Climate Change Can Take Big Toll on Asian Economies, Inaction Could Cost More, ADB Report Says

Countries in Asia-Pacific will need to spend big to adapt to climate change. But the cost of inaction could be higher, according to a new report by the Asian Development Bank.

Left unchecked, climate change could punch a 17%-sized hole in the region’s economic growth over the next decades, the Manila-based bank said Thursday.

“The window to stay within the 1.5°C target of the Paris Agreement is rapidly closing,” the ADB said.

The international treaty aims to limit the average rise in global temperatures to that threshold, beyond which experts expect climate change to have increasingly disastrous consequences. In the nine years since the agreement was adopted, inaction has put that goal nearly out of reach, the multilateral bank said.

With greenhouse-gas emissions reaching record highs, nations need to dramatically increase—and immediately start delivering—efforts to get on track for 1.5°C, a United Nations Environment Programme report said last week. Failure to do so will lead to debilitating impacts to economies, the report said.

Asia-Pacific’s position in the climate crisis is a tricky one: it’s both home to some of the most vulnerable economies and a major polluter, contributing over 50% of global GHG emissions.

If emissions breach critical levels, ADB estimates climate change could reduce Asia-Pacific’s gross domestic product by 17% in 2070. Rising sea levels threaten coastal assets and populations, while heat waves would sap labor supply and productivity, and climate-dependent sectors like agriculture, forestry, and fisheries face shocks that will stifle output.

Estimates from the Deloitte Economics Institute calculate that about 75% of Asia-Pacific’s GDP is at high risk of climate disruption. This stands to affect at least half of the world’s labor force, which is in the region and in vulnerable industries. Climate inaction could lead to regional economic losses of about $96 trillion by 2070, the institute said in a report.

Asian countries have made strides toward decarbonising, but just maintaining policies implemented so far will lead to dangerous levels of global warming, the ADB said.

Taking the right type of action won’t come cheap. Estimates for Asia vary widely, in part due to different geographical definitions, but consensus is that funding is well below where it needs to be.

The ADB report estimates Asia-Pacific needs to invest anywhere from $102 billion to $431 billion annually to adapt to climate change. That far exceeds the $34 billion committed over 2021-2022.

Globally, the U.N. calculates the net-zero transition needs $0.9 trillion to $2.1 trillion a year between 2021 and 2050. That “is substantial but manageable in the broader context of the close-to-US$110 trillion global economy and financial markets.”

It remains technically possible to get on a 1.5°C pathway, as solutions like solar and wind power hold promise for fast, sweeping emissions cuts, the U.N. report said.

Getting back on track could be a big boost for Asia-Pacific economies.

The region is well-placed to benefit from the energy transition, the ADB said. It has massive potential for renewable-energy generation and can produce some of the world’s cheapest renewable electricity, it said. Advantages like fast-growing economies, a large workforce and strong manufacturing base equip Asia to develop the technologies needed for global decarbonisation.

That presents a wealth of opportunities for investors.

If governments formulate consistent policies and build climate-oriented financial systems, that can draw the private capital that’s key to plugging the funding gap, ADB said.

Policy uncertainty over could deter investment, particularly in the case of a change of political administrations. Investors hold more sustainable assets when countries adopt climate laws, and misaligned policies reduce incentives for private investors, ADB said.

That is particularly relevant in a year that has seen elections across Asia, including in India, Indonesia and Japan. The upcoming presidential election in the U.S. is in especially sharp focus as the outcome has implications for climate-change efforts.

That’s because of the U.S.’s role as a key player in green innovation and international cooperation on climate commitments and financing, as well as a major trading partner, said ADB principal economist Shu Tian.

Policy uncertainty from a key player can significantly affect the international climate agenda, she said.

“The U.S.’s stance on climate action influences the low-carbon transition through market mechanisms, affecting consumers, suppliers, and investors,” she said. “This, in turn, could impact climate investments across the [APAC] region.”