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The Economic Impact of Climate Change: A Call for Urgent Action

Apr 01, 2025By Anne Hayden
Anne Hayden

Introduction

A recent study by Australian scientists, published in Environmental Research Letters, has sparked an important conversation about the economic impacts of global warming. The research suggests that we may not fully understand just how deeply climate change could affect our economies. While it certainly raises alarm bells, it’s also an opportunity for discussion and reflection. We need to ask ourselves how prepared we truly are for the financial consequences of a warming world, and how much we need to adjust our current models to better reflect these future risks.

This study is not a final answer, but rather an invitation to re-evaluate the economic assumptions we have made up until now. It underscores the importance of having conversations about the deeper, often overlooked aspects of climate change – and the serious implications these might have for the world’s finances.

climate change effects

Rising Temperatures and Economic Losses

The study suggests that if global temperatures rise by 2°C above pre-industrial levels—something we are already edging closer to—it could lead to well over a 10% decrease in global per capita GDP. This is much higher than the earlier estimates, which only predicted a 1.4% loss. If temperatures were to rise by 4°C, the economic loss could be as severe as a 40% drop in income for the average person. These are not just numbers; they represent real impacts on livelihoods, businesses, and entire economies.

In fact, we are already experiencing the early effects of climate change. According to the Intergovernmental Panel on Climate Change (IPCC), the global temperature has already risen by about 1.2°C. If current emissions continue, we could see a rise of 4°C by the end of the century, which would have a catastrophic effect on the global economy. But rather than being paralyzed by these projections, we should treat them as a call to action—a prompt to rethink how we approach the challenges of climate change and its economic implications.

renewable energy

Why Are These Projections So Dire?

The study sheds light on the cascading effects of climate change that could significantly disrupt global economies. Extreme weather events, such as heatwaves, flooding, and droughts, are expected to become more frequent and severe, which in turn can have devastating impacts on infrastructure, agriculture, and supply chains.

The agricultural sector, in particular, will likely feel the pinch. As temperatures rise and rainfall patterns shift, crop yields could fall dramatically. The World Bank estimates that climate change could push as many as 100 million people into extreme poverty by 2030 due to reduced crop yields and higher food prices. For example, staple crops like wheat and rice are expected to face significant yield reductions by mid-century, with some regions losing up to 25% of their crop production by 2050.

At the same time, higher temperatures and more extreme weather events are likely to disrupt essential supply chains, from raw materials to finished goods. This could increase prices, cause shortages, and limit access to vital resources, hitting poorer nations especially hard. According to the World Economic Forum, disruptions to global supply chains could cost businesses up to $1 trillion annually by 2030.

financial and economic difficulties

The Role of Global Supply Chains

We are all part of an interconnected global supply chain, whether it’s in the food we eat, the clothes we wear, or the technology we use. As climate change worsens, we may find ourselves struggling with supply shortages, price hikes, and delays. This could result in inflation, job losses, and economic instability, even in developed economies.

The financial burden of these disruptions won’t be limited to a few regions—it will have a global impact. The food shortages triggered by climate change could affect supply chains for many industries, leading to rising costs for both businesses and consumers. According to the National Academy of Sciences, each degree of global warming could result in a 2.8% loss in global GDP. Again, with the potential for a 4°C rise in temperature, this loss could escalate to trillions of dollars, or about 10% of global GDP.

Map of the world with continents from dry deserted soil

Re-Evaluating Economic Models for the Future

One of the most compelling aspects of this study is its call to rethink the economic models we use to forecast climate risks. Many traditional models have not taken into account the full range of indirect and long-term consequences of climate change. These models typically focus on short-term economic growth and overlook the catastrophic effects of extreme weather, loss of biodiversity, and ecosystem collapse.

As the study points out, the economic models used today may be outdated when it comes to predicting the impacts of climate change. To develop more accurate forecasts, we need to incorporate a broader range of risks—such as resource scarcity, migration pressures, and disruptions to global trade networks. It's also crucial that we consider the long-term costs of inaction and the hidden costs that don’t show up on a balance sheet but are felt in communities around the world.

This isn’t just about the economics of carbon emissions. It’s about understanding the far-reaching consequences of environmental degradation and its economic toll. Only by broadening the scope of our economic models can we begin to fully appreciate the risks we face and take proactive steps to avoid them.

global business concept of large group of dollar bills

The Role of Agriculture and Sustainability in the Solution

As a consultancy that specialises in agriculture and sustainability, we understand that the agricultural sector has both a significant vulnerability to climate change and a crucial role to play in mitigating it. The sector is particularly sensitive to changes in weather patterns, from droughts and floods to changing growing seasons. Yet, at the same time, agriculture is a powerful tool for addressing the climate crisis.

Agroforestry, regenerative farming, and carbon sequestration practices can help mitigate the effects of climate change while boosting agricultural resilience. By embracing climate-smart practices, farmers and agribusinesses can not only reduce their carbon footprint but also create long-term economic stability for themselves and their communities. For example, agroforestry, where trees are planted alongside crops, can help reduce greenhouse gas emissions, improve soil health, and increase biodiversity—all of which contribute to stronger, more resilient farming systems.

ESG concept of environmental, social and governance, idea for sustainable organizational development. ​account the environment, society and corporate governance

The Need for Urgent Action

The findings of this study are a wake-up call. While the economic losses projected in the research are sobering, they also present an opportunity to act before the situation worsens. Policymakers, businesses, and individuals must work together to implement strategies that reduce carbon emissions, promote sustainability, and ensure climate resilience across all sectors. We can’t afford to wait any longer to address this pressing issue.

The transition to a low-carbon economy may seem daunting, but it’s necessary for the long-term health of our planet and economies. By embracing sustainable practices and investing in resilience, we can build a future that benefits both people and the planet.

Focus on taking care of nature and the climate shown with a globe around  a crystal ball with nature reflected  inside and outside the ball. The ball is held by one hand.

Conclusion

This study does more than present a bleak outlook; it serves as a prompt for all of us to re-evaluate our priorities. From agriculture to supply chains, healthcare to global trade, no sector will be untouched by the financial fallout of climate change. It’s time to take these risks seriously and start preparing for the future.

At The Informed Farmer Consultancy , we’re committed to helping businesses and farmers navigate the complexities of climate change. Through our expertise in agricultural sustainability and climate adaptation, we work with organisations to develop strategies that reduce environmental impact, ensure long-term resilience, and ultimately safeguard both the economy and the environment.

If you’re interested in exploring how climate change could impact your business or agricultural practices, we’d be happy to have a conversation. Together, we can shape a more sustainable and resilient future for all.


*By Anne Hayden MSc., Founder, The Informed Farmer Consultancy.