Limiting global warming is not only an environmental issue; it’s a rational economic decision. Studies conclude that the cost of inaction on climate change far outweighs the investment needed to reduce greenhouse gas emissions and move towards a low-carbon economy.
Evidence shows that climate inaction poses a direct threat to global economic stability, social cohesion, and the competitiveness of productive sectors.
The Paris Agreement sets the primary goal of limiting global warming to ‘well below 2°C’ compared to pre-industrial levels, with the aspiration of not exceeding 1.5°C. However, many economic studies continue to use the 2°C threshold as a reference, as it is the scenario with the most available data and well-established projections. Despite this, the 1.5°C target remains the ideal, as even a fraction of a degree more significantly increases the risks to human health, biodiversity, and the stability of the global economy.
A 2024 study published in Nature estimated that, if the current trajectory of emissions continue, climate impacts will reduce global economic growth by around 20% by 2050. This economic loss is equivalent to six times the cost of limiting global warming to 2ºC.
Another analysis launched by Boston Consulting Group, Cambridge Judge Business School, and the University of Cambridge’s climateTRACES Lab calculated that allowing a rise to 3°C by 2100 could reduce cumulative global GDP by 15-34%. In contrast, limiting global warming to 2°C would limit the damage to 2-4% of GDP. In other words, an investment of 1-2% of global GDP today would avoid future losses equivalent to five to fourteen times that initial cost.
Climate inaction poses a direct threat to global economic stability, social cohesion and the competitiveness of productive sectors
Globally, this results in a climate bill of between 11% and 27% of global GDP if no decisive action is taken. This net cost of inaction is equivalent to three times global health spending, or eight times the amount needed for no one in the world to live in extreme poverty until 2100.
The most exposed industries include agriculture, energy, transport, and coastal infrastructure. Moreover, the damage will not be evenly distributed: countries in the global south will suffer the most severe effects even though they have historically contributed the least to warming.
The social cost of carbon (SCC) is a way of putting a price on the damage caused by CO2 pollution. In other words, it calculates how much each extra tonne of CO2 released into the atmosphere costs society as a whole.
Scientists have made many calculations and, although the results vary, they all agree that the actual damage is much greater than what is currently being paid for polluting. For example, a study published in Nature estimated that the economic damage caused by emitting one tonne of CO2 into the atmosphere is, on average, about $185. What does this mean? That for every tonne of CO2 emitted, the world suffers economic losses of that value (due to impacts on health, agriculture, climate disasters, etc.).
That real damage could be higher or lower, and is estimated to be between $44 and $413 per tonne, depending on different scenarios. These estimates were calculated using a scientific model called the Greenhouse Gas Impact Value Estimator (GIVE), which takes into account the latest developments in climate science and economics.
On the other hand, the effects of climate change amplify pre-existing inequalities and generate new social gaps. People with the least economic resources, the most vulnerable communities and peripheral territories suffer the most from extreme events such as heat waves, droughts, and floods.
Climate change impacts amplify pre-existing inequalities and create new social gaps
According to the World Health Organisation, between 2030 and 2050 climate change could cause approximately 250,000 additional deaths each year from malnutrition, infectious diseases, and heat stress. These impacts will fall disproportionately on developing countries and urban populations without access to adequate infrastructure.
The energy transition, if not implemented with social justice criteria, could increase these inequalities. According to the World Economic Forum, unequal access to finance and clean technologies is widening the gap between regions and between economic sectors.
For energy-intensive industrial sectors, the risk of loss of competitiveness due to climate regulations is a common argument for slowing down climate action. This phenomenon, known as ‘carbon leakage’, occurs when companies relocate their production to countries with lower environmental standards.
The EU has responded to this risk by creating the Carbon Border Adjustment Mechanism (CBAM), which taxes imports according to their carbon footprint to ensure fair competition and prevent relocation. This mechanism, which is currently being implemented, strives to ensure that the price of emissions is consistently reflected in the overall value chain.
Climate action is an economically sound decision
However, the real risk to competitiveness in the medium and long term is not climate regulation, but the lack of adaptation. Industries that do not invest in efficiency, electrification, and decarbonisation risk becoming obsolete in an increasingly sustainability-oriented market.
Empirical evidence and economic models agree: climate action is an economically rational decision.
Failing to act today means passing on an unpayable debt to future generations. Sustained investment in mitigation and adaptation could prevent damage worth several trillions of dollars. It would also create jobs, modernise strategic sectors, and reduce social and environmental vulnerabilities.
