The economic cost of climate change: approximately $38 trillion USD in annual losses around 2049 – roughly $4,600–$4,750 per capita

The Economic Cost of Climate Change

The economic “cost” of climate change: approximately $38 trillion USD in annual losses around 2049 – roughly $4,600–$4,750 per capita

In brief: According to a study titled The economic commitment of climate change published in the journal Nature (PDF), due to the already “locked-in” global warming, the world economy will suffer an average annual loss of $38 trillion USD around 2049, with global average incomes being 19% lower than they would be in a world without climate change. This annual damage is roughly six times the cost of implementing the emission reduction measures needed to stay on the 2°C pathway. The Potsdam Institute released an update (August 2025) suggesting the global average income reduction is closer to 17%, with the economic cost at $32 trillion dollars annually. Even by this revision, the damage is still 5 times the cost of climate protection. The core message remains unchanged: inaction is more expensive than action. The economic damages caused by climate change are significant by mid-century and exceed the costs of mitigation. They are primarily driven by temperature changes and disproportionately affect low-income regions with low historical emissions. These findings are broadly consistent with the wider body of evidence on the magnitude of the economic impacts of climate change and the benefits of emission reduction (1, 2, 3, 4, 5).

The study uses a so-called committed damage model to show that processes already set in motion by past emissions are generating irreversible economic impacts. The models indicate that the impacts projected through 2049 differ significantly between future emission scenarios – meaning the damage is already “locked in”.

The economic cost of climate change: approximately $38 trillion USD in annual losses around 2049 – roughly $4,600–$4,750 per capita The image shows a world map indicating income change relative to an economy without climate change: the greatest losses are shown in red, primarily in South Asia, Africa, and South America, while some northern regions (blue) show minor gains.

What does this mean per capita?

  • $38 trillion USD / year divided by ~8.0 billion people ≈ $4,750/person/year.
  • Using the latest UN estimate (8.2 billion people in 2024), $38 trillion / 8.2 billion ≈ $4,630/person/year.
  • According to the 2025 revision: $32 trillion / 8.2 billion ≈ $3,900/person/year.

This means that every single person incurs an “invisible climate tax” of several thousand dollars per year – and most people have never even heard of it.

Key takeaways from the Nature study

  • “Committed” Damages: The warming already built into the system, even without further emissions, will cause massive losses to the global economy every year in the medium term. The central estimate is an average income reduction of 19% (later 17%) around 2049.
  • Annual loss in USD: $38 trillion USD/year (in 2005, purchasing power parity adjusted, “international” USD), revised to $32 trillion USD/year.
  • Inequality: Africa and South Asia suffer the largest proportional losses, while North America and Europe experience a much smaller percentage decline. The revision suggests these inequalities have become even more pronounced.
  • Damage vs. Cost: The damages are ~6x (revision: ~5x) larger than the mitigation costs of staying on the 2°C path. The price of inaction is higher than the price of action.

The process is already underway: Cost per ton of CO₂

The damages are not only apparent in 2049 – they are already measurable today. According to various studies, the social, economic, and ecological damage cost of emitting 1 ton of CO₂ is currently about $1300 USD and is continuously rising. This value – the so-called Social Cost of Carbon (SCC) – shows how much damage a single ton of emissions causes in the world.

The bottom line: It doesn’t matter whether we examine the damages as global GDP loss, annual aggregated loss, or per-ton social cost – the numbers align. Every approach leads to the same conclusion: continuing emissions is economically irrational.

Why is this important for the voluntary carbon market (VCM) and carbon credits?

If the social cost is $32–38 trillion USD annually, or $1300/tCO₂, then every ton of CO₂ not emitted represents real, quantifiable economic benefit. The VCM:

  1. Directs capital to where CO₂ reduction is cheapest – this accelerates the spread of renewables (e.g., solar PV) and energy efficiency investments.
  2. Creates demand for climate solutions, leading to economies of scale and price drops, particularly in the solar-wind-storage trio.
  3. Makes the burden sharing fairer by providing resources also where the damage is greatest but capacity to invest is lowest.

The study’s main message: if damages multiply exceed mitigation costs, then the VCM is not a luxury, but a rational insurance policy.

What does this mean for the reader and policymakers?

  • Communication –> Let’s state it clearly: the cost of inaction is $4–5 thousand dollars per person per year, and $1300 per ton. Everyone needs to know this number.
  • Policy and capital flow –> Public and private resources, including the voluntary carbon market, are crucial for accelerating rapid decarbonization – because it’s cheaper to prevent damage than to pay for it.
  • Justice –> The damages disproportionately affect the least responsible regions; credit-based financing can help accelerate the spread of renewables where the benefit is greatest and the capacity to bear the cost is smallest.

The message of the Nature study is crystal clear: if the price of climate damage is multiples of the mitigation costs even on an annual basis, and is already around $1300 per ton today, then every ton of CO₂ not emitted is a saving, not a cost. The carbon market and credits accelerate the spread of clean energy and open the path to energy independence for increasingly broader segments of society.

Source: Adapted from ClimeNews