Climate Change's Profound Impact on Economic Growth: UNAM

The constant fluctuations in temperature and precipitation, consequence of climate change, are generating adverse effects on the country's economic growth, which will worsen toward the end of the 21st century if urgent measures are not taken, emphasized specialists from UNAM’s Economics Research Institute (IIEc)

During the 2024 Seminar on Research Advances (SAVI), Armando Sánchez, Director, IIEc, pointed out that economic growth projections for Mexico are not promising when considering projected climate scenarios. The Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report (AR6) outlines five future climate change scenarios by 2100 based on humans' ability to curb greenhouse gas emissions (GHG) in the upcoming years.

Scenarios range from the most optimistic to the most dire. In the first scenario, global CO2 emissions hit net zero by 2050, averting the worst impacts of climate change, with temperatures stabilizing at around 1.4°C by the century's end. This is the only scenario that aligns with the Paris Agreement’s goal of keeping global warming to around 1.5°C above pre-industrial levels. Conversely, the worst-case scenario foresees a doubling of current CO2 emissions by 2050, propelling a 4.4°C rise in global temperatures by 2100, fueled by rapid economic growth reliant on fossil fuels and energy-intensive lifestyles.

The results of Sanchéz’s research published in the book, Effects of Climate Change on Economic Growth in Mexico, highlight that the impact of environmental degradation will manifest with greater intensity in some states due to the heterogeneity between regions, the vulnerability of the population, and the levels of investment and employment in each entity. "The impacts of climate change vary between regions, and less developed communities have generally been the most vulnerable to the onslaught of extreme events," he said.

Sánchez noted that there is a historical relationship between temperature, per capita gross domestic product (GDP), and growth rate, where an inverse relationship between extreme weather events and economic activity is observed; that is, higher temperatures lead to lower per capita income. Moreover, the director emphasized the negative effects of climate change on the primary sector. "We all know that activities such as agriculture, livestock, or fishing are closely associated with temperatures, which have become a necessary input for production," he argued.

Reports from the National Water Commission (CONAGUA) indicate that 72.3% of the national territory is currently experiencing some level of drought, particularly affecting the agriculture sector, as reported by MBN. At the regional level, FAO data underscores that droughts account for 82% of the observed losses in the agricultural sector worldwide. Latin America is one of the most affected areas by this phenomenon, with damages amounting to US$13 trillion.

Sánchez emphasized that global warming also has negative impacts on the industrial, commercial, and service sectors, although in these cases, the main repercussions of extreme events are related to labor productivity. In this regard, a study performed by S&P Global underscores that worker productivity across the supply chain has been shown to decline when temperatures exceed certain levels. In the United States, different sectors have experienced gradual reductions in work hours beyond temperature thresholds ranging from approximately 27.2°C to 28.6°C. In July 2023, Texas and Arizona exceeded these thresholds, resulting in a total loss of over 13.5 million work hours in the private sector, particularly affecting leisure, hospitality, construction, and transport services segments. Similarly, in Latin America, the loss of labor productivity due to heat stress could reach 10% in some countries, directly affecting the region's growth potential, as shown in a study by the Economic Commission for Latin America and the Caribbean (CEPAL).

Sánchez highlighted that according to his research, when there is a 1% increase in temperature, the reduction in national economic growth can range from 0.77 to 1.76%. This means that by the year 2100, the temperature variation could result in a reduction of the country's per capita GDP between 1.96 and 2.03%. Similarly, the change in precipitation could halt growth between 1.03 and 1.66% for the same period, he added.

The director stressed that it is necessary to implement policies aimed at reducing GHG emissions globally, for environmental protection purposes and with the intention of reducing the negative impacts on economic growth, especially to protect the most vulnerable populations. In this context, he proposed implementing mitigation measures, including the execution of a territorial ecological reordering program, improving solid waste management, promoting sustainable forestry plans, and implementing agroforestry and silvopasture systems.