Climate change could reduce global economy by $ 23 trillion by 2050, insurance giant warns
WASHINGTON – Rising temperatures are likely to significantly reduce global wealth by 2050, as crop yields drop, disease spreads and rising seas consume coastal cities, a major insurance company warned Thursday , highlighting the consequences if the world fails to rapidly slow down the use of fossil fuels. .
The effects of climate change are expected to reduce global economic output by 11-14% by 2050 from growth levels without climate change, according to a report from Swiss Re, one of the world’s largest insurance providers to others insurance companies. This represents up to $ 23 trillion in reduction in annual global economic output globally due to climate change.
Some Asian countries could have a third less wealth than they would otherwise, the company said. “Our analysis shows the potential costs that economies could face if governments do not take more decisive action on the climate,” said Patrick Saner, head of global macroeconomic forecasts for Swiss Re.
The projections come as world leaders meet Thursday and Friday for a virtual climate summit in Washington hosted by President Biden, who urged countries to do more to reduce their greenhouse gas emissions. Mr Biden is expected to pledge to cut U.S. emissions by about half by 2030.
The new report specifies the stakes of these negotiations.
“For risks where the confidence of a direct link to global warming is medium / high, such as heat waves, forest fires, droughts and torrential rains, we adjust our pricing model,” said Jerome Jean Haegeli, chief economist of Swiss Re, in a statement. .
The projections could also influence investments by Swiss Re and other insurance companies, which collectively manage around $ 30 trillion in assets, according to Haegeli.
If countries are successful in keeping average global temperature increases to less than two degrees Celsius above pre-industrial levels – the target set by the 2015 Paris Agreement, an agreement between nations to tackle climate change – economic losses by mid-century would be marginal, according to Swiss Re. The company found that the economies of most countries would not be more than 5 percent smaller than they would otherwise.
But current emission levels are far from these targets. Global temperatures are expected to rise 2.6 degrees by 2050 based on current trajectories, Swiss Re reported.
If that happens, the US economy would be up to 7% smaller than in a world without climate change, the report estimates. Other wealthy Western countries, including Canada, Britain and France, could lose between 6% and 10% of their potential economic output.
For poorer countries, which tend to be more exposed to warmer temperatures but have less ability to adapt their infrastructure and economies accordingly, the consequences would be far more dire.
Even if the global temperature rise were kept at two degrees Celsius, Malaysia, the Philippines and Thailand would each see economic growth 20% lower than they might otherwise expect by 2050, estimated Swiss Re. At 2.6 degrees, each country would have a third less wealth than it would otherwise.
And this is not the worst case scenario. Swiss Re also modeled the economic impacts of a 3.2 degree rise by 2050, which it called a “severe case” for temperature gains.
If that happened, wealth levels in Malaysia, the Philippines and Thailand would drop almost in half compared to a world without climate change. Indonesia’s economy is said to be 40 percent smaller. India would be 35% smaller.
The growing financial exposure of insurance companies to climate change is already having an effect in high-risk locations.
The United States government implemented a new pricing structure for flood insurance this month, which will result in higher costs for homes most prone to flooding. In California, owners of areas particularly prone to wildfires are finding it increasingly difficult to obtain insurance, prompting state authorities to intervene.
The Biden administration is expected to issue an executive order directing insurance regulators to assess the climate-related risks insurance companies face.
Over the past 40 years, the United States has experienced nearly 300 weather and climate disasters that have exceeded $ 1 billion in losses each, noted Donald L. Griffin, vice president of the American Property Casualty Insurance Association, which represents insurance companies.
Last year alone there were 22 such billion dollar disasters.
If climate change continues unabated, he said, the cost of insurance could become too high in risky areas. “We can’t just keep rebuilding the same way,” Griffin said. “It will make the product less affordable.”