Climate crisis could trigger 40% drop in global economic output by 2100: study 

Should the earth warm beyond 3C by 2100, global GDP per capita could be reduced by 40%, far surpassing previous estimates of 7%-23%, according to a study in Environmental Research Letters. The analysis corrects flaws in integrated assessment models that ignored the cross-border economic effects of climate shocks. By incorporating global interdependence, the study found that simultaneous and persistent weather disruptions would severely damage trade, food supply and productivity worldwide. Even traditionally colder regions would experience net losses. The findings suggest the economically optimal warming limit is 1.7C, consistent with the Paris Agreement. Current trajectories, however, still point to 2.7C of warming. (The Conversation) 

Why does this matter? As noted by the authors, the most immediate impact of climate change is extreme weather events. Droughts can lead to failed harvests, while storms and floods can lead to extensive destruction and disrupt supply chains. Recent studies also suggest that climate-driven heatwaves have been a driver of rising food prices.  

Additionally, high temperatures impact worker productivity, strain public health systems, exacerbate disease transmission and increase the likelihood of mass displacement and conflict. As temperatures rise, these shocks will become more prevalent and concurrent worldwide, indicating that economic modelling needs to be more closely entwined with climate science so costs can be more accurately estimated.  

A recent report by the Institute and Faculty of Actuaries, which represents the profession behind risk management for global insurers and pension funds, also noted flaws. It argued that past economic risk assessments have overlooked real-world climate impacts. These include tipping points, extreme weather events, migration, sea level rise, health effects and geopolitical instability. The report cautioned that “benign but flawed results may reinforce the narrative that these are slow-moving risks with limited impacts, rather than severe risks requiring immediate action,” potentially undermining the urgency of addressing climate-related threats. 

In a separate development, Allianz management board member Günther Thallinger warned that the climate crisis has the potential to destroy capitalism, as extreme weather would make large parts of the world economically uninsurable if left unchecked. He said that temperature rises of 2.2C-3.4C above pre-industrial levels could drive systemic failure in the financial sector, impacting housing, infrastructure, agriculture and industry. Rio Tinto’s operations would not be immune from this risk, particularly in regions experiencing the more intense consequences of climate change.  

With flood, fire and heat risks escalating, insurers are already pulling cover in some high-risk regions, undermining other financial services such as mortgages and investments. Indeed, Aviva claims that damage caused by extreme weather totalled $2tn in the decade to 2023, while GallagherRE said the cost hit $400bn alone in 2024. Thallinger added that existing clean energy technologies must be urgently scaled up to replace fossil fuels to save the “conditions under which markets, finance, and civilisation itself can continue to operate.”