Climate change to shrink global GDP by only 7%: JPMorgan

Updated Thu, Jul 18, 2019, 1:28 PM

While climate change continues to pose a global threat, a new report from JPMorgan Chase shows that climate change will only reduce global gross domestic product (GDP) by 7%. With a growth rate of 2%, the report states, by 2100, GDP would still be “four and a half times higher than today,” even after a 7% impact. It’s the latest report from JPM that shows the impact of climate change on the economy; other research finds that global growth could be hit by as much as 5%.

The ‘biggest threat’

In 2016, the World Economic Forum declared that climate change was the biggest threat to the global economy. At the time, the WEF determined that failure of climate change mitigation and adaptation was a bigger risk to the global economy than weapons of mass destruction, water crises, large-scale involuntary migration, or severe energy price shock.

That risk was highlighted again by the U.S. Global Change Research Program in its fourth National Climate Assessment (NCA), a report mandated by the Global Change Research Act of 1990. “The impacts of climate change beyond our borders are expected to increasingly affect our trade and economy, including import and export prices and U.S. businesses with overseas operations and supply chains,” the report stated.

“Some aspects of our economy may see slight near-term improvements in a modestly warmer world. However, the continued warming that is projected to occur without substantial and sustained reductions in global greenhouse gas emissions is expected to cause substantial net damage to the U.S. economy throughout this century, especially in the absence of increased adaptation efforts,” according to the NCA report, which was released in two parts in 2017 and 2018.

According to the NCA, the average surface air temperature has increased by 1.8°F (1.0°C) over the last 115 years. “The last few years have also seen record-breaking, climate-related weather extremes, and the last three years have been the warmest years on record for the globe. These trends are expected to continue over climate timescales,” the study states.

The UN’s World Meteorological Organization (WMO) has also sounded the alarm.

“We are not on track to meet climate change targets and rein in temperature increases,” said WMO Secretary-General Petteri Taalas last year. “Greenhouse gas concentrations are once again at record levels and if the current trend continues we may see temperature increases 3-5°C (5.4-9°F) by the end of the century.”

A small impact?

But by 2100, even the most aggressive models suggest that the global economy won’t be as negatively harmed as people fear. With a global surface temperature increase of 6°C (nearly 11°F), the JPM note shows, global GDP would shrink by a total of 6.7%. When considering the UN’s estimates of 3-5° increases, the impact could be much smaller, according to the research available. JPMorgan’s note shows that the impact to global GDP could range from -6.1% to as little as -0.9%.

One of the models used accounted for a temperature increase of 12°C (21.6°F), which the note says would make “significant parts of the planet uninhabitable,” shows that GDP would take a 26% hit — a fairly small number given the climate damage.

At first, the findings don’t aren’t so alarming: according to the World Bank, global growth is expected to rise to 2.8% by 2021, “predicated on continued benign global financing conditions and a modest recovery in emerging market and developing economies.”

With a flat global growth rate of 2%, global GDP would reach around $450 trillion at the end of the century, the report says. Even after shrinking by 7%, GDP would still be “four and a half times higher than today.” Currently, global GDP sits at roughly $90 trillion.

As surface temperatures rise, the percentage impact to GDP also steadily increases.

But as the JPMorgan report highlights, there are many “challenges” to these estimates. There is uncertainty around modeling the impact climate change will have on labor supply and productivity growth and output.

“To the extent that climate change lowers growth rates,” the report says, “the negative impact of climate change will be greater, especially over long horizons.”

When modeling “sharp declines” in labor supply and productivity analysis shows the impact to global GDP would be much greater.

Cause for concern

Even if global GDP doesn’t take a large hit, the JPMorgan note highlights that climate change will impact areas like “health, mortality, water stress, famine, displacement, conflict, biodiversity and species survival” — and these all will impact economies in the United States and around the world.

“With continued growth in emissions at historic rates, annual losses in some economic sectors are projected to reach hundreds of billions of dollars by the end of the century—more than the current gross domestic product of many U.S. states,” says the most recent National Climate Assessment.

It’s also impossible to rule out what JPMorgan’s note calls “catastrophic outcomes,” where life on earth is threatened.

Though climate change will impact us all, it will not affect us all equally. Developing economies overwhelmingly bear the burden of climate change, faced with climate disasters such as flooding, drought, and famine.

“Over time,” the note says, “our children and grandchildren will face the potentially significant consequences of decisions made in the coming few years.”

Kristin Myers is a reporter at Yahoo Finance. Follow her on Twitter.

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