By 2100, two thirds of all US GDP growth scenarios are predicted to have collapsed or be in the process of collapse. For China, all scenarios grow.
On 8th October 2018, Professors William Nordhaus and Paul Romer were awarded the Nobel Prize for their work on economic growth and climate change. The UN IPCC’s landmark report on the perils of exceeding 1.5°C of global warming, published on the same day, hardly mentions the effect of climate change on growth. Yet the survival of our global economy is at stake unless the balance between growth and climate change is tackled.
A new parametric study, by my colleague Richard H. Clarke, Director (Research) at Predict Ability Ltd, covers over 120 countries, producing 250 scenarios per country. The study’s input parameters are shown in Table 1 below.
Table 1 Monte Carlo simulation inputs
|Economic Growth||Projected GDP growth based on historical data including AVG (country average) and L10 (last 10 years)|
|Climate Action||Projected carbon emissions trajectories including BAU (business as usual) and Paris (2.0°C)|
|Abatement Cost||Cost of avoiding the release of 1 tonne CO2 ($0-50)|
|Climate Sensitivity||The sensitivity of loss and damage to carbon emissions|
|Latitude Effect||Relative effect of climate change between the Poles|
The outcomes for two major economies, the United States and China, are illustrated in Figure 1 and Table 2 below.
What the study highlights clearly are the counter-balancing dangers of low growth, which triggers GDP collapse, versus high growth, which fuels climate-change.
As shown in the growth projection curves in Figure 1, to the left of 2017 are back-calculated scenarios, complete with the 2008 crash ripple for the US – note that China had no such ripple. From 2017 on, only 36% of scenarios for the United States show long-term growth. By 2100, 64% will either have crashed (horizontal lines on floor), or be in the process of crashing. If China continues on its current growth path none of the scenarios crashes but emissions will grow inexorably.
Table 2 For global GDP to survive requires both China and the United States to balance growth ambitions with the destructive effects of climate change.
Key: red = negative growth or total collapse, green = growth (until 2100).
The survival of other major economies critically depends on China and the US achieving and maintaining strong, yet carefully balanced growth. The incremental growth in Table 2 above conveys a stark message. For all countries, BAU is truly a bad option or, as one of our senior reinsurance industry advisors put it: “If this modelling is even half-right, it is a wakeup call for all major economies.”
Bruce Menzies, Chairman, Predict Ability Ltd (PAL)
© Copyright Predict Ability Ltd 2018. All rights reserved.
Author: Bruce Menzies
Bruce Menzies is Chairman and co-founder of PAL. He founded Global Digital Systems Ltd that won the Queen’s Award For Enterprise 2011. Bruce is co-author of six books on geotechnics and geology, one of which won the British Geotechnical Association Prize 2002. He holds doctorates from the Universities of London and Auckland, and is a Fellow of the Institution of Civil Engineers.