Climate Change and Environment
GDP will fall by 25 per cent without climate action
A failure to act urgently on climate change will have dire economic consequences according to a report commissioned by 60 of the world’s central banks, including the Reserve Bank of Australia.
The report warns that global GDP could fall by 25 per cent by 2100 if the world does not act to reduce global greenhouse gas emissions.
It outlines three different scenarios to guide bankers and financial regulators when assessing the climate risks to the economy and financial sector:
- an “orderly scenario” where climate policies would be introduced soon and gradually tightened, limiting the risk of physical damage and the impact of the transition to low emissions. It would be expected to lead to a “relatively small” economic impact of about 4 per cent of global GDP by 2100.
- a “disorderly” scenario where climate policies would not be introduced until 2030, and the emissions reductions needed would be more abrupt. It would lead to a nearly 10 per cent reduction in global GDP.
- a third scenario, described as a “hot house” world, where action to deal with the climate crisis would be limited to current policies only. The report estimated that the physical damage caused under this scenario could wipe out up to a quarter of annual global GDP by the end of the century.
Frank Elderson from the Netherlands’ central bank said the report was important as “climate change leads to financial risks and therefore remains a vital issue for central banks and supervisors to address”.
Read the report: https://www.ngfs.net/en/communique-de-presse/