A groundbreaking economic study published in the Quarterly Journal of Economics finds that each degree Celsius of warming reduces global GDP by more than 20% in the long run — a cost estimate that dwarfs previous calculations and suggests the social cost of carbon exceeds $1,200 per ton.
To put that in context: the U.S. government currently uses a social cost of carbon around $50 per ton for policy decisions. This new analysis suggests we're underestimating climate damages by a factor of 24.
The social cost of carbon represents the economic damage from emitting one ton of CO₂. It's the number that should, in theory, guide carbon taxes, regulatory decisions, and infrastructure investments. Get it wrong, and you systematically underinvest in climate solutions.
What makes this study different from previous estimates? The methodology accounts for long-run economic effects, not just immediate impacts. Earlier models tended to focus on direct damages — crop losses from drought, property damage from storms, healthcare costs from heat waves. Those are real costs, but they miss the deeper economic mechanisms.
Persistent warming affects productivity, innovation, capital accumulation, and human development over decades. A farmer who loses crops this year might lose their farm in five years, taking their knowledge and capital out of the economy. A region that experiences chronic heat stress doesn't just lose output today — it loses the investments that would have built tomorrow's economy.
The analysis also captures non-linear effects. The first degree of warming might reduce agricultural yields in some regions while potentially benefiting others. But by the third or fourth degree, you're looking at fundamental disruptions to water systems, mass migration, and breakdown of economic coordination.
Business-as-usual warming — the path we're currently on — implies a present welfare loss of more than 30%. That's not a prediction for the year 2100. That's the current value, discounted to today, of all future damages we're locking in.
Perhaps most striking: the study finds that unilateral decarbonization is cost-effective for large countries like the United States. Even without global coordination, even if other countries don't act, the domestic benefits of avoiding climate damages exceed the costs of transitioning to clean energy.
That's a significant policy finding. Much of the political resistance to climate action rests on the "free rider" problem — why should we bear costs when other countries might not? If the domestic benefits alone justify action, that argument collapses.
Now, the inevitable caveats. Economic models of climate damages involve enormous uncertainties. We're projecting decades into the future, across complex systems, with limited historical precedent for the temperatures we're approaching. Different modeling choices — discount rates, damage functions, adaptation assumptions — can substantially change results.
But uncertainty cuts both ways. Just as damages might be lower than estimated, they could also be higher. We could be missing tipping points, cascading failures, or fundamental disruptions we haven't imagined. Risk-weighted decisions should account for that tail risk.
The study also reinforces something climate scientists have been saying for years: delay is incredibly expensive. Every year we emit carbon, we're not just adding to a stock that will eventually be cleaned up. We're committing to long-term warming that compounds economically over decades.
The research published in QJE won't end debates about climate policy. Economics never does. But it provides the most comprehensive accounting yet of what we're actually risking.
The universe doesn't care what we believe. Let's find out what's actually true. And in this case, the economic truth appears far more expensive than we've been willing to admit.
