Impact of climate change on global economy: A comprehensive review

doi:10.1016/j.regsus.2025.100274

Abstract

Abstract:

Climate change has emerged as an important global issue, primarily driven by human activities, affecting ecosystems, societies, and economies worldwide. This review employed a comprehensive narrative analysis that incorporates expertise from policy studies, environmental science, and economics. Targeted keywords are used to systematically search major academic databases. This article explores various aspects of climate change, economic consequences, and the evolving discourse on climate risk. It addresses the association between climate change and several economic variables, such as gross domestic product (GDP), foreign direct investment (FDI), and financial markets. The review highlights the complex relationship among physical risks, transition risks, and approaches to cope with climate change. It examines global climate policies such as the Kyoto Protocol and Paris Agreement. This study also investigates climate risk assessment models like Integrated Assessment Models (IAMs) and how they help understand the economic effect of climate change. Moreover, it explores ways to adapt to and reduce climate change, such as carbon taxes and subsidies. This review focuses on the critical importance of instruments like the Climate Action Tracker in evaluating national and global climate change responses, which serve as a framework for assessing policy effectiveness and progress toward emission targets. By integrating different viewpoints from economics, environmental science, and governance, this review underscores the value of coordinated global action to address the challenges posed by climate change.

Key words: Climate change, Foreign direct investment (FDI), Financial markets, Integrated Assessment Models (IAMs), Low-carbon economy, Climate Action, Tracker

Mahalingam Santhosh KUMAR, Narasimabhrathi Venkatesa PALANICHAMY, K. M. SHIVAKUMAR, Mani CHANDRAKUMAR, Muthuswamy KALPANA, Dhandapani MURUGANANTHI. Impact of climate change on global economy: A comprehensive review[J]. Regional Sustainability, 2025, 6(6): 100274.

Figures/Tables 7

Fig. 1.

Fig. 2.

Fig. 3.

Table 1

Comparative overview of key climate policies adopted across different regions around the world."

Climate policy	Year	Objective	Reference
Kyoto Protocol	1997	Reducing greenhouse gas (GHG) emissions	Occhipinti and Verona (2020)
Clean Development Mechanism	2001	Encouraging emission reduction projects in developing countries	Stahlke (2020)
European Union Emissions Trading System	2005	Creating a market for trading GHG emission allowances	Flachsland et al. (2020)
Copenhagen Accord	2009	Pledging to limit global temperature rise below 2.00°C	Maslin et al. (2023)
Cancun Agreements	2010	Addressing climate change through mitigation and adaptation actions	Di Pietro Paolo (2020)
Doha Amendment	2012	Strengthening Kyoto Protocol commitments	Rossati (2021)
Warsaw International Mechanism for Loss and Damage	2013	Addressing loss and damage associated with climate change impacts	Janzen et al. (2021)
Lima-Paris Action Agenda	2014	Mobilizing climate action at all levels	Jernnäs and Lövbrand (2022)
Paris Agreement	2015	Limiting global temperature rise below 2.00°C	Höhne et al. (2015)
Marrakech Partnership for Global Climate Action	2016	Enhancing climate action from various stakeholders	Bäckstrand and Kuyper (2024)
Talanoa Dialogue	2017	Facilitating open dialogue on climate action	Kirsch (2021)
Katowice Climate Package	2018	Finalizing guidelines for the Paris Agreement implementation	Havukainen and Kahiluoto (2021)
Madrid Climate Change Conference	2019	Addressing outstanding issues under the Paris Agreement	Streck (2020)
European Green Deal	2019	Achieving climate neutrality by 2050	Wolf et al. (2021)
United Kingdom’s Net Zero Target by 2050	2019	Achieving net-zero GHG emissions by 2050	Dixon et al. (2022)
United States’ Rejoining the Paris Agreement	2021	Reinstating commitment to the Paris Agreement	Kitetu and Ko (2022)
Conference of the Parties (COP) 26 Glasgow Climate Pact	2021	Accelerating global climate action and adaptation	Mountford et al. (2021)
COP 28 Dubai	2024	Transition away from fossil fuels to renewables such as wind and solar power	Icaza et al. (2024)

Table 1

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Fig. 5.

Fig. 6.

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