Why climate change investment pays off

The economic cost of inaction on climate change far outweighs the investment required for proactive measures, says an analysis issued at New York Climate Week by Boston Consulting Group together with Cambridge Judge Business School and the University of Cambridge climaTRACES lab.

“It is important to recognise that mitigation efforts, adaptation measures, and economic impacts are intertwined,” the analysis states, which was co-led by Kamiar Mohaddes, Associate Professor in Economics and Policy at Cambridge Judge and Co-Director of the University of Cambridge climaTRACES Lab.

Comparing 2 scenarios calculates the Net Cost of Inaction

The researchers compare 2 scenarios:

• a continuation of current investment levels in climate-change mitigation and adaptation, leading to a trajectory of a climb in global temperature to around 3°C
• and another scenario in which sufficient mitigation investment is made to limit warming to below 2°C and the world is adapting adequately

“On the basis of recent literature, we calculated the net cost of inaction: the economic impact avoided by limiting warming to less than 2°C and adapting adequately minus the investments required,“ says the analysis, entitled “Why investing in climate action makes good economic sense”.

“By weighing the costs and benefits of mitigation and adaptation, the net cost of inaction creates a powerful economic case for immediate and ambitious climate action.

“The net cost of inaction underscores the urgent need for climate action. Mitigation efforts can directly prevent further global warming and, therefore, limit economic impacts. The degree and timing of mitigation determines not only the overall economic and societal impact but also the amount of adaptation needed.“

How 3 barriers create a gap between climate-change action and ambition

The authors also identify 3 key barriers that have led to a significant gap between ambition and action in tackling climate change:

1. the cost of inaction is not yet fully understood as there is no scientific consensus on economic impacts of climate change, and estimates come with high uncertainty
2. as the net cost of inaction is unequally distributed, climate action is similarly done unequally in a world of limited fiscal space and tight budgets
3. innate human biases toward a short-term focus delay action on long-term challenges

“The reality is that economic impacts and adaptation needs are already tangible in the here and now,” the authors conclude. “It is crucial to implement levers that bridge the action gap, create the necessary shift in policies, and fill the regulatory void.”