Economic-climate strain

The intersection of climate change and economic stability has become an urgent concern, particularly for low-income countries like Pakistan. Recent natural disasters and extreme weather events have wreaked havoc on economies worldwide, highlighting the devastating impact of climate change. The economic damage caused by these events varies significantly depending on the vulnerability of different regions, the resilience of infrastructure, and the effectiveness of climate action.

Historically, scientific evidence suggested that a 1°C rise in global temperature could result in up to a 3% loss in global GDP. However, a new report by the National Bureau of Economic Research (NBER) paints a much grimmer picture of a staggering 12% decline in global GDP from the same temperature rise. This alarming figure equates the economic damage from moderate global warming to that of a major domestic war. This leads to capital depreciation and a decline in labour productivity which, in turn, reduces overall economic productivity. While climate change is often treated as an external factor in economic modeling, there is evidence of reverse causality, where past economic growth contributes to future temperature increases. This feedback loop is particularly damaging for low-income countries, which are already more vulnerable to the impacts of climate change.

For nations like Pakistan, the challenge lies in reconciling the need for economic growth with the imperative of decarbonisation. Transitioning to a low-carbon economy and pursuing green industrialisation are critical for meeting global net-zero targets, yet economic growth remains essential for generating opportunities and alleviating poverty. Striking a balance between these objectives is complex, requiring nuanced and strategic policy interventions. Policymakers in low-income countries face an uphill battle. The delicate task of crafting a middle path between decarbonisation and economic growth will demand both innovation and pragmatism.