It appears that going net zero will cost, at a minimum, a healthy 7% of GDP each year, and likely much more. Even if we do spend at the level that is appropriate to limit emissions of the greenhouse gasses, the climate will not exactly get better instantly. In fact, it may take quite a while to return to the so-called normal, as CO2 is absorbed back to earth in the span of centuries and millennia.
Carbon Tracker, a think tank active in the decarbonization space, in collaboration with Steve Keen, an economist known on TikTok, produced a report. The report shows that the economic thinking behind the climate change cost-benefit analysis might be flawed. In short: economists operate under the assumption that 3-4°C warming will not drastically lower GDP. By extension, pension funds operate under the assumption that their portfolios are relatively safe. For example, a 4°C warming – something that is feasible given current emissions trajectory – might hurt the economy by 1-5% per year, which, frankly, is a surprisingly low estimation.
That estimation is made, according to Carbon Tracker, by a relatively small group of scholars that work within the climate economics space, most notably – William Nordhaus. This group made some unrealistic assumptions. Industries that are not directly exposed to climate change might nevertheless experience indirect consequences through supply chain disruptions. We can’t extrapolate temperature and productivity data from today into the future. We can’t be sure that the economy will not drastically decline after some temperature threshold.
All of this points to the conclusion that mainstream climate economics may not necessarily be accurate. Given the track record of economic predictions, such skepticism seems warranted . In any case, it does seem that we will definitely pay for (adaptation to) the climate change, in addition to all of the mitigation measures. It’s a fascinating topic.