsequent climate change. SSP1-2.6 represents a low-emissions scenario, while SSP5-8.5 represents a very high-emissions scenario.
• CMIP6 (Coupled Model Intercomparison Project Phase 6): The sixth phase of a large-scale international climate model intercomparison project, providing a standardized set of climate projections.
• Econometric models: Statistical models used to estimate relationships between economic variables and other factors, in this case between economic growth and weather conditions.
• Global weather: In the context of the article, it refers to averages of weather variables (especially temperature and precipitation) around the world.
• Local weather: Weather conditions specific to a given country or region.
• DICE (Dynamic Integrated Climate-Economy): One of the most famous IAMs, created by William Nordhaus, is used to analyze the costs and benefits of climate change measures and to estimate the optimal level of emission reductions.
• Welfare-optimal climate policy: A climate policy that maximizes overall societal welfare, taking into account the costs of reducing emissions and the benefits of averting climate damage.
• Carbon price: A price paid for the emission of carbon dioxide or other greenhouse gases, with the aim of internalizing the externalities associated with their release and incentivizing emission reductions.