Reconsidering the Macroeconomic Damage of Severe Warming
- Hakan Sener
- 5 days ago
- 3 min read
A 2025 study finds global GDP losses from warming could quadruple when global weather is included, justifying stronger climate action.
Projections of economic damage from climate change have often appeared surprisingly mild—sometimes suggesting losses of only a few percentage points of global GDP by the end of the century, even under severe warming. However, a 2025 study challenges these assumptions by showing that traditional models systematically underestimate climate-related economic losses by ignoring the global nature of climate impacts.
By incorporating global weather conditions into three widely used econometric models, the authors demonstrate that projected GDP losses under a high-emissions scenario (SSP5-8.5) could rise dramatically—from an average of 11% to as much as 40%, with some models projecting losses exceeding 80% by 2100. These results underscore the macroeconomic risks of climate inaction and suggest that optimal climate policies should be far more ambitious than current economic models recommend.
Key Findings: Global Weather Amplifies Economic Losses
1. Including Global Weather Increases GDP Losses Across All Models
Traditional econometric models assess how local weather changes affect national economic growth.
When global weather is factored in—reflecting interconnected trade systems and climate spillovers—projected GDP losses increase significantly across all three models.
In the Burke15 model, losses rise from 28% to 86%; in the Kotz24 model, from 11% to 40%; and even the most conservative model, Kahn21, shows losses increasing from 4% to 19%.
2. Warming Damages Now Affect Rich Countries Too
Previous studies suggested that poorer countries would suffer most, while some northern nations might benefit.
With global weather included, the new projections show severe losses across much of the Northern Hemisphere, including the US, Europe, China, and India.
These results reflect the vulnerability of global supply chains to widespread climate disruptions.
3. Global Weather Shocks Matter More Than Previously Realized
When multiple countries face simultaneous adverse weather, the ability to buffer impacts through trade weakens.
This leads to cascading economic consequences: supply shocks, food price spikes, and cost-push inflation.
The models suggest that increasing global mean temperature correlates with systemic economic risk—a relationship underrepresented in past economic analyses.
Policy Implications: Stronger Action Is Justified
Using these updated damage estimates, the authors recalculated the damage function within the DICE 2023 integrated assessment model. The results are stark:
Welfare-optimal warming falls from 2.7°C to 1.7°C, aligning with the Paris Agreement’s 1.5°C goal.
Optimal CO₂ emissions must drop much faster than previously thought.
Carbon prices must rise sharply, particularly after 2030, to limit economic damage.
These findings show that current economic models underplay climate risks by excluding global weather dynamics. Aligning economic forecasting more closely with climate science is crucial for crafting effective policy.
A Globalized Economy Demands Global Climate Models
The 2025 study offers compelling evidence that climate change will impact global GDP more severely than many models suggest, especially if the interdependence of economies is considered.
By integrating global weather into macroeconomic models, the authors demonstrate that severe warming could trigger catastrophic economic losses, and that more aggressive mitigation is economically justified.
These results not only call into question existing damage estimates, but also demand a rethinking of integrated assessment models, which currently inform much of international climate policy. To avoid underestimating the real economic risks of climate change, economists and climate scientists must work more closely together, ensuring the global nature of both economies and the climate is properly reflected in our models.
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