The world’s hottest years over the past decade have coincided with stagnant economic productivity, rising prices and geopolitical instability.
Is this just coincidence or has the current level of climate change been one of the drivers? Climate change is often framed as a problem for the future. But how much economic damage has today’s current level of ~1.35°C of warming already caused?
To answer that question, we analysed the effects of climate change to date on the New South Wales economy. The results were released today as part of a Net Zero Commission report .
We estimate climate change has already caused median losses of around 18% (probability range 4-33%) to the NSW economy, the biggest economic jurisdiction in the country. At a median 18% loss, that translates to about A$21,300 per person on average in yearly income.
We show that it’s not local bushfires or flooding that are driving the majority of damage, but changing global weather that in turn affects our cost of living.
Imagine a world without climate change
Studies typically project the global economic damage that climate change will do by 2050 or 2100.
Some influential estimates have suggested climate damage would be fairly small . But our recent research and work by others shows the economic damage coming down the pipeline could be more than four times larger than previously thought.
Our research question for this report was different: “What would the NSW economy look like today if historical emissions of greenhouse gases had not caused climate change?”
This requires a thought experiment: imagining a past where we burn fossil fuels at the historical rate, but the additional carbon dioxide and other atmospheric gases do not cause changes to temperature or rainfall patterns.
Answering this question will allow us to understand the economic losses we have already endured from historical climate change.
How we did it
First, we collected data on historical economic growth and weather across the world over the past 70 years. We then modelled how weather changes (or shocks) impacted economic growth over this period. There is significant debate on how to do this, so we adopted a variety of approaches.
Then we had to plausibly guess at how the weather would have evolved in the past four decades without climate change. To create this hypothetical weather series, we simply removed any trend found in the weather data which we ascribe to human-caused climate change. This works because there is no evidence natural causes have contributed to the upward trend in temperatures.
Finally, we compared economic growth rates predicted by the models under the observed and under the hypothetical weather conditions. The contrast between the total economic production of the NSW economy in the two scenarios is the economic cost of historical climate change for a given year.
What we found
We estimate the median economic loss for NSW in 2024 was 18%. There is significant uncertainty in this figure, with the lower estimates around 4% and the higher around 33%.
The median loss figure of 18% translates into an average of $21,288 in losses per person in yearly income (in 2023-2024 dollar values). In other word, the model finds that if historical warming had not occurred then people living in NSW would each have $21,288 more dollars, on average, in their pockets every year. This amount is large enough to meaningfully improve the quality of life of the state’s average household.
The models suggest the primary mechanism through which this loss has occurred is the rise in the global average temperature. When people think about losses associated with climate change in NSW, they might consider how climate change exacerbated the bushfires of 2019-20, or the floods that followed. The damages they caused are, of course, real and significant.
However, the economic models suggest the majority of the damage has come from shifts in weather globally. Given the interconnectedness of modern economies through trade and global supply chains , it is reasonable to assume that climate shocks to supply chains affect the whole globe.
How we think about climate change
When pollsters ask Australian voters what issues they care about , “climate change” is often listed as one issue among many. Voters are asked to assess how important climate change is to them relative to the cost of living, public health, interest rates, secure employment, and other important things.
Presenting issues in this way reinforces a common misconception that they are independent, and that one can be prioritised over the other.
To the contrary, there is now good evidence that climate change is strongly related to economic outcomes, which in turn drive the cost of living, interest rates, investment in in health and education and the labour market.
It’s time to stop thinking of climate change as “merely” an environmental issue, which can be discarded when economic times are tough. Instead, we should recognise what it really is: a current and ongoing threat to our standard of living.
