The colossal economic cost of climate inaction

11th September 2023
-IAM, News

Hugues Chevalier, Economist

While Switzerland has experienced an unprecedented heatwave in recent weeks, and June and July 2023 were the hottest months in modern history, a recent study by insurer Allianz highlights the colossal economic cost of climate inaction. Back in 2006, economist Nicholas Stern’s report highlighted the fact that the cost of “doing nothing” between now and 2050 would far outweigh the cost of combating global warming. Allianz has therefore just published a study on the costs of heatwaves between May and August in the United States, Europe and China. According to these calculations, global GDP would have lost 0.6% (USA 0.3%, China 1.3% and Europe between 1% in Greece and 0.1% in France) during this period. These calculations are based solely on the loss of labour productivity, and use the assumptions of a study carried out in the United States in 2021 on labour productivity on days when the temperature is above 32 degrees. By extrapolating these data, Allianz’s economists conclude that there will be a loss of 0.6% of GDP. It should be noted that this 0.6% does not take into account the damage caused by heatwaves, in particular that linked to fires, floods and other extreme phenomena. The Bundesbank has also carried out a study of the impact on growth in Europe of real global warming of 1.2 degrees in 2021. It concludes that GDP will fall by between 0.9% in Malta and 0.4% in Finland (thanks to lower heating costs).  The economic transition to carbon neutrality has an enormous economic cost. But doing nothing leads to an even greater cost and a colossal loss of GDP.