Financial and Monetary Systems

4 ways the climate crisis could be coming for your income

Jar of money with plant growing out of it.

Climate change could cost us a fifth of our salaries over the next 26 years, warn experts. Image: Unsplash/Towfiqu Barbhuiya

Simon Torkington
Senior Writer, Forum Agenda
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CO2 Capture, Utilization, and Storage

  • Climate change is predicted to cut average incomes by almost 20%, new research suggests.
  • The incomes of people in poorer countries will be worst affected, limiting their ability to grow the economy - despite the fact they have the smallest carbon footprints.
  • The World Economic Forum outlines a framework for economic equity in its recent whitepaper on achieving a just global transition to net zero.

How would you feel if your salary was about to be cut by 20%?

You may be about to find out, since climate change will cost us almost a fifth of our earnings over the next 26 years, according to research on the economics of the climate crisis.

More frequent and extreme weather events will cause $38 trillion of destruction every year by the middle of the 21st century, a study published in the journal Nature predicts. As a result, average income per capita will decline by 19% over the next 25 years, say the researchers from Germany’s Potsdam Institute for Climate Impact Research.

The commitment and divergence of economic climate damages versus mitigation costs.
The economic cost of climate change is six times higher than the cost of mitigating emissions. Image: Nature/Kotz, M., Levermann, A. & Wenz, L.

As the chart above shows, the cost of mitigating future carbon emissions is six times lower ($6 trillion) than the total ($38 trillion) damage caused by continuing to burn fossil fuels, adding to the climate burden.


What is the World Economic Forum doing to help companies reduce carbon emissions?

Inequality of climate impact on earnings

The Potsdam Institute’s assessment dwarfs previous analysis on the cost of the climate crisis. A report in UK newspaper the Guardian quotes Leonie Wenz, a member of the research team: “It’s devastating. I am used to my work not having a nice societal outcome, but I was surprised by how big the damages were. The inequality dimension was really shocking.”

The inequality Wenz is referring to reflects her team’s findings that the biggest hit to earnings will be felt in developing nations that have contributed the least to climate change. The study indicates that in the United States and Europe, the average hit to earnings will be 11%. Developing nations suffer much greater losses of earnings, including: Brazil (-21%), Botswana (-25%), Mali (-25%), Pakistan (-26%), Iraq (-30%), and Qatar (-31%).

Have you read?

Climate change will limit economic development

The disproportionate impact of climate change on developing countries will place additional limits on their ability to grow their economies for the benefit of the people. In an essay for the Carnegie Endowment for International Peace, UNICEF’s Principal Adviser for Economics, Laurance Chandy, argues that climate change makes it more difficult for countries to break out of the cycle of economic inequality.

“If climate change augurs a world of more frequent and intense shocks,” says Chandy, “sustained episodes of fast economic growth – so-called growth miracles – will become harder to pull off. The result will be fewer poor countries succeeding in converging on rich-country income levels, compared to a world without climate change.”

This is especially true for developing countries that rely on the export of fossil fuels as a mainstay of their economies.

21 economies whose exports are dominated by fossil fuels.
Developing countries reliant on fossil-fuel exports may struggle to boost economic output. Image: Carnegie Endowment for International Peace

Chandy argues that developing countries in this group of fossil fuel economies can expect to see economic contraction in the range of 10%-50% as international demand falls during the transition to net zero.

Would you pay to help limit climate change?

Despite the unequal economic impact of climate change on developing nations, people living in these countries would be more likely to voluntarily give a small portion of their income to help mitigate the impact.

When asked if they would give up 1% of their annual income to fund climate mitigation, 82.6% of people in flood-prone Bangladesh answered yes, according to Our World in Data. In the United States, however, 48.1% of people said they would be happy to contribute.

People underestimate others' willingness to take climate action
Our willingness to pay towards tackling climate change varies between regions. Image: Our World in Data

Most people in Myanmar (92.8%) appeared willing to give up 1% of their earnings, while in Israel 37.3% said they were prepared to make such a contribution.

Carbon emissions by income group

While people in wealthier nations appear less willing to contribute to mitigating climate change, research by the Stockholm Environment Institute (SEI) illustrates the disparity in income between those responsible for the highest and lowest levels of carbon emissions globally.

This illustration of the SEI’s data by Visual Capitalist shows that the top 10% of earners globally are responsible for 49% of total worldwide carbon emissions.

CO2 emissions by global income group.
The top 10% of earners globally are responsible for almost half of all carbon emissions. Image: Visual Capitalist/Stockholm Environment Institute

At the other end of the scale, the bottom 50% of earners are the cause of just 8% of all emissions. In absolute terms, this means 80 million of the world’s wealthiest people are equalling the carbon emissions of 3.9 billion people who have the lowest incomes.

The World Economic Forum outlines a framework for economic equity in its recent whitepaper on achieving a just global transition to net zero.

“By focusing on economic equity, we aim to surface the distributive impacts of climate mitigation on people and mobilize businesses and governments to maximize opportunities and minimize risks,” the authors explain.

“Retooling economic and business strategies to place equity at the centre of the green transition can have far-reaching impacts in a world of integrated supply chains and increasing public-private investment and collaboration.”

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Financial and Monetary SystemsClimate Action
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