Economics of climate change and cost of inaction

Expected Outcome

Project results are expected to contribute to some of the following expected outcomes:

• A more robust understanding of the costs of climate inaction and their distribution, accounting for climate change impacts, foregone co-benefits such as health and biodiversity related, and increased adaptation needs, stimulating higher levels of climate ambition.
• Greater consistency in how socio-economic and physical science disciplines address climate change with enhanced inter- and transdisciplinary collaboration leading to improved, more realistic and more context-specific, regionally differentiated assessments of socio-economic impacts of climate change, and tailored tools to better inform strategic decisions on climate action, security and resilience by public and private actors.
• Knowledge on the interactions between climate change impacts, climate action and global and regional economic performance is advanced. More clarity is gained on the implications of climate change and climate policies on European competitiveness, economic security and strategic autonomy, with enhanced assessment of opportunities, risks, benefits and costs for the EU economy and citizens.
• Best available evidence and policy recommendations are made available in a timely manner and effectively transferred to inform the Paris Agreement, European Climate Risk Assessments (EUCRA), the European Climate Adaptation Plan, the Preparedness Union Strategy, the Clean Industrial Deal, IPCC, IPBES and other initiative.

Scope

As emphasized by the IPCC, it is urgent to better understand the benefits and opportunities associated with deep, rapid and sustained mitigation and accelerated adaptation action to inform strategic decisions. Comprehensive assessments of the socio-economic impacts of climate change are essential for this, however, current approaches face significant challenges with a wide uncertainty in global damage estimates, fragmentation, lack of comparability across methodologies, and reliance on extrapolation from historical data, increasingly unrealistic in the context of current unprecedented changes in the climate system.

Actions should develop and enhance models, methods, and tools to improve the understanding of future socio-economic costs of climate inaction (for the purpose of this topic defined as insufficient, or delayed action), advancing novel approaches and frameworks to address the limitations in existing methodologies, integrating latest scientific evidence, diverse data sources and applicable to various conditions and contexts. In this context, actions are encouraged to leverage emerging digital capabilities, including, if appropriate, those developed under initiatives like Destination Earth. Research should account for the full spectrum of climate impacts, such as those from extreme and low-probability high-impact events and the consequences of trespassing Earth system tipping points, to ensure more comprehensive and accurate assessments. Cascading and compound effects as well as non-market impacts (e.g. health, biodiversity and ecosystems, migration) should be considered. Actions should also contribute to rethinking discount rates and damage functions to better reflect the long-term uncertainty of climate impacts and their implications.

Actions should assess foregone co-benefits and missed opportunities of climate inaction, and their distribution, ranging from health-related gains to economic benefits like business and industrial opportunities, job creation, energy and economic security, innovation and lower costs, as well as environmental and social improvements such as from biodiversity conservation, and reduced inequalities. They should assess increased adaptation needs and costs associated with inadequate mitigation, accelerated climate impacts, lost resilience, crossing of adaptation limits as well as the impact on public budgets[1]. To provide the full picture, the cost of climate inaction should be compared with the cost of ambitious mitigation and adaptation.

Actions should emphasise treatment of uncertainty, ethics, inequality and justice in the economic analysis of climate change. They should explore approaches more compatible with planetary boundaries, going beyond traditional welfare and cost-effectiveness models.

This topic requires interdisciplinary collaboration between physical scientists, economists and other relevant SSH disciplines. Actions should include a process of co-design with stakeholders (e.g., representatives of governments, public administrations, such as civil protection competent authorities, or the private sector) to support uptake of the results.

Proposals are expected to address only one of the following priority areas, which should be clearly indicated:

Area A: Global

Analysis should be global in scale, while also providing regionally resolved insights to enable comparisons across world regions, distinguishing between developing and developed, and duly reflecting diverse circumstances and contexts. International cooperation is generally encouraged and specifically required with low and lower/upper-middle-income countries[2] – particularly major GHG emitters[3] such as China (contributing to the EU-China Climate Change and Biodiversity (CCB) flagship initiative[4]), India, Brazil and Indonesia. It should enable delivery of robust, representative and widely accepted estimates, and support scientific capacity building where appropriate.

Area B: The EU

Actions should focus on the EU. Particular attention should be given to consequences for EU industrial performance, security of supply and strategic autonomy.

All projects funded under this topic are strongly encouraged to collaborate and envisage clustering activities together and with other relevant projects in and outside of Horizon Europe.

[1] For example, the proposals could build upon the joint World Bank and European Commission reports on disaster and climate resilience: Economics for Disaster Prevention and Preparedness

[2] https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lendinggroups; standard Horizon Europe funding rules apply - only participants from some of these countries are automatically eligible for funding

[3] https://edgar.jrc.ec.europa.eu/report_2024?vis=ghgtot#emissions_table

[4] International cooperation with China in research and innovation