Experts are warning that outdated economic frameworks fail to capture the true dangers posed by the accelerating climate emergency, potentially leading to a global financial collapse. Unlike the 2008 economic downturn, recovery from climate-driven breakdowns may not be feasible, as natural systems cannot be rescued through financial bailouts. n nWith global temperatures rapidly approaching a 2°C rise, the likelihood of extreme weather events and irreversible environmental shifts is growing. However, prevailing models used by governments and financial bodies overlook such disruptions, projecting only gradual economic slowdowns tied to average temperature increases. These projections rely on historical patterns, even though fossil fuel emissions have pushed Earth’s climate into unprecedented conditions. n nResearchers from the University of Exeter and the Carbon Tracker Initiative highlight that phenomena like the potential collapse of Atlantic ocean currents or the disintegration of the Greenland ice sheet could trigger worldwide societal upheaval. Such tipping points may already be near, though their timing remains uncertain. Simultaneous climate disasters could devastate national economies, they caution. n nThe analysis urges policymakers, regulators, and financial leaders to prioritize high-impact, low-probability risks. Preventing irreversible damage through emission reductions is far more cost-effective than responding after catastrophe strikes. Dr Jesse Abrams from the University of Exeter emphasized that current tools cannot reflect cascading failures inherent in a warming world, undermining assumptions of continuous economic expansion. n nMark Campanale, head of Carbon Tracker, criticized the complacency fostered by inaccurate economic advice, noting that some governmental bodies downplay climate effects to delay difficult decisions. Hetal Patel of Phoenix Group, overseeing around £300bn in long-term assets, warned that underestimating physical climate risks distorts investment strategies and ignores widespread societal harm. n nProjections suggest that between 2070 and 2090, catastrophic climate events could slash global GDP by up to 50%, far exceeding earlier forecasts. The study gathered insights from 68 climate scientists across the UK, US, China, and nine other nations. A key insight was that economic damage is driven more by extremes—such as droughts, floods, and heatwaves—than by average temperature shifts. n nAdditionally, GDP metrics can obscure the full toll of climate disruption by omitting health impacts, social instability, and ecosystem degradation. In some cases, post-disaster reconstruction spending can falsely inflate GDP, masking underlying losses. n nThe researchers argue that decision-makers should not wait for flawless predictive tools. Instead, focus should shift toward systemic vulnerabilities and extreme scenarios. Campanale stressed that divesting from fossil fuels is a fiduciary responsibility to prevent massive future financial losses. n nCurrent models may appear precise but are often overly optimistic. While some predict a 10% GDP decline at 3–4°C warming, climate scientists argue that societal functions could collapse entirely under such conditions—a significant discrepancy. Laurie Laybourn of the Strategic Climate Risks Initiative noted that regulatory frameworks remain dangerously disconnected from the accelerating reality of climate-driven threats. n
— News Original —nFlawed economic models mean climate crisis could crash global economy, experts warnn nRecovery would be far harder than after the 2008 financial crash, they said, as “we can’t bail out the Earth like we did the banks”. n nAs the world speeds towards 2C of global heating, the risks of extreme weather disasters and climate tipping points are increasing fast. But current economic models used by governments and financial institutions entirely miss such shocks, the researchers said, instead forecasting that steady economic growth will be slowed only by gradually rising average temperatures. This is because the models assume the future will behave like the past, despite the burning of fossil fuels pushing the climate system into uncharted territory. n nTipping points, such as the collapse of critical Atlantic currents or the Greenland ice sheet, would have global consequences for society. Some are thought to be at, or very close to, their tipping points but the timing is difficult to predict. Combined extreme weather disasters could wipe out national economies, the researchers, from the University of Exeter and financial thinktank Carbon Tracker Initiative, said. n nTheir report concludes governments, regulators and financial managers must pay far more attention to these high impact but lower likelihood risks, because avoiding irreversible outcomes by cutting carbon emissions is far cheaper than trying to cope with them. n n“We’re not dealing with manageable economic adjustments,” said Dr Jesse Abrams, at the University of Exeter. “The climate scientists we surveyed were unambiguous: current economic models can’t capture what matters most – the cascading failures and compounding shocks that define climate risk in a warmer world – and could undermine the very foundations of economic growth.” n n“For financial institutions and policymakers, it’s a fundamental misreading of the risks we face,” he said. “We are thinking about something like a 2008 [crash], but one we can’t recover from as well. Once we have ecosystem breakdown or climate breakdown, we can’t bail out the Earth like we did the banks.” n nMark Campanale, CEO of Carbon Tracker, said: “The net result of flawed economic advice is widespread complacency amongst investors and policymakers. There’s a tendency in certain government departments to trivialise the impacts of climate on the economy so as to avoid making difficult choices today. This is a big problem – the consequences of delay are catastrophic.” n nHetal Patel, at Phoenix Group, which manages about £300bn of long-term investments for its customers, said: “Underestimating physical risk doesn’t just distort investment decisions, it underplays the real‑world consequences that will ultimately affect society as a whole.” n nActuaries predicted in 2025 that the global economy could face a 50% loss in GDP between 2070 and 2090 from catastrophic climate shocks, far higher than previously estimated. n nThe new report drew on expert judgments from 68 climate scientists from research institutions and government agencies in the UK, US, China and nine other countries. A key finding was that while economic modelling traditionally links climate damages to changes in average temperatures, societies and markets suffer most from extremes, such as heatwaves, floods and droughts. n nAnother finding was that GDP can mask the full cost of climate damage by failing to account for deaths and ill health, social disruption and degraded ecosystems. GDP can actually increase after disasters owing to spending on recovery, the researchers added. n nThey said that rather than waiting for perfect models of risk, greater emphasis should be placed on extremes, not just central estimates, and on the vulnerability of the entire financial system. Investors should also speed up the move away from fossil fuels as a fiduciary duty to avoid large future losses, said Campanale. n nCurrent economic models can give estimates of losses that look precise but which the scientists said were wildly optimistic. “Some are saying we’ll have a 10% GDP loss at between 3C and 4C degrees [of global heating], but the physical climate scientists are saying the economy and society will cease to function as we know it. That’s a big mismatch,” Abrams said. n nLaurie Laybourn, at the Strategic Climate Risks Initiative, said: “We are currently living through a paradigm shift in the speed, scale and severity of risks driven by the climate-nature crisis. Yet many regulations and government actions are dangerously out of touch with reality.”
