A new study has found that if the world warms by 4°C, the average person could be 40% poorer, underscoring the severe economic threat posed by accelerating climate change.

Dramatic Underestimations In Economic Forecasts

Conventional economic models have long underestimated how rising global temperatures could erode human wealth. New research led by Dr. Timothy Neal from the University of New South Wales reveals that if global temperatures climb by 4°C, the economic fallout could be nearly four times worse than previous projections.

These findings challenge the foundation of widely used integrated assessment models (IAMs), which guide how much governments invest in emissions reduction. According to the study, even if global warming is kept to 2°C, global GDP per capita could still fall by 16%—far more than the 1.4% many earlier models had suggested.

Supply Chains: The Invisible Fault Line

The most profound shift in this study is its focus on the cascading supply chain disruptions triggered by extreme weather events. Traditional models often localize climate impacts, failing to capture how a flood in one region can paralyze production lines across continents.

“In a hotter future, we can expect cascading supply chain disruptions triggered by extreme weather events worldwide,”said Dr. Neal, warning of widespread economic fallout far beyond the epicenters of climate disasters.

Professor Andy Pitman, a co-author of the study, emphasized that “It’s in the extremes when the rubber hits the road. It isn’t about average temperatures”. The world is not just warming—it’s destabilizing the systems we rely on to move goods, feed populations, and maintain global trade.

The Myth Of Climate Winners

Some have argued that northern nations like Canada, Russia, or parts of northern Europe might benefit from moderate warming. But the study debunks this narrative, stressing that the modern economy is deeply interconnected. No country stands alone.

“Global heating will hit countries everywhere,” said Neal. Even if certain regions become agriculturally more viable, the breakdown of global trade networks will outweigh localized gains.

This point is echoed by Prof. Frank Jotzo from the Australian National University, who noted that earlier models assumed a seamless substitution effect: if one region suffers, another steps in. “That’s simply not how the real world works,” he said.

A Call To Retool Economic Thinking

The consequences of faulty climate modeling go beyond bad forecasts—they risk reinforcing the idea that climate risks are distant, slow, and manageable. A January report from the Institute and Faculty of Actuaries criticized existing models for failing to consider tipping points, sea level rise, geopolitical instability, and human health impacts.

Mark Lawrence, a former financial risk manager turned climate risk academic, found the new study’s results credible—and potentially conservative. “If anything, I believe the economic impacts [of climate change] could be even worse,” he warned.

Climate Action Is Economic Policy?

Behind the data is a simple truth: avoiding severe economic losses means cutting greenhouse gas emissions now. The failure to update economic models is not just an academic oversight—it’s a blind spot that delays urgently needed action.

“Retooling economic models to account for extremes and global interdependencies feels like a very urgent thing to do,” said Prof. Pitman. It’s no longer just about reducing emissions for the planet’s sake—it’s about preventing massive global poverty.