Extreme heat could trigger the worst global financial crisis ever seen

Thanks to globalisation, severe heatwaves in one part of the world can cause financial losses in another. Annual losses could reach as much as $25 trillion by 2060 if we don't curb emissions, dwarfing any previous financial crisis.

Without dramatic action to curb greenhouse emissions, even high-latitude countries with cooler climates will suffer devastating, if indirect, financial losses as extreme heat disrupts global supply chains. The result could be the worst financial crisis the world has ever seen.

Burning rainforest in the Brazilian Amazon
DOUGLAS MAGNO/AFP via Getty Images

It is already well known that severe heatwaves have numerous health and economic impacts, including higher mortality rates, preventing people from working outside, destroying crops and disrupting industrial processes. But until now, little research has been done looking at the financial impact of heatwaves in exporting countries on importing countries.

Dabo Guan at Tsinghua University in Beijing, China, and his colleagues modelled the economic risks posed by three different climate scenarios, up to 2060. These scenarios were a future in which the world shifts pervasively to a more sustainable path, a mid-range trajectory and a future where greenhouse gas emissions continue unabated.

In the low-emissions scenario the team found a 25 per cent increase in heatwave days by 2060 compared to 2022 and 600,000 annual heatwave deaths, resulting in total global annual losses of $3.75 trillion, in 2020 prices. The highest-emissions scenario saw more than a 100 per cent increase in heatwave days and more than 1.1 million extra deaths per year by 2060, with total annual losses hitting $25 trillion. For comparison, global annual earnings in 2023 were around $100 trillion.

“No one can be immune from climate change, high-latitude countries will suffer from disruptions of international supply chains,” says Guan, adding that climate events could have impacts that dwarf any previous financial crisis.

The team found that increasingly integrated global supply chains mean the impacts of heat stress are not just confined to specific populations and industries in low latitudes, but extend more widely. In the high-emissions scenario, they found that losses from the indirect effects on global supply chains grow exponentially from 2030, and by 2060 become the major contributor to total losses. This highlights the exposure that even cool climate nations face.

For example, the UK is unlikely to be severely affected directly by temperatures seen at lower latitudes, but severe heat impacts on wheat and coffee bean suppliers in Africa and South America could see drastic falls in supplies of beer or coffee in the UK. These kinds of spillover effects have consequences for global food security, energy and mineral supply, even if wealthier nations can mitigate the direct effects of extreme heat with technology such as air conditioning.

If we continue on a high-emissions scenario, there will be severe consequences, says Guan. “Certainly more casualties, loss of productivity, infrastructure failure and disruptions of international and regional supply chains,” he says. “People will suffer from disruption of electricity, shortage of food or price surges and loss of employment.”

Manfred Lenzen from the University of Sydney, Australia, says the results are in line with expectations of severe climate change. “The world economy is so interconnected that really no one can escape the implications of major disasters elsewhere,” says Lenzen.

Journal reference:

Nature DOI: 10.1038/s41586-024-07147-z

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