Climate change may shrink global economy in future: Expert

Erhan Aslanoglu from Istanbul Bilgi University said the impact of climate change on industry, tourism, and agriculture affects not only the environment but also economic indicators.

A study by the University of New South Wales in Australia on the interconnectedness of the global economy and climate impacts from one country to another found that macroeconomic loss projections worsened significantly depending on the greenhouse gas emissions scenario.

In the very-high emissions scenario, the study estimates a global gross domestic product (GDP) loss of 11% without considering weather conditions, and of approximately 40% when the climate aspect is accounted for, in the year 2100.

Aslanoglu stated that climate change directly and indirectly affects economic activities but the loss of life is the most important aspect, as rising temperatures can lead to health problems, such as heart attacks and high blood pressure.

“Despite being very hard to measure, these health problems can be due to climate, which is why we should categorize (climate change’s impacts) as ‘measurable’ and ‘unmeasurable’ losses -- high temperatures, natural disasters, and cold weather lead to productivity loss, which has a cost,” he said.

“Major damage due to storms, floods, and droughts also have major recovery costs, and while these damages occur, there is the cost of eliminating them and recovering again.”

He emphasized that combating climate change has a cost of prevention for many countries and this cost is a burden on both private and public sectors, and climate change may also cause macroeconomic instability by giving rise to public deficits and debts that arise from these costs.

Costs to inflation, significance of climate agreements

Aslanoglu explained that climate change disrupts especially the logistics of products, as transportation of goods due to storms, natural disasters, and others have costs, while covering for delays has its own costs.

Maritime and airline firms reflect these risks by accounting for them in their prices, he added.

“As the potential risk rises, the costs of dealing with them also rise, which can be considered as a cost on inflation,” he said.

“Meanwhile, wildfires, sea pollution, and increased air pollution disrupt the natural balance of our world, which is the environmental side of climate change -- nature’s destruction is very difficult to revert,” he added.

He mentioned that the suggested 40% approximate loss of GDP, as stated by the study, is controversial as the impact of climate change is dynamic and gradual -- in such a case, productivity loss, logistics issues, and supply problems would affect potential production.

Aslanoglu noted that this scenario may happen with the potential rise of the global population in the coming years.

“If the world experiences a growth problem, it would mean that each person would have a smaller share of the larger pie -- a metaphor we economists like to use -- and in turn, this would affect welfare, leading to unemployment and production loss,” he said. “As the pie gets smaller and smaller, while the population grows, wars may break out.”

Aslanoglu stated that the Kyoto Protocol and the Paris Agreement are some examples of measures that can be taken to reduce climate change’s pressure on the economy, and that such agreements provide opportunities for countries to shift their production and consumption over time with the goal of reaching zero emissions.

He added that the Paris Agreement's 2030 and 2050 targets can be reached with a spending of $3 trillion to $4 trillion, urging world leaders to cooperate to save the planet and help developing and underdeveloped countries reach a level to contribute to the collective climate efforts by restructuring or paying off some of their debts.