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Teaching activity

In the News Teaching Activity – is climate change a consequence of information failure? (May 2024)

Elizabeth Veal

2nd May 2024

Last month the Potsdam Institute for Climate Impact Research (PIK) published a report that found that the costs of not reaching net zero could be $38 trillion by 2050, far higher than the costs of trying to reach it.

A study published in "Nature" last month revealed that even with drastic CO2 emission reductions, the global economy faces a likely 19% income decrease by 2050 due to climate change. This impact surpasses the costs of mitigating warming to two degrees by sixfold. The Potsdam Institute for Climate Impact Research (PIK) found that changing climatic conditions would significantly reduce economic growth, particularly affecting regions like South Asia and Africa. By 2100, global losses could reach 60%, emphasising the urgent need for emission cuts and adaptation policies. The study also highlighted the disproportionate burden on less-responsible, less-resourced countries – it urges a faster transition towards renewable energy to avert catastrophic consequences.

38 trillion dollars in damages each year: World economy already committed to income reduction of 19 % due to climate change — Potsdam Institute for Climate Impact Research (

1 According to the article, why does climate change mean that global income is likely to be 19% lower by 2050?

2 The report suggests the cost of not getting to net zero is far worse than the cost of pursuing net zero policies. In what ways might information failure make it harder to achieve net zero?

3 Using a diagram, show how information failure could contribute to climate change. Apply to a relevant market of your choice.

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Elizabeth Veal

Liz has taught Economics for over 25 years, including several years as Head of Economics at leading schools.

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