By the end of this century, climate change may not just rewrite weather patterns and redraw coastlines—it could reach into wallets everywhere. A drought in India might send food prices soaring in Africa. A U.S. heatwave could rattle supply chains across Europe. Until now, economic models have treated nations like self-contained islands, untouched by climate chaos unfolding elsewhere. A new study published in Environmental Research Letters, also looks at these connections.

The study produces a stark economic forecast: if global temperatures rise by 4 degrees Celsius by 2100, the average person could be 40 percent poorer. Even a more modest 2°C rise—just above the 1.5°C goal of the Paris Agreement—could cut global income per person by 16%. Our current trajectory puts us somewhere towards 3°C rise.

We Were Looking at It Wrong

Climate change is a strikingly complex issue, and modeling its effect is never easy. But when it comes to the mix between climate and economics, things get particularly murky. Researchers usually use Integrated Assessment Models (IAMs) to untangle some of these effects. These models, however, often assumed that only local weather influenced local economies.

But as we all know, what happens in one side of the globe can affect many other regions.

“Because these damages haven’t been taken into account, prior economic models have inadvertently concluded that even severe climate change wasn’t a big problem for the economy – and it’s had profound implications for climate policy,” Dr. Timothy Neal, lead author of the study and a researcher at the University of New South Wales told Daily Mail.

The new research aimed to correct that oversight. Neal and his team took a widely-used economic model and updated it to account for the global impacts of extreme weather. The result: a drastically more sobering picture of our financial future.

How This Works

Climate scientists have long known that averages hide extremes. A two-degree increase in global temperature might sound manageable—until you realize it could mean regular 45°C heatwaves in cities that were once temperate. A two-degree increase doesn’t mean that all days are two degrees hotter, it also brings far more extreme weather.

Economists, however, usually work with coarse averages: national-level temperature and rainfall, year by year. These inputs miss the economic consequences of climate extremes, and these extremes are crucial for a globalized economy.

Neal’s team re-ran three influential models—developed by researchers including Marshall Burke, Matthew Kahn, and Max Kotz—that link historical weather data with changes in economic growth. But this time, they added the global average temperature and precipitation into the equations. They ran 2,500 simulations using 22 different climate models and compared a worst-case emissions scenario to a more moderate path.

In model after model, including global weather consistently magnified the damage.

Without global weather, the Kotz model estimated a 2100 GDP loss of 11%. With it, the figure rose to 40%. The Burke model jumped from 28% to a staggering 86%. The Kahn model, however, projected a more modest jump in global GDP losses—from 4% to 19%.

A Recalibration for Climate Policy

These numbers are huge. We’re talking about the global economy taking a big hit. In fact, this hit is so big that many climate measures will actually end up saving money rather than costing money.

Herein is the big importance of this study: when we make our plans for the future, we need to consider the real cost of climate change.

For instance, the researchers input the new findings into the DICE model (or Dynamic Integrated Climate-Economy model), which integrates climate science, economics, and carbon cycle dynamics to assess the costs and benefits of climate policies.

When they input the new results, suddently, it became more advantageous to take urgent measures to reduce global warming from 2.7°C to 1.7°C—aligning with the Paris Agreement goal.

In other words, if policymakers take the economic risks of global climate impacts seriously, they’ll need to act far more aggressively.

A Call for Synthesis

The study’s findings are consistent with other recent warnings. A 2023 analysis by the Potsdam Institute for Climate Impact Research estimated that climate change could shave off nearly 19% of global income over the next 25 years. The report projected that damages from climate-related hits to infrastructure, agriculture, and public health will cost $38 trillion per year by 2050—and climbing.

Ultimately, the study is a call for interdisciplinary collaboration—between climate scientists who study weather extremes and economists who try to map them onto human systems.

If we take these findings seriously, we’ll need to rethink not just our climate targets but the very models we use to guide them. And the next time an extreme weather event rattles a distant nation’s economy, we may recognize it for what it is: a ripple in a very connected—and very vulnerable—global system.

“Retooling economic models to account for extremes in your part of the world and its impact on supply chains feels like a very urgent thing to do,” Prof Andy Pitman, a climate scientist at UNSW and co-author of the research told The Guardian. “Countries can fully cost their economic vulnerabilities to climate change and then do the obvious thing—cut emissions.”