The Asian economy will be 2.6% smaller by 2050 due to lack of climate resilience

The Asian economy will be 2.6% smaller by 2050 due to lack of climate resilience
  • The Asia-Pacific economy will be 2.6 per cent smaller in 2050 according a new framework developed by The Economist Intelligence Unit (The EIU), with developing countries in the region set to be the most affected.
  • The EIU expects economic losses in every year leading up to 2050, with the risk that further losses could be seen if policy effectiveness is not improved. 
  • According to The EIU’s framework, Africa is the least resilient region to the impact of climate change (4.7 per cent smaller), followed by Latin America (3.8 per cent), the Middle East (3.7 per cent), Eastern Europe (3 per cent) and the Asia-Pacific.
  • North America (1.1 per cent smaller) and Western Europe (1.7 per cent) display the most resilience and are likely to see the least impact economically because both regions are richer and more prepared to tackle climate change from an institutional standpoint. 
  • The EIU’s research shows that being rich is an advantage to tackle climate change, but institutional quality matters, too.

The EIU has scored the world’s 82 largest economies on their ability and willingness to confront climate change. The index, which is integrated into our proprietary long-term economic growth framework, makes it possible to assess country-specific economic impacts. The Climate Change Resilience Index rates countries on eight indicators that assess their capacity to withstand the impacts of higher temperatures and more extreme weather events.

The EIU’s research shows that being rich is an advantage, but institutional quality matters, too. Institutional quality is a major determinant of long-run economic growth, but The EIU’s results also point to the importance of institutional quality for minimising the impact of climate change. Poor institutions, therefore, can simultaneously harm economic growth and exacerbate the negative impacts of climate change.

John Ferguson, The EIU‘s Country Analysis Director, says: “Our index reveals the vulnerabilities that exist in developing countries to the oncoming impacts of climate change. The impacts of climate change are already being felt – we are already seeing the effects of more extreme weather events – but the economic impacts will only grow over time. It’s important to remember that a 3 per cent loss of real GDP in 2050 is highly significant for the global economy, and that there will be economic losses in every year of the coming three decades.” 

There is also uncertainty in forecasting the impacts of climate change. For example, The EIU has assumed that countries make a modest effort to meet their goals as stated in their INDCs (the intended nationally determined contributions as set out for the Paris Climate Agreement). However, the progress in this space and the implementation of these policies could easily disappoint. In fact, the economic impacts could be much worse than those highlighted in The EIU’s model.

Ferguson says: Countries, both developed and developing, will need to make a greater effort on the domestic front to meet their goals on adaptation and mitigation for the economic impacts to be reduced. Moreover, international co-operation will be critical to giving the global climate any chance of keeping the temperature increase to 1.5 degrees from pre-industrial levels. Policy, technology and financial co-ordination will be necessary to enable best practice in both mitigating carbon emissions and adapting to the climate impacts.

EIU table on GDP losses due to climate impacts

The Climate Change Resilience Index 

The Economist Intelligence Unit (EIU)’s climate change modelling framework combines elements of the Dynamic Integrated Climate-Economy (DICE) model, developed by William Nordhaus, an American economist and 2018 Nobel Laureate, and a new proprietary Climate Change Resilience Index developed by The EIU. A truncated version of the DICE model is used to capture the global impacts of climate change and the central assumptions that are made at the global level. The truncated DICE framework is then linked with a country-level Resilience Index for the 82 countries that The EIU forecasts out to 2050, thus enabling the economic impact of climate change to be estimated at the country level. The eight indicators that make up the index are detailed below.

EIU climate resilience indexENDS

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