Human civilisation has made significant progress, but not without environmental costs. The pursuit of rapid economic growth has presented nations with a long-overdue cheque, and the figures are mind-boggling. According to the Adaptation Gap Report published by UNEP in 2023, the global adaptation finance gap as of present stands at USD 194–366 billion per year, highlighting the mismatch between needs and availability. Projections from the UN Global Policy Model (UN GPM) indicate that developing countries will require about USD 1.1 trillion annually by 2025, rising to USD 1.8 trillion by 2030. The mounting gap threatens local resilience, compelling developed nations to negotiate for equitable and just finance to safeguard against the wrath of climate change.
Moreover, a 2020 McKinsey report estimated that rising temperatures could impact India’s Gross Domestic Product (GDP) by 2.5–4.5% by 2030, primarily due to reduced outdoor working hours. Similarly, the ESCAP Asia-Pacific Disaster Report in 2022 projected that the country would require an annual investment of up to 1.7% of GDP to mitigate flood-related threats. Such studies confirm the macroeconomic repercussions, but their approaches largely remain siloed, concentrating on major stressors and their isolated effects. While estimating standalone impacts certainly informs targeted interventions, it falls short of revealing the full, interconnected damages inflicted on the whole macro-economic structure, jeopardising the equilibrium of the economy. As the planet gets hotter, capturing the direct and indirect impacts spilled across sectors becomes vital.
The cumulative impacts of direct and indirect economic impacts across economic sectors such as electricity, water supply, services, infrastructure, human health, and environmental services like biodiversity and ecosystem services remain grossly under-researched, despite experiencing substantial losses and damages. Additionally, these impacts are not isolated—they work in tandem across sectors like agriculture, manufacturing, services, and construction, India’s economic backbone. This gap translates into a lack of a comprehensive and holistic economy-wide assessment of the cumulative impact of all major stresses spanning both marketable and non-marketable services. For instance, floods can disrupt utilities, displace communities, thereby reducing the availability of workers, and damage infrastructure, ultimately leading to reduced output. Moreover, floods are a seasonal occurrence; impacts arising from other seasonal occurrences, like rise in temperatures and variability in precipitation levels, can result in heat stress, droughts, and sea level rise, exacerbating losses that contribute significantly to the overall economic losses.
Compounding the problem, the studies employ varied models and scenarios, leading to methodological fragmentation. Adopting a suitable methodology from a diverse set of tools is akin to finding a needle in a haystack, as no approach offers a standardised framework to assess the holistic picture. The challenge is further amplified by scarce and outdated high-resolution data for macroeconomic indicators and climate variables, forcing analysts to use proxy data and global datasets that reduce precision and fail to capture and estimate credible, national specific losses.
This complex set of obstacles can weaken the position of developing nations in COPs’ negotiations on climate finance due to a lack of credible and evidence-backed national-level estimates on the economic impacts of climate change. Without an adequate framework to assess the aggregate risks across all the impact pathways and sectors, deducing the increasing cost of inaction becomes arduous and a vain attempt, hindering accurate estimation of climate finance needs.
In light of South Asia emerging as highly vulnerable to climate change than the rest of the world, assessing the degree to which the communities and immobile assets are vulnerable to climate change becomes imperative to support and contribute to the UNDP’s Goal 13, focusing on climate action. Systematic identification of transmission mechanisms through which climate risk manifests, along with sound estimation of marginal impacts, would form a critical step to evaluate the true cost of adaptation. Integrating the sensitivities of economic impacts with variability in climatological parameters in the process will provide a nuanced framework for estimating long-term economic consequences of climate change and inform the decisions of policymakers by highlighting key sectors highly susceptible to climate stresses.
A recent study conducted at ICRIER aimed to estimate the economic impact of climate change through five stresses, namely rainfall variability, droughts, floods, heat stress, and sea level rise, on various sectoral pathways. The analysis quantified the risks of the five stresses, channelled through fourteen impact pathways reflecting both economic and non-economic sectors, capturing sectoral economic losses and their aggregated impact on the country’s output. The exercise provides a nuanced framework for estimating long-term economic consequences of climate change. It also informs decision-making done by policymakers by highlighting key sectors highly susceptible to climate stresses.
As climate risks continue to hold the economy in its tight grip, evidence-backed frameworks are essential to estimate both current and projected costs of adaptation, thereby revealing the true scale of the adaptation finance gap. Crafting an integrated approach would not only determine climate risks that trigger insurmountable damage but would also help in identifying regions exposed to climate hazards, informing region-specific adaptation strategies.
This, in turn, will enable resource-constrained nations like India to strengthen their position in COP30 negotiations for fair, equitable and timely finance to scale up adaptation efforts. Climate change is not just an environmental threat, but an economic crisis, and to secure a climate-resilient future, India must lead with evidence, advocate with purpose, and mobilise finance that turns adaptation from ambition into action.
(Views expressed are the author’s own and don’t necessarily reflect those of ICRIER.)
