The Urgent Need to Rethink Climate Economics

Climate change is increasingly affecting our global economy, but traditional economic models have often underestimated the true scale of the impact. A new Australian study published in Environmental Research Letters has enhanced a widely used economic model to better predict the effects of extreme weather events, particularly across interconnected global supply chains.

Integrated assessment models (IAM) are used as guides for governments to understand how much to invest in reducing greenhouse gas emissions. However, they have previously failed to address and forecast major climate change risks due to extreme weather events.  

Mark Lawrence, a member of the Environment Institute at the University of Adelaide and a professor of practice specialising in climate risk, brings over 25 years of experience in financial services risk management. He has held senior positions at major financial institutions, including Merrill Lynch and ANZ Banking Group. Mark currently focuses on consulting in areas such as evaluating and enhancing risk culture, defining and integrating risk appetite, and implementing post-crisis regulatory reforms, including updates to bank capital and risk modelling requirements.

He was asked to comment on the recent findings of the study and is featured in AOL, The Guardian, Yahoo, and Exec Review, stating he found the results of the new research credible. Mark further says, “If anything, I believe the economic impacts [of climate change] could be even worse,”.

Australian scientists suggest that average global GDP per person could decrease by 16%, even if warming is limited to 2°C above pre-industrial levels. This projected reduction is significantly higher than previous estimates, which indicated a decrease of just 1.4%. The study also revealed that if global temperatures rise by 4°C, the consequences would be catastrophic, leaving the average person 40% poorer. This is a stark contrast to earlier models without enhancements, which predicted a reduction of just 11%. The study concluded that global weather significantly worsened projections of climate damage.

Traditional IAM models have assumed only a country’s own weather and the affects on its economy, this ignores global weather patterns that can be intertwined with economies. Policymakers should use this information to rethink their approach to emission reductions. The study highlights the urgency of integrating global weather patterns into economic modelling to better estimate the real costs of climate change, advocating for more immediate and decisive action.

Click here to read the full article: The Guardian, Yahoo! News UK & Ireland, AOL UK, Exec Review
Read the study here