WASHINGTON — Rising temperatures are likely to reduce global
wealth significantly by 2050, as crop yields fall, disease spreads and rising
seas consume coastal cities, a major insurance company warned Thursday,
highlighting the consequences if the world fails to quickly slow the use of
fossil fuels.
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The effects of climate change can be expected to shave 11
percent to 14 percent off global economic output by 2050 compared with growth
levels without climate change, according to a report from
Swiss Re, one of the
world’s largest providers of insurance to other insurance companies. That
amounts to as much as $23 trillion in reduced annual global economic output
worldwide as a result of climate change.
Some Asian nations could have one-third less wealth than would
otherwise be the case, the company said. “Our analysis shows the potential
costs that economies could face should governments fail to act more decisively
on climate,” said
Patrick Saner, who is in charge of global macroeconomic
forecasts for Swiss Re.
The projections come as world leaders gather Thursday and Friday
for a virtual climate summit in Washington hosted by
President Joe Biden, who
has urged countries to do more to reduce their greenhouse gas emissions. Biden
is expected to pledge to cut the United States’ emissions by about half by
2030.
The new report makes clear the stakes involved in those
negotiations.
“For hazards where confidence of a direct link with global
warming is medium/high, such as heat waves, wildfires, droughts and torrential
rainfall, we are adjusting our pricing model,”
Jerome Jean Haegeli, Swiss Re’s
chief economist, said in a statement.
The projections could also influence investments by Swiss Re and
other insurance companies, which collectively manage about $30 trillion in
assets, according to Haegeli.
If countries succeed at holding average global temperature
increases to less than 2 degrees Celsius above preindustrial levels — the goal
set by the 2015 Paris accord, an agreement among nations to fight climate
change — economic losses by midcentury would be marginal, according to Swiss
Re. The company found that most countries’ economies would be no more than 5
percent smaller than would otherwise be the case.
But current emission levels are far from those targets. Global
temperatures are likely to increase as much 2.6 degrees by 2050 based on
current trajectories, Swiss Re reported.
If that happens, the economy of the United States would be as
much as 7 percent smaller than in a world without climate change, the report
estimated. Other wealthy Western nations, including Canada, Britain and France,
could lose between 6 percent and 10 percent of their potential economic output.
For poorer nations, which tend to be more exposed to warmer
temperatures but have less ability to adapt their infrastructure and economies
in response, the consequences would be far more dire.
Even if the increase in global temperature is held to 2 degrees
Celsius, Malaysia, the Philippines and Thailand would each see economic growth
20 percent below what they could otherwise expect by 2050, Swiss Re estimated.
At 2.6 degrees, each country would have one-third less wealth than would
otherwise be the case.
And that’s not the worst-case scenario. Swiss Re also modeled
the economic impacts of a 3.2-degree increase by 2050, which it described as
the “severe case” for temperature gains.
If that happened, levels of wealth in Malaysia, the Philippines
and Thailand would drop almost by half compared with a world with no climate
change. The economy of Indonesia would be 40 percent smaller. India’s would be
35 percent smaller.
The growing financial exposure of insurance companies to climate
change is already having an effect on places at high risk.
The US government implemented a new pricing structure this month
for flood insurance, which will mean higher costs for the most flood-prone
homes. In California, homeowners in areas that are especially exposed to
wildfires increasingly struggle to get insurance, prompting efforts by state
officials to intervene.
The Biden administration is expected to issue an executive order
directing insurance regulators to assess the climate-related risks facing
insurance companies.
During the past 40 years, the United States has experienced
almost 300 weather and climate-related disasters that exceeded $1 billion in
losses each, noted Donald L. Griffin, a vice president at the American Property
Casualty Insurance Association, which represents insurance companies.
Last year alone, there were 22 such billion-dollar disasters.
If climate change continues unabated, he said, the cost of
insurance risks becoming too high in at-risk areas. “We can’t just continue to
rebuild in the same way,” Griffin said. “It’s going to make the product less
affordable.”
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