Economic Effects of Climate Change: The Real Threat We Face

This article is an excerpt from the Shortform book guide to "False Alarm" by Bjørn Lomborg. Shortform has the world's best summaries and analyses of books you should be reading.

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How does climate change impact the economy? Should this be a major concern?

The real cost of climate change will be economic, argues Bjorn Lomborg. He contends that we should stop catastrophizing about the weather, the planet, and our very existence and focus instead on what climate change will do to global GDP.

Keep reading to learn about the anticipated economic effects of climate change.

Economic Effects of Climate Change

Lomborg believes that climate change won’t lead to apocalyptic weather, and he tries to estimate what its cost will really be. Ultimately, he concludes that, on our current trajectory, climate change will cost about 4% of global GDP by 2100.

To reach this estimate, Lomborg cites Nobel Laureate William Nordhaus, who developed the Dynamic Integrated Climate-Economy model (DICE) that predicts the economic effects of climate change. DICE predicts the impact of climate change on many areas, like agriculture, energy, and biodiversity. By taking various parameters into account, like CO2 emissions and human adaptation, it calculates the net economic impact of predicted climate change. 

(Shortform note: Although DICE enjoys wide acclaim, some have argued that its assumptions are outdated, yielding faulty predictions. In particular, an influential 2020 paper concluded that DICE underestimates the damage of climate change because it uses inaccurate depictions of the carbon cycle. So, even though Lomborg adds 25% to the model’s predictions to account for unexpected damages, his prediction might still be inaccurate.)

Using the middle-of-the-road scenario from MAGICC (the Model for the Assessment of Greenhouse Gas Induced Climate Change), which sees the temperature rise 7.4°F by 2100, DICE predicts that our GDP will be 2.9% lower than it would’ve been with no temperature rise. However, to allow for unexpected damages from climate change, Lomborg adds 25% to DICE’s predicted decrease in GDP, yielding a final estimate of a 3.6% drop in GDP. In other words, we can expect climate change to have a significant—but not catastrophic—effect on global prosperity.

(Shortform note: Different models yield different predictions about climate change’s impact on global GDP. For example, in one 2022 study, researchers predicted that climate change would cut 4% of global GDP by 2050, a half-century earlier than Lomborg’s prediction. Because of this variability between predictions, we should approach any individual prediction with caution.)

Lomborg uses this 3.6% reduction in GDP as his benchmark for evaluating climate policies. If a climate policy reduces GDP by less than 3.6%, it’s worth considering.

Economic Effects of Climate Change: The Real Threat We Face

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Here's what you'll find in our full False Alarm summary:

  • Why climate change isn't as cataclysmic as people think
  • The unintended costs that come with climate activists’ proposed approaches
  • A look at the most promising approaches to climate change

Elizabeth Whitworth

Elizabeth has a lifelong love of books. She devours nonfiction, especially in the areas of history, theology, and philosophy. A switch to audiobooks has kindled her enjoyment of well-narrated fiction, particularly Victorian and early 20th-century works. She appreciates idea-driven books—and a classic murder mystery now and then. Elizabeth has a blog and is writing a book about the beginning and the end of suffering.

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