Swathi Nair

BENGALURU, Reuters – To achieve the Paris Agreement target of net zero carbon emissions, it will take investments to implement a green transition that is worth 2%-33% each year up until 2050. This figure, according to a Reuters poll, represents a far lower economic cost than inaction.

Respondents stated that such a transition would depend on the rich world making promises to assist developing countries and setting a global price for carbon at least $100, which is well beyond the levels reached by most of the existing schemes.

Reuters polled economic experts in Europe, Asia, the Americas and ahead of the October 31-Nov 12 UN negotiations in Glasgow. These talks are widely considered to be the final chance for global warming to stay below 2° Celsius (ideally 1.5C).

This survey was the first to be conducted by Reuters and highlighted the fiscal challenges facing governments that have since January 2020 spent $10.8 trillion – 10.2% of world output – as a response to the COVID-19 pandemic.

Respondents were asked if the COP26 meetings in Glasgow would contribute to Paris Agreement goals. Nearly three-to-one, 32 respondents answered that they did not believe so.

The Sept. 16-20 poll revealed some differences between top forecasters about how to assess the economic consequences of climate change. However, there was strong agreement on the benefits of coordinated and early action.

Charles Kolstad of Stanford University’s Economics Department stated that “if you delay taking action on climate change, then the greater is the cost to get net zero emission by 2020.”

While developing countries are investing in the development of their poorest people, they cannot expect to be able to pay mitigation. It will do nothing to make them pay.

The average estimate of 2% to 3% per year of global GDP used by most respondents in order to achieve net zero emissions is slightly higher than other estimates.

International Monetary Fund (IMF) this month estimated that net zero in 2050 will require additional investment of 0.6%-1.1% of the annual global GDP for the next two decades, amounting to $12 trillion to $20 trillion.

According to Reuters, the scale of dollars needed for cumulative investment was significantly different. It is a result of economists using differing methods. 44% trillion was the median estimate.

James Nixon of Oxford Economics was the head of climate macroeconomics. He estimated that the total amount of investment needed for energy and other sectors would be almost $140 trillion in 2050. This is the highest estimation in the survey.

He said that mitigation can be costly and could prove to be politically difficult, but economists should show the cost of not taking action.

The median survey responses indicated that a “business-as usual” approach would cause temperature rises by 1.6C, 2.5C and 4.4% by 2030. It could also result in output losses of 2.4% by 2030, 10.5% by 2050, 18% by 2100 and 11% by 2100.

Graphic: Reuters poll graphic on the global economic cost of climate change, https://fingfx.thomsonreuters.com/gfx/polling/lbpgnoynyvq/Final%20main%20graphic.PNG

However, it is possible to reduce the global temperature rise by collaborating with countries to keep the world below 1.4C. This would result in a reduction of 2.3%, 2.3%, and 2.5% respectively, according to the forecasts.

According to the World Bank, COVID-19’s shutdowns of global economic activity resulted in a 4.3% drop in world GDP last year.

COVID’s economic impacts have had a significant, but short-term impact on the economy. Claire Ibrahim (Director at Deloitte Access Economics) stated that the GDP effects of climate are long-term, permanent and increase with every year of inaction.

The COP26 negotiations aim to convince world capitals that they will double their emissions reduction commitments.

Britain, the COP26 host country has reiterated that support is needed for developing countries and has asked the rich to fulfill a commitment to generate at least $100 billion annually to create a fund for a sustainable climate.

Graphic: Reuters poll graphic on economists’ views on COP26, https://fingfx.thomsonreuters.com/gfx/polling/gkvlgxkwgpb/Extra%20question%20graphic%20on%20CC.png

A Reuters survey revealed that 18 percent of the 31 respondents to a questionnaire on burden sharing said that a fund for this purpose should be a priority.

Seventeen said policymakers must set a financial collective goal with multilateral institutions, such as the International Monetary Fund and World Bank. Twenty-two said the developed nations owed financial compensation those who were affected or vulnerable by the effects of climate change.

Strong support was shown for carbon pricing. Although national plans currently only cover 20% of the world’s emissions, they can be as cheap as $1 per ton of CO2 and are one of many tools that could be used to fight rising emissions.

A median recommendation from the 28 economists that responded was to set a minimum $100 per tonne price in order for net zero emissions by 2050. It is more than an IMF recommendation, which would have been $75 by 2030. However it’s lower than Sweden’s $137/tonne.

Although the survey received complete responses from many prominent climate economists to every question, some others dismissed such efforts at quantification. This highlights the ongoing dilemma facing climate economists.

“Climate change is something that breaks the economists’ toolbox,” said Eric Neumayer, Professor of Environment and Development at the London School of Economics.

“It’s economists’ hubris to say all the damage is going to be X percent of GDP. Reduced emissions cost X percent of GDP. Therefore, you need to cut down emissions by a specific amount. As economists, we should listen to the scientists who tell us about the devastating impact of climate change.”

(Polling by Swathi Niair, Prerana Bhat, Hari Kishan & Mumal Rathore; Editing done by Mark John, Ross Finley & Hugh Lawson