A recent study by Australian researchers has found that global warming could affect wealth much more than we thought.
The study, published on Monday, March 31, 2025, revealed that average income per person could drop by 16% globally even if global warming is limited to 2°C – far worse than previous estimates of a 1.4% decline.
The study, led by Dr. Timothy Neal from the University of New South Wales’s Institute for Climate Risk and Response, was published in Environmental Research Letters.
The study also found that even a temperature increase of just 2°C above pre-industrial levels could cut the average per-person GDP worldwide by 16%.
That’s much more than previous estimates, which suggested a reduction of only 1.4%.
Current projections indicate that global temperatures are likely to rise by at least 2.1°C, even if nations meet their short-term and long-term climate goals.
Integrated assessment models (IAMs), which are used to guide government investments in reducing greenhouse gas emissions, have been criticized for failing to accurately capture the risks posed by climate change.
These include extreme weather events and their potential impact on global supply chains.
The new research built upon one of these popular economic models by factoring in climate change forecasts and extreme weather events’ impact on global supply chains.
Dr. Neal stressed that earlier economic models failed to account for how extreme weather events affect global supply chains.
He said, “In a hotter future, we can expect cascading supply chain disruptions triggered by extreme weather events worldwide.”
This makes it imperative for economic models to consider these factors to accurately gauge how climate change could affect global economies.
Some economists argue that global losses from climate change could be offset by potential benefits in colder regions like Canada, northern Europe, and Russia.
However, Dr. Neal disagrees and asserts that global warming will affect all countries due to interconnected economies through trade.
This perspective challenges the notion of regional benefits from climate change and underscores its universal impact on wealth distribution worldwide.
Scientists now project temperatures will rise by 2.1°C even if countries meet climate targets, underscoring the urgent need for action. The findings suggest the economic benefits of ambitious climate policies have been severely underestimated.
With the cost of living a top global concern, transitioning to affordable renewables offers a double benefit – solar and wind power are now cheaper than fossil fuels, immediately reducing energy bills while also preventing longer term hits to income and productivity caused by global heating.
Prof. Frank Jotzo, a climate policy expert at Australian National University, who was not involved in the research, criticised IAMs for assuming that if climate change made an activity like agriculture unviable in one part of the world, increased output would come from elsewhere.
He said that this assumption contradicts what physical impact science and a nuanced understanding of interdependencies in the economy would suggest.
In a reaction, Anne Jellema, Executive Director of 350.org, says: “The cost of inaction on climate change is striking – both for our wallets and our future. Renewables like solar and wind are now the most affordable energy sources, offering stable prices, energy independence, and a path out of fossil fuel volatility.
“The evidence is irrefutable: clean energy isn’t just good for the planet; it’s a down payment on long-term prosperity and security for individuals, households and communities worldwide.”
Mark Lawrence, a climate risk researcher at the University of Adelaide, and a former financial risk manager, found the results of this new study credible.
He suggested that the economic impacts of climate change could be even worse than reported.
Lawrence also stated that “the potential economic benefits of urgent climate policy action have also been significantly understated,” highlighting an urgent need for immediate action against global warming.