4 Steps to Keeping the Climate Crisis From Weakening the Economy: Deloitte

  • A new study from Deloitte outlines four phases to tackling climate change and its economic risks.
  • The team sees the climate risk costing the world economy $178 trillion in GDP over the next 50 years.
  • Achieving decarbonization could erase those losses and trigger a $43 trillion gain, economists added.

Leaving climate change out of control could destroy the global economy by 2070. A new report by Deloitte outlines four steps governments, companies, and citizens need to take if they are to avoid such a catastrophe.

The world has many economic problems, with inflation, Russia’s invasion of Ukraine, and broken supply chains, all threatening global growth. The looming climate crisis, however, is too costly to ignore, Deloitte Pradeep economists Philip, Claire Ibrahim, and Cedric Hodges said in a report published Monday morning.

If the world stays on its current track, average temperatures will rise by 3 degrees Celsius by the end of the century. That will cost the global economy an estimated $178 trillion in just the next 50 years, according to the study. Human costs including food scarcity, job loss and declining living standards will also increase, the team said.

On the other hand, encouraging net zero emissions could set the stage for stronger economic growth in the decades to come. Such an axis could grow the world economy by $43 trillion by 2070, according to the report.

The deadline for achieving that windfall was drawing near. Deloitte’s better forecast hinges on the world decarbonizing its economy by 2050, a feat that would limit warming to around 1.5 degrees Celsius. But achieving net zero emissions is no easy task, and Deloitte sees four phases as key to realizing an eco-friendly future.

Be ‘bold’ on climate change

The first steps towards achieving net-zero will be more theoretical than concrete. The world needs to “set the stage” for decarbonization with policies and frameworks for a low-carbon future, the team said, adding that first steps would be focused on “the bold climate game.”

With emissions still rising, time is running out for the world’s governments to plan for a zero-carbon economy.

“Given the costs associated with every tenth of a degree rise in temperature, each month of delay carries greater risk and prevents eventual economic gains,” the economists said.

Paying upfront to drive growth

Achieving net zero emissions will require serious investment. Economies must pay for clean energy, sustainable supply chains, and the replacement of emissions-intensive industries if they are to make the transition in time, according to the report.

Deloitte


Deloitte


The shift wouldn’t be without some “growing pains,” the team added. Investing in a greener economy will hinder GDP growth over the next two decades as companies shift their focus from profitability to sustainability. Deloitte predicts that growth prospects will reach a turning point in the late 2040s, after which investment is expected to yield substantial returns, not to mention the benefits of avoiding climate catastrophe.

Reaching a turning point

The net-zero experiment will begin to pay off in about 25 years, when investments in “structural economic adjustments” are nearly complete, the team said.

“The economy will realize the dividends from the transformation and experience net positive growth,” they added.

The turning point also represents a time when the world moves away from the risk of a projected $178 trillion loss and toward a $43 trillion gain. There will be significant costs in the first few years of the transition, but economists should view climate change as a trend — not a temporary scenario — as they model potential risks, according to Deloitte.

“If the economic impacts of climate change are ignored on an economic basis, the result may be poor decision-making, ineffective risk management, and inadequate efforts to address the climate crisis,” the team said.

Maintaining a low emission future

Staying on track, ideally, could create a decarbonized economy, but the work won’t be done by then. Governments and companies must maintain a “connected low-carbon system” to keep a green economy alive and growing, the team said. The world’s economy will develop “at an increasingly faster rate than its carbon-intensive alternatives,” they added.

The benefits will differ from one area to another. Asia Pacific economies have the greatest exposure to climate-related damage, according to the report. The region could lose $96 trillion in economic growth by 2070 if decarbonization is not achieved. In other words, the region’s GDP could be 9% less in 50 years than it would be in a world with net zero emissions.

America will follow with a combined loss of $36 trillion by 2070, Deloitte said. The US alone will lose $4 trillion in potential growth, and the region’s overall GDP will be 4% lower by 2070 compared to a decarbonized world.

Europe faces the smallest projected loss, with the region expected to lose $10 trillion in GDP by 2070 compared to a decarbonized future. However, economic growth will only reach 1% in the 2060s as climate problems hit the European economy.

The stakes are very high. Deloitte’s modeling shows that investing in decarbonization is not only paying off, it’s paying dividends throughout the 21st century.

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