Why are current economic models underestimating climate change impacts?

Current economic models underestimate climate damages because they cannot capture cascading failures, threshold effects, and compounding shocks that define climate risk in a warmer world.

What are the economic consequences of extreme weather events?

Extreme weather events like heatwaves, floods, and droughts have caused billions in economic losses. In Europe alone, last summer's events sparked short-term losses of at least €43 billion, with total costs projected to reach €126 billion by 2029.

How does GDP fail to represent climate damages?

GDP is too narrow to represent climate damages as it does not consider human mortality, inequality, cultural loss, displacement, ecosystem degradation, or disruption to social life, thus masking true welfare losses.

Home / Environment / Climate Models Underestimate Economic Toll

Climate Models Underestimate Economic Toll

6 Feb

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Summary

Current economic models fail to capture cascading climate failures.
Extreme weather events cause billions in economic losses annually.
GDP metrics mask welfare losses, overstating economic resilience.

Climate Models Underestimate Economic Toll

Current economic models are significantly underestimating the global economic toll of climate change, scientists have warned. A new report highlights that these flawed damage models create a false sense of security as the world continues to heat up.

Lead author Dr. Jesse Abrams stated that economic models underestimate damages because they cannot capture cascading failures and compounding shocks defining climate risk. These risks undermine the very foundations of economic growth.

Financial projections often ignore extreme weather, despite recent events in Europe causing billions in short-term economic losses. A study found heatwaves, droughts, and floods affected a quarter of EU regions, with immediate losses of 0.26 percent of economic output in 2024.